Replacement cost coverage – easy to say but does it pay?

If you recall the recent post no disaster assistance for broken dreams, you may also remember the cases discussed in the post were about replacement cost coverage.  Fowler v State Farm also had replacement cost coverage as an issue.

Replacement cost is the amount it would take to replace or rebuild your home or repair damages with material of similar kind and quality, without deducting for depreciation.

Let’s take a closer look at how the issue emerged in the Motion in limine to Preclude Evidence of or Reference to Replacement Cost of Dwelling in Fowler’s case.

Defendant State Farm Fire and Casualty Company (“State Farm”) hereby moves this Court for an in limine order excluding any evidence, testimony, or argument relating or referring to the amount it would cost to replace or rebuild Plaintiffs’ Pass Christian vacation home. As set forth in the accompanying Memorandum of Law, Plaintiffs’ homeowners policy provides that Plaintiffs may recover replacement cost – i.e., the amount actually expended to repair or replace their dwelling (subject to specified limitations) – only “when the repair or replacement is actually completed.” Because it is undisputed that Plaintiffs have not even started to replace or rebuild their dwelling, evidence of the projected cost to rebuild the dwelling is irrelevant and speculative and therefore inadmissible. In such circumstances, Plaintiffs’ recovery under their homeowners policy, if any, is limited to the replacement cost minus normal depreciation, not to exceed the difference between the pre-storm value of the dwelling and the amount they have already recovered under their flood policy.

So, what the Fowlers actually purchased was a policy to reimburse the cost of replacing their vacation home.  Let’s look next, then, at this section of Plaintiff’s Consolidated Response to State Farm’s Motions in limine

In its Motion, State Farm takes the remarkable position that Plaintiffs cannot submit evidence of, let alone recover, replacement costs for their home because Plaintiffs have not yet completed re-building their home. Essentially, State Farm contends that the re-building of Plaintiffs’ home is a condition precedent to recovering replacement costs under the policy. Plaintiffs agree. However, such conditions are waived because State Fann has refused to perform under the contract. Indeed, Plaintiffs had to file this suit to compel State Farm to pay under the wind portion of the policy, and even now, State Fann refuses to pay any amount of money under the wind coverage, even though it has admitted the Plaintiffs’ home sustained $43,006.84 in wind damage.

When one party refuses to perform under the contract, any conditions precedent to be performed by the other party are excused… Here, State Farm has clearly indicated it will not perform under the insurance contract unless and until the jury forces it to.

In the simplest terms, State Farm cannot refuse to pay the funds due and owing under the policy, then insist that Plaintiffs rebuild before they are entitled to sue for recovery of the replacement costs. Most gulf coast residents simply do not have the financial resources to rebuild an entire home to completion without the benefit of the insurance benefits due from their homeowner’s insurer. State Farm could greatly reduce its exposure following hurricanes by simply denying coverage, then insisting that the maximum recovery is the actual cash value under the policy – normally significantly less than replacement costs – simply because the homeowner hasn’t completed rebuilding the home, which they simply can’t afford to do without the insurance proceeds State Farm withholds. Homeowners are not required to do such a vain and useless thing; they aren’t required to incur the expense of rebuilding their home in the hope and expectation that State Farm would then reimburse them for full replacement costs under the policy, particularly where, as here, State Farm has already denied any responsibility under the policy.

Moreover, Plaintiffs are claiming the replacement cost of the home is $713,543.00 and that Steve Saucier and State Farm did not provide sufficient limits to cover the true replacement cost of the home. Although Plaintiffs expressed their unhappiness with their home’s coverage, Mr. Saucier never procured coverage commensurate with the home’s replacement value. Surely State Farm must concede the replacement cost of the home would be probative as to this claim as well. Right?

In other words, the recovery of the total amount of insurance available to the Plaintiffs will not replace the home lost to Katrina; but if they don’t come up with the additional funds necessary to replace their home, the amount they will recover from their replacement cost policy with State Farm will be reduced – increasing the amount they must personally contribute or borrow to replace their property.

Now we move to the Order issued by Judge Ozerden on the 15 motions in limine filed by State Farm.

…It is clear from the face of their homeowners’ insurance policy that Plaintiffs may only recover replacement cost, “when the repair or replacement is actually completed.”

Because it is undisputed that Plaintiffs have not rebuilt their property, evidence of or reference to “replacement cost” is irrelevant and speculative, and therefore inadmissible…The probative value of any such evidence is further substantially outweighed by the danger of unfair prejudice, confusion of the issues, and misleading the jury…

State Farm’s Motion in Limine No. 12 will be granted. Plaintiffs will be prohibited from mentioning, submitting evidence, or eliciting testimony regarding “replacement cost,” or estimating the amount it would cost to replace or rebuild their property.

Judge Ozerden once again fails to support his decision with law, totally ignoring State Farm’s default on there obligations under the policy.  That does not mean his decision was contrary to law, however, only that it was unsupported IMO.

What happens next?  All we know for certain is the Fowlers were in the process of contracting with a builder.

A more urgent question, again IMO, is what happens to those less able to handle the resulting financial disadvantage?  Among the cases in my earlier post were two where the homeowner made the necessary repairs expecting payment from State Farm.  When no payment was forthcoming, these policyholders assigned their right to payment under their policy to their contractor and  jointly filed suit.  In another case in this group, the policyholder served as his own contractor until he ran out of money and could not continue to repair his home.

State Farm is the insurer in all of these cases and all are assigned to Judge Ozerden.  By the time they’re scheduled for trial, it will near or after the fourth anniversary of the storm.

Will the contractor be able to stay in business? Is the partially repaired home a safe place or the only place available other than a shelter? How many on the Coast are living with this level of stress?

Does it really matter these represent only a small percentage of the total claims filed after Katrina? There is no reason for any company to treat its customers like this.  There may not even be an excuse.