Post-Appraisal Withdraw of RCV Claim Results in Windfall for Insured

By Thomas J. Moody

In Mont. Claire at Pelican Marsh Condo. Ass’n v. Empire Indem. Ins. Co., a court in Florida’s Middle District ruled that a policy provision limiting an insured’s recovery to the amount actually spent on repairs did not apply where the insured withdrew its claim to recover on a replacement cost value (“RCV”) basis, and instead only sought recovery on an actual cash value (“ACV”) basis.

In this matter, the insured condominium association sued to compel appraisal for its Hurricane Irma claim. The appraisal panel returned an award totaling $6,599,810.67 ACV and $8,171,994.86 RCV. Immediately after receiving the appraisal award, the insured filed a notice withdrawing its demand to recover on an RCV basis.

In its motion for summary judgment seeking to limit the amount payable, the insurer described that the insured paid $2,413,143.60 in completed work (roof, stucco, temp repairs, debris) but received $4,370,290.61 ACV from the appraisal panel. The insurer argued that paying the full ACV appraisal award would result in a near $2 million windfall for the insured, and the policy prohibited such a result.

The court first considered whether the policy’s amount actually spent limitation applied. In reviewing the policy, the court determined that the limitation only applied if the insured sought recovery on an RCV basis. The court explained that the policy allowed the insured to “choose how the loss is valued—on an ACV or RCV basis” and the policy “also caps RCV by the amount the insured spends repairing the property but provides no such cap for Plaintiff’s ACV claim.” Accordingly, the court determined that the limitation did not apply because the insured withdrew its claim to recover on an RCV basis.

The court next considered the policy’s Loss Payment provision, which provided that the insurer may “[p]ay the cost of repairing or replacing the lost or damaged property.” The court found that this provision applied to both an ACV and RCV claim, but held that the policy required the insurer to 1) elect to issue payment for the cost of repair or replacing; and 2) provide the insured with notice of such election within 30 days after receiving the insured’s sworn proof of loss. The court ruled that this limitation was also inapplicable because the insurer did not introduce any evidence that it provided such notice to the insured.

As such, the court entered judgment for the insured for the full appraisal ACV award.