No Replacement Cost Recovery if Property Not Replaced
Spring 2007
Published in Property Insurance Law Committee Newsletter, Spring 2007. Copyright © 2007 by the American Bar Association. Reprinted with permission.
In Todd v. Wayne Cooperative Ins. Co., 819 N.Y.S.2d 179 (N.Y. App. Div. 2006), the Supreme Court of New York, Appellate Division, Third Department, affirmed the trial court’s judgment limiting the insured’s recovery for his dwelling to actual cash value if he did not repair or replace his property.
On March 30, 2002, the plaintiff’s home was destroyed by fire. The property was covered by defendant Wayne Cooperative Insurance Company’s farm owner’s insurance policy. However, the insurer denied coverage alleging, among other things, that the plaintiff had committed arson. The plaintiff commenced suit seeking coverage for the replacement cost of the structure. The plaintiff then moved for summary judgment on the issue of replacement cost if liability was proven. Defendant opposed the motion and argued that even if it were liable, the policy stated that if plaintiff did not repair or replace the property within 180 days, he was only entitled to the actual cash value of the property. The Supreme Court granted the plaintiff’s motion regarding damages, based on an amount stipulated by the parties, but held that, pursuant to the terms of the policy, the defendant’s liability would be limited to the actual cash value of the property until the plaintiff actually repaired or replaced the property.
After a jury trial resulted in a finding of liability on the part of the defendant, the trial court “ordered that if plaintiff replaced the structure and personal property within 12 months, defendant was required to pay plaintiff the replacement cost thereof, up to the limit of its liability, less the amounts of the actual cash values of the structure and property which were also awarded by that judgment.” Id. at 180. The plaintiff appealed the portion of the award limiting his recovery to actual cash value unless he rebuilds or replaces the property.
The Appellate Court found that the trial court “properly determined that plaintiff had the option to seek either the actual cash value for his loss, determined pursuant to the broad rule of evidence, or a settlement of the loss according to the policy’s replacement cost provision.” Id. (citations omitted). The court further noted that under the terms of the policy, replacement cost cannot be awarded without the plaintiff first replacing the property.
The court dismissed plaintiff’s reliance on Zaitchick v. American Motorists Ins. Co., 554 F. Supp. 209 (S.D.N.Y. 1982). In Zaitchick, the insurance company denied coverage for a fire loss, alleging that it had not been accidental. In the subsequent lawsuit, the plaintiffs argued they were entitled to replacement cost. The insurer, however, argued that it was liable only for actual cash value based on the policy term which permits recovery of replacement cost only after actual repair or replacement is completed. The plaintiffs argued that equitable considerations should preclude the insurer from being able to rely on the contractual provision. The court agreed holding “that both case law and equitable considerations render replacement cost the appropriate method of valuing plaintiffs’ damages.” Id. at 217. The court noted that in most cases, the defendant insurance company has paid actual cash value, and the parties are litigating whether additional monies are due under the relevant replacement cost provision, so that the plaintiffs had some money to begin the rebuilding process. In Zaitchick, because the plaintiffs were not paid any amounts, the court determined that the conduct of the defendant insurer “made it impossible for plaintiffs to fulfill the condition precedent [of repairing or replacing the property], and therefore, excuses the plaintiffs from performance of the replacement condition.” Id.
However, the Todd court held that Zaitchick was not applicable “because here plaintiff was entitled to receive the actual cash values for his property and structure which enabled him to commence the rebuilding process.” Todd, 819 N.Y.S.2d at 819. The Court of Appeals of New York has granted the plaintiff’s motion for leave to appeal. Todd v. Wayne Coop. Ins. Co., 859 N.E.2d 922 (N.Y. 2006).
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