Where an insurer’s failure to pay a property claim prevents the insured from making repairs, the insured is entitled to a “conditional” award of replacement cost, but the insured ultimately must still complete repairs in order to qualify for replacement cost benefits. ( Stephens & Stephens XII, LLC v. Fireman’s Fund Insurance Company (2014) 231 Cal.App.4th 1131)
Facts
Stephens & Stephens XII, LLC (Stephens XII) owned a building and purchased a property insurance policy from Fireman’s Fund Insurance Company (Fireman’s Fund). While the policy was in force, Stephens XII discovered that burglars had damaged the building by stripping electrical wiring, plumbing pipes and other components from the building.
Stephens XII sought reimbursement for the damage from Fireman’s Fund, but Fireman’s Fund delayed resolving the claim for a period of years. Stephens XII then filed suit. Fireman’s Fund ultimately denied coverage, but not until one month before trial. At the time trial started, Stephens XII still had not repaired the damage.
The policy provided two different measures for payment of covered damages. The first measure was the actual cash value of the damaged portions of the building (i.e., replacement cost less depreciation). The second measure was the full cost of repairing or replacing the damaged property if repairs were actually made “as soon as reasonably possible” after the loss or damage.
During trial, Stephens XII presented no evidence of the actual cash value of the damaged property and, in fact, expressly disclaimed any intent to seek recovery under this measure. Nevertheless, the jury awarded Stephens XII the full cost of repairing or replacing the property. The trial court granted Fireman’s Fund judgment notwithstanding the verdict, finding that the award was not permitted under the policy.
Holding
The Court of Appeal reversed. The Court concluded that Stephens XII was not entitled to an immediate award for the costs of repairing the damage, but that Stephens XII was entitled to a conditional judgment awarding these costs if the repairs are actually made. The Court concluded that Fireman’s Fund’s delayed resolution and ultimate denial of the claim materially hindered Stephens XII’s ability to repair or even make plans for the property. As a result, Stephens XII was excused from the requirement that the damage be repaired “as soon as reasonably possible after the loss or damage.”
When Stephens XII expressly disclaimed recovery of actual cost value damages, it waived an award based on this measure. However, Stephens XII nonetheless remained entitled to a judgment awarding replacement cost consistent with the repair requirement if Stephen XII actually completed the repairs “as soon as reasonably possible” after the judgment becomes final.
Comment
Courts in some jurisdictions have excused the insured from repairing damaged property when the insurer failed to pay the claim or otherwise hindered repairs. However, courts in other jurisdictions have concluded that an insurer’s failure to pay a claim excuses the insured from complying with the policy’s procedural requirements, such as time restrictions, but do not entirely excuse the insured from the underlying obligation to repair the property. These courts have held that the insured was entitled to a judgment requiring the insurer to pay actual cost value immediately and to pay replacement costs conditionally on the insured’s completion of repairs promptly from the date of the judgment. In effect, these courts have granted specific performance of the insurance policy, requiring the insurer to make good on its contractual obligation to pay full replacement cost only upon the insured’s satisfaction of the condition precedent of repairing the property.