In the New York class action suit, Mazzocki v. State Farm, 1 A.D.3d 9 (N.Y. 3rd Dept. 2003), the Appellate Court for the Third Department finally clarified the question regarding overhead and profit in actual cash value and replacement cost value claims.

Plaintiffs in the class action sustained storm damage to buildings on their respective properties and filed claims for the actual cash value of the damage under homeowner’s insurance policies issued by State Farm. State Farm then excluded overhead and profit expenses of a general contractor in calculating the actual cash value. Plaintiffs cited the loss settlement provision in the policy which read:

We will pay the cost to repair or replace buildings…subject to the following: (1) until actual repair or replacement is complete, we will pay the actual cash value of the damage to the buildings, up to the policy limits, not to exceed the replacement cost of the damaged part of the building. . . . Any additional payment is limited to that amount you actually and necessarily spend to repair or replace the damaged buildings. . . .

The issue raised by the Plaintiffs was whether State Farm’s refusal to include overhead and profit in its estimate of replacement cost in the first instance constitutes a breach of the terms of its policies. The court stated:

Actual cash value is payable regardless of whether the property is eventually repaired or replaced. Under New York law, “[t]he determination of actual cash value is made under a broad rule of evidence which allows the trier of fact to consider ‘every fact and circumstance which would logically tend to the formation of a correct estimate of the loss’” (Cass v. Finger Lakes Coop. Ins. Co., 107 A.D.2d 904, 905, 483 N.Y.S.2d (1985), quoting McAnarney v. Newark Fire Ins. Co., 247 N.Y. 176, 184, 159 N.E. 902 (1982).

The court determined that in applying the same logic as in Salesin v. State Farm Fire & Cas. Co., 229 Mich.App. 346, 367, 581 N.W.2d 781, 790 (1998), the term “replacement cost” – as opposed to “actual replacement cost” – in State Farm’s policies can reasonably be interpreted to include profit and overhead whenever it is reasonably likely that a general contractor will be needed to repair or replace the damage. Therefore, the court confirmed that Plaintiffs may bring a breach of contract action when overhead and profit is excluded from an estimate upon proof of the likely necessity of a general contractor’s services in the repair or replacement of their damaged property.

On this glorious day when my New York Yankees signed last year’s NL MVP, Giancarlo Stanton—effectively making them the favorites to win the World Series—I leave you with a quote from Hall of Fame pitcher Whitey Ford, “[y]ou kind of took it for granted around the Yankees that there was always going to be baseball in October.” Good luck Giancarlo and good luck new manager Aaron Boone. Let’s get number 28!