Insurance companies are hardly easy to work with, but one sure-fire way to make it harder is to hinder your own credibility and try to take advantage of technicalities in an insurance policy to enrich yourself. Janney v. CSAA1 is a prime example.

In Janney, the insured lost her home in a wildfire. CSAA estimated the actual cash value (ACV) and paid it. Janney then entered into a contract with a contractor to replace the home for about $250,000. The finishes were lower quality, but the house was larger. After signing the contract, Janney obtained another estimate that was about $100,000 higher and demanded CSAA pay the difference. CSAA ultimately paid a revised ACV about $30,000 short of the actual contract price, but still $130,000 lower than the second estimate obtained after entering into the rebuild contract.

When CSAA refused to pay more, Janney filed suit. CSAA quickly learned that Janney finished the replacement home paying the contract price of about $250,000, and cited the standard replacement cost value provision that states CSAA will pay the replacement cost without deduction for depreciation, but no more than the least of the following: the ACV until completion, the policy limit, or the incurred cost to replace the property.

Trying to be creative, Janney argued that CSAA was obligated to pay a higher ACV amount based on the estimate that came in $100,000 higher than her contract price, even though Janney completed the home rebuild at the much lower contract price. The court slammed the door on this immediately because Janney was seeking more than she actually spent. The court quoted a lengthy passage from early California law explaining these three options:

In Conway v. Farmers Home Mut. Ins. Co. (1994) 26 Cal.App.4th 1185, 31 Cal.Rptr.2d 883 (Conway), the court interpreted an identical provision. The court first explained, relying on Hess v. North Pacific Ins. Co. (1993) 122 Wash.2d 180 [859 P.2d 586], that ‘the genesis’ of such provisions was the recognition that an insured covered by a traditional policy, providing only for payment of actual cash value of the property, ‘ ‘might not be made whole because of the increased cost to repair or to rebuild. Thus, replacement cost coverage became available….’ [Citation.]” (Conway, at p. 1189, 31 Cal.Rptr.2d 883.) The court also adopted the Hess court’s interpretation of the various measures of loss settlement:

The first measure, of course, limits the amount available for replacement to policy limits, while the second relates to a theoretical or hypothetical measure of loss: that is, the replacement cost of rebuilding the identical structure as one limit of the company’s liability. This particular limitation does not require repair or replacement of an identical building on the same premises, but places that rebuilding amount as one of the measures of damage to apply in calculating liability under the replacement cost coverage. The effect of this limitation comes into play when the insured desires to rebuild either a different structure or on different premises. In those instances, the company’s liability is not to exceed what it would have cost to replace an identical structure to the one lost on the same premises. Although liability is limited to rebuilding costs on the same site, the insured may then take that amount and build a structure on another site, or use the proceeds to buy an existing structure as the replacement, but paying any additional amount from his or her own funds.

Finally, the third limitation of liability strengthens the requirement that liability of the company does not exist until repair or replacement is made. The purpose of this limitation is to limit recovery to the amount the insured spent on repair or replacement as yet another measure of the loss liability of the insurer. This third valuation method is intended to disallow an insured from recovering, in replacement cost proceeds, any amount other than that actually expended.” [Citation.] (Conway, supra, 26 Cal.App.4th at p. 1190, 31 Cal.Rptr.2d 883, fn. & italics omitted; see also Everett v. State Farm General Ins. Co. (2008) 162 Cal.App.4th 649, 658, 75 Cal.Rptr.3d 812.)

The court, finding no evidence in the record that Janney was not able to replace with a comparable house, held that she was capped at the amount actually spent. While she supplied a declaration stating that the new house was not “as nice” and had some lower quality finishes, it appeared evident to the court that the additional square footage offset this. Moreover, the court found no issue with CSAA’s estimate of the replacement cost and actual cash value payment, noting that even if it was low, CSAA informed Janney that any additional costs incurred could be evaluated later.

Ultimately, the Janney order demonstrates a failed legal theory that was never able to get off the ground, even before a lawsuit was filed because the insured was withholding information and trying to be sneaky. Perhaps the insured was being guided by bad advice elsewhere, but this is undoubtedly a decision CSAA is going to hang in its trophy case and show off to its insurer friends.
1 Janney v. CSAA Insurance Exchange (Cal. Ct. App., Oct. 15, 2021, No. C089534) 2021 WL 4810353, at *13.