After a total loss, insureds who built a replacement house at a different location were not entitled to recover extended replacement cost benefits, because the insureds conceded that they did not spend more than the policy’s stated limit, which the insurer had paid after the loss. (Westmoreland v. Fire Insurance Exchange (2021) 73 Cal.App.5th 269.)
Facts
Robert and Dolores Westmoreland owned a dwelling that was covered under a “Landlords Protector” package issued by Fire Insurance Exchange (FIE). The policy provided coverage for fire loss, with a dwelling coverage limit of $372,000 under “Coverage A.” The policy also provided “Extended Replacement Cost” coverage of up to 125 percent of the Coverage A limit, i.e., $465,000 ($372,000 x 1.25). Thus, the policy contemplated a total of $465,000 ($93,000 over the stated Coverage A limit) that would be available to the Westmorelands as indemnity for repairing, rebuilding, or replacing the dwelling after a covered loss.
The policy required the Westmorelands to rebuild or replace the lost dwelling in order to collect the full replacement cost. More specifically, the policy provided: “When the cost to repair or replace is more than $1,000 …, [FIE] shall pay no more than the actual cash value of the damage until repair or replacement is complete .…” Another policy term stipulated that “covered loss to buildings under Coverage A … will be settled at replacement cost without deduction for depreciation subject to the following: [¶] (1) Settlement under replacement cost will not be more than the smallest of the following: [¶] (a) the limit of insurance under this policy applying to the building; [¶] (b) the replacement cost of that part of the building damaged for equivalent construction and use on the same premises; [¶] (c) The amount actually and necessarily spent to repair or replace the building intended for the same occupancy and use.”
A fire completely destroyed the dwelling in 2015. The estimated cost to rebuild or replace the dwelling was approximately $422,676 (i.e., more than the $372,000 available under the stated coverage limit, but less than the $465,000 available under the extended replacement cost coverage). FIE paid $372,000 (the stated policy limit) to the Westmorelands. Importantly, all parties apparently agreed – at least in the trial court – that $372,000 (the stated policy limit) also was the actual cash value of the dwelling.
The Westmorelands opted to build a replacement house at a different location and did not spend more than the $372,000 that FIE had paid. Nonetheless, the Westmorelands demanded that FIE pay an additional $50,676, which represented the difference between the actual cash value amount ($372,000) and the estimated cost to rebuild the dwelling at the loss location ($422,676). FIE refused, relying on the policy’s loss settlement provisions. The Westmorelands filed suit, but FIE demurred to the complaint on the grounds that, when the Westmorelands built the replacement dwelling, they did not incur more than the $372,000 that FIE previously paid. The trial court overruled FIE’s demurrer.
Holding
The Court of Appeal held that the Westmorelands had failed to state any cause of action against FIE, and that the trial court should have sustained FIE’s demurrer to the Westmorelands’ complaint.
After the 2015 fire, the Legislature amended Insurance Code section 2051.5. However, at the time of the 2015 fire, section 2051.5 provided that, in the event of a “total loss” of an insured structure, an insurer could not limit or deny payment of the replacement costs if the insured decided to “rebuild or replace the property at a location other than the insured premises.” Section 2051.5 also stated that, in such cases, “the measure of indemnity shall be based upon the replacement cost of the insured property and shall not be based upon the cost to repair, rebuild, or replace” at the other selected location.
Former section 2051.5, subdivision (a) provided in part as follows: “If the policy requires the insured to repair, rebuild, or replace the damaged property in order to collect the full replacement cost, the insurer shall pay the actual cash value of the damaged property … until the damaged property is repaired, rebuilt, or replaced. Once the property is repaired, rebuilt, or replaced, the insurer shall pay the difference between the actual cash value payment made and the full replacement cost reasonably paid to replace the damaged property, up to the limits stated in the policy.”
In addition, former section 2051.5. subdivision (c) provided as follows: “In the event of a total loss of the insured structure, no policy issued or delivered in this state may contain a provision that limits or denies payment of the replacement cost in the event the insured decides to rebuild or replace the property at a location other than the insured premises. However, the measure of indemnity shall be based upon the replacement cost of the insured property and shall not be based upon the cost to repair, rebuild, or replace at a location other than the insured premises.”
The Court of Appeal concluded that, when subdivisions (a) and (c) of former section 2051.5 are read together, it is clear that, in case of total loss, the measure of indemnity for any given replacement cost policy would be the same no matter where the insured rebuilt or replaced. That is, for the insured who rebuilt or replaced at a location other than where the loss occurred, the measure of indemnity is the lesser of the following: (1) the amount it would cost to rebuild or replace the structure at the loss location; or (2) the amount of the coverage limit stated in the policy.
Comment
There is no question that, after a total loss, an insured may qualify for replacement cost benefits by (a) rebuilding at the loss location; (b) rebuilding at a different location; or (c) buying an existing building at a different location.
It was the terms of the policy – not the terms of the Insurance Code – that limited entitlement to the extended replacement cost benefits to “the amount actually and necessarily spent to repair or replace the building.” However, it was the terms of former section 2051.5 that limited the recoverable amount to what it would have cost to rebuild at the loss location, not the location where the insureds built the new house. The portions of former section 2051.5 that were at issue in this case are fairly similar to portions of current section 2051.5.
The Court’ of Appeal’s opinion states that, in the trial court, the parties and the trial court itself deemed the actual cash value of the dwelling to be equal to the policy’s stated limit ($372,000). On appeal, the Westmorelands attempted to assert, for the first time, that the actual cash value of the dwelling was more than the stated limit. However, the Court of Appeal disregarded this assertion, because the Westmorelands had not made it in the trial court. In any event, even if the Westmorelands had made this assertion in the trial court, the outcome likely would have been the same, because the Westmorelands conceded that they had not spent more than $372,000 when they built the new house.