Common Sense Prevails in Court Ruling on Actual Cash Value and Recoverable Depreciation

A common issue that arises in property insurance claims is the recoverable depreciation associated with Replacement Cost Coverage. Most policies place some limitations on recoverable depreciation.

Some insurance policies have a 180-day limit to present a claim for recoverable depreciation. Others state: “We will not pay on a replacement cost basis for any loss or damage: (1) until the lost or damaged property is actually repaired or replaced; and (2) Unless the repair or replacement is made as soon as reasonably possible after the loss or damage.”

Theoretically, the insurance company pays the value of the claim on an Actual Cash Value basis. The insured party then commences repairs. When repairs exceed the amount paid, the insured seeks reimbursement of the withheld recoverable depreciation from the insurer.

In the real world, insurance companies often put up a fight instead of paying covered benefits. This means both claim delays and claim denials. Unfortunately, this leads to a breakdown in the process. The insured continues to suffer the loss while fighting the insurer and is often not financially able to repair the damaged property out of pocket. After years of litigation and fighting with the insurer to recover the money owed, insurers tend to take the position that depreciation is not recoverable because repairs were not completed as soon as reasonably possible after the loss or damage. This argument is a nonsensical “gotcha” argument. Realistically, the insurer substantially interferes with the insured’s ability to perform its obligation to repair as soon as reasonably possible. Then, after preventing the repairs with delays and claim denials, the insurer hits the insured with the “gotcha” by pointing to the policy provision preventing recovery of the withheld depreciation because the repairs were not done timely enough.

Recently, the District Court of Minnesota found that a failure to repair during litigation is excusable under a policy requiring repairs be made as soon as reasonably possible.1 Specifically, the court stated:

Here, those facts and circumstances show that [the insured] reasonably waited for the coverage dispute to resolve before committing to over $2 million in replacement work. The delay was due to [the insurer’s] persistent denial of coverage, which included this lawsuit and related appeal, rather than [the insured’s] lack of attention.

The court further noted in footnote 2 that the insured responsibly did not repair in an effort to preserve the property given the ongoing appraisal and inspections.

It is always a great day when common sense and equity prevails. The attorneys at the Merlin Law Group are experienced in handling these arguments. If you have any questions or issues with your insurance company, please give us a call.

1 Axis Surplus Ins. Co. v. Condor Corp., No 0:20-cv-00789 (Dist. Minn. Feb. 3, 2023).