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Reinstatement value conditions equivalent upheld in US

12 October 2023 Patrick Bracher, Norton Rose Fulbright
Patrick Bracher, Norton Rose Fulbright

Patrick Bracher, Norton Rose Fulbright

In three similar cases in North Dakota US the court upheld a provision in the insurers property owners policy that excused the insurer from paying “on a replacement cost basis for any loss or damage until the lost or damaged property is actually repaired or replaced” and the repairs and replacements are made “as soon as reasonably possible after the loss or damage”. Otherwise the policyholder is only entitled to an indemnity on an actual cash value basis.

After the insured buildings sustained damage from a hailstorm in August 2019, the policyholders filed a claim with the insurer who issued payments for actual cash value amounts for the damages suffered.  The policyholders put the money in escrow and, until they sued about a year later, they did not use the funds for any repairs. The policyholders alleged that the insurer prevented them from complying with the repair or replacement requirement by not accepting their estimates of those costs and failing to send a contractor. The court held that the provision in the policy was unambiguous. No replacement costs could be paid before the money had been spent by the insured. The insurer did not prevent the policyholders from repairing or replacing the damaged property. The policyholders chose not to do so due to a dispute regarding estimates. The repair or replacement of the damaged property was a condition precedent to recovering replacement costs.

A similar result would follow under South African reinstatement value conditions.

[Bismarck Park Avenue Properties LLP v Owners Insurance Co. case no 1:21-cb-00165 and two other similar cases]

First published by: Financial Institutions Legal Snapshot

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