Indiana Appeals Court Does Not Require Policyholder To Replace Property For Replacement Cost Coverage In Light Of Insurer's Actions
January, 2010
by James R. Swinehart and
In Rockford Mutual Insurance Co. v. Pirtle, 911 N.E.2d 60 (Ind. App. 2009), the Indiana Court of Appeals in a case of first impression held that a property policy provision requiring the policyholder to repair or replace building damage before receiving replacement cost coverage can be excused by actions of the insurer.
In Pirtle, property in Terre Haute, Indiana, owned by the policyholder and used as rental property, was damaged by fire in November, 2000. Id. at 62-63. An independent adjuster estimated the damage to the building at $79,907.49. The insurer offered to fully settle the claim for $80,000, but the policyholder rejected the offer as insufficient. Id. at 62. In May 2001, the insurer, for the first time, offered $69,874.62, as the actual cash value and offered to pay the balance of $193,000 once the property was repaired. The policyholder disputed the amount of the actual cash value. Id. at 63, 66. By the time this offer was made, the property's mortgage holder had initiated foreclosure proceedings, and the property had been condemned by the city. Id. at 66.
The policyholder filed suit in September 2001. In March 2002, the insurer issued a payment of $86,146.66, the actual cash value amount determined by an independent adjuster. Id. at 63. The insurer argued that it did not owe replacement cost until the building damage was actually repaired or replaced. Id. at 63-64. At trial, a jury instruction was offered, which essentially provided that when a party prevents another party from performing a part of a contract, the other party is excused from performance. Id. at 66. The jury found in favor of the policyholder, and awarded the remaining amount available under the policy. Id. at 66, 69.
Affirming, the Pirtle court noted that when actual cash value is disputed, the insurer normally obtains a certified real estate appraisal to determine the actual cash value. This time, the insurer did not do that. Id at 65. Also, by the time the actual cash value payment was made, the amount received had to be used to pay the mortgage, and no amount was left to start repairs. Id. The Court concluded that the jury, given the amount awarded, must have found that the policyholder was excused from repairing the property due to the insurer's handling of the claim. Id.
Pirtle stands for the proposition that an insurer's actions in handling a claim can excuse the policyholder's compliance with language requiring that building damage be repaired or replaced before the insurer is obligated to pay replacement cost.
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