• Under Replacement Cost Policies, Insurers Can Limit Insureds’ Claims for Damages by Using Cost of Repair Instead of Cost of Replacement.
  • January 24, 2017 | Author: Robert Garcia
  • Law Firm: Marshall Dennehey Warner Coleman & Goggin, P.C. - Orlando Office
  • The plaintiff’s custom-made kitchen cabinets were damaged from a water leak. The defendant insurer’s expert claimed that the kitchen cabinets could be restored for $2,585 or replaced for $19,065. When the defendant issued payment to the plaintiff for less than the replacement cost, the plaintiff filed suit claiming that the defendant undervalued the loss because it failed to pay the full replacement cost. The trial court found that, because the policy was a “replacement cost policy,” the defendant was obligated to pay for the cabinets’ replacement, not their repair. On appeal, the appellate court reversed, finding that the “replacement cost policy” included the cost to rebuild or repair. By including the cost of repair in replacement cost policies, insurers can limit their payout exposure as the cost of repair is normally less than that of replacement. Because many first property damage cases are contingency fee-based, insurers and their counsel should determine whether the damaged property can be repaired and whether the homeowner and his or her expert have evaluated this option.