- Eighth Circuit Rules Coinsurance Requirement Applies Based on Whether Claim is Actual Cash Value or Replacement Cost Value
- July 22, 2013 | Author: George B. Hall
- Law Firm: Phelps Dunbar LLP - Houston Office
The U.S. Eighth Circuit Court of Appeals has held under Arkansas law that a property policy required calculation of a coinsurance penalty based on actual cash value, not replacement cost value, as the claim was for actual cash value. Buddy Bean Lumber Co. v. Axis Surplus Ins. Co., 715 F.3d 695 (8th Cir. 2013).
The insured sought coverage under its property policy for theft of stolen copper wire. The insurer applied a co-insurance penalty and paid only a portion of the actual cash value of the wire. The insured filed suit to recover the full loss. The policy stated that the insured was obligated to insure the building with limits of 90% of the property’s “value.” The insurer contended that this required insurance was for 90% of the replacement cost value because the insured elected to have replacement cost coverage. The insured argued that because it was seeking only the actual cash value of the stolen wire, the 90% coinsurance penalty should be based on the property’s actual cash value, far below the replacement cost value. Both parties moved for judgment on the pleadings and the district court granted judgment in favor of the insurer.
The Eighth Circuit reversed. It held that the coinsurance requirement should be applied depending on the type of claim filed. Because the insured had elected to claim the actual cash value of the stolen wire, the Eighth Circuit concluded that the coinsurance provision should be read to require coverage of 90% of the property’s actual cash value.