Repair cost estimates are not sufficient to support the claim despite the insurer’s breach of contract

In Universal Prop. & Cas. Ins. Co. v. QureshiThe Florida Fourth District Court of Appeals recently ruled that the lower court had erroneously allowed the jury to consider evidence of repair estimates in a claim for replacement cost benefits when the repairs were not, in fact, completed. 2024 WL 3514542, p. 1 (Fla. 4th DCA 2024).

In QureshiAt trial, a jury awarded damages to the policyholders because their insurer violated their building’s insurance policy by paying them only for damages caused by mold without providing coverage for other damages caused by the water leak that caused the mold. Although the insured owners of the property provided the insurer with an estimate of the cost of repairs for reimbursement, the insureds sold the property before repairing the damaged items. Before trial, the insurer unsuccessfully attempted to prevent the policyholders from presenting evidence relating, among other things, to the cost of repairs that were not made before the property was sold. The insurer based its argument on the policy’s loss adjustment terms and Fla. Stat. Ann. § 627.7011(3)(a), which provides that in the event of a loss for which a dwelling is insured on a replacement cost basis, “the insurer shall first pay at least the actual cash value of the insured loss” and “shall pay any remaining amounts necessary to make such repairs as work is performed and costs are incurred.” Specifically, the insurer argued that the evidence it sought to exclude was irrelevant to the calculation of the policyholders’ covered losses because the repairs had not been completed. Although the court initially agreed to exclude the evidence, after reconsideration, it ultimately allowed the policyholders to submit repair estimates for work they had not performed. Thus, the jury’s finding for the policyholders was based on evidence of the property’s replacement cost.

On appeal, the Court reversed the trial court’s decision that policyholders could prove the replacement value of their unrepaired property. The decision does not affect the ability of policyholders to prove the actual cash value of the damaged property, which is still recoverable even before repairs are made. As stated in the dissenting opinion in QureshiActual cash value is generally defined as “‘fair market value’ or ‘replacement cost less normal depreciation.’” Replacement value, on the other hand, represents the actual costs incurred by a policyholder in making repairs to the property. In support of its decision to exclude proof of replacement value, the Court of Appeal in Qureshi stated that “in similar insurance policy disputes, ‘courts have almost uniformly held that an insurance company’s liability for replacement costs does not arise until the repair or replacement is completed.'” The court also cited general principles of contract construction, including that if “the language of an insurance policy is clear and unambiguous, a court must construe the policy in accordance with (its) plain meaning in order to give effect to the policy as written.” Applying this principle, the appellate court concluded that the policy clearly and unambiguously stated that the policyholders were not entitled to their repair costs unless the “work is performed and costs are incurred.” Therefore, the appellate court reversed the trial court’s decision and remanded the case for a new trial to determine the policyholders’ recoverable damages. The conclusion from Qureshi is that even if an insurer breaches a policy by failing to pay a covered loss, the policyholder is not entitled to recover damages for replacement cost if it has not repaired the affected property. The policyholder’s recovery for unrepaired property is limited to the actual cash value of the property.

The judgment of the Fourth District Court of Appeals in Qureshi is contrary to the decision of the Court of Appeals for the Third District of Florida in Citizens Property Insurance Company v. Tio304 So. 3d 1278 (Fla. 3d DCA 2020). In Tiothe insurer argued that the policyholder was not entitled to compensation for replacement value because the policyholder had not repaired the property. The insurer attempted to limit proof of damage to proof of actual cash value. The Court of Appeal in Tio disagreed with the insurance company and affirmed the court’s decision to allow evidence and reimbursement of replacement value for unrepaired property in addition to actual cash value, because the insurance company had breached the policy. Tio is in direct contradiction to the majority decision in Qureshiwhich effectively limited the award to the actual cash value for unrepaired property by holding that the jury should not have considered evidence of the replacement value of that property in determining the insured’s damages, notwithstanding the insurer’s failure to do so. In summary, the difference between the two opinions is that the Third District Court of Appeals for Florida in Tio that policyholders are entitled to the full replacement value for their loss even if they did not complete the repairs, as long as the insurer breached the policy. Meanwhile, the Florida Fourth District Court of Appeals says in its recent opinion that even though the insurer breached the policy and failed to pay the covered loss, policyholders are still limited to the actual cash value of their loss if they do not make the repairs. Notably, the dissenting judge in Qureshi stated that the court should have applied TioThe court recognized the different decisions and Qureshi confirmed the conflict between Qureshi And Tio for review by the Supreme Court of Florida.

Regardless of how this conflict is ultimately resolved, Qureshi is a reminder of how important it is for policyholders to carefully review and understand the intricacies of their insurance policies. This scenario also highlights the potential benefit to policyholders of reviewing their rights and responsibilities at the onset of insurance claims, such as whether they actually need to make a repair to receive the full insurance benefits related to replacement cost coverage (which is the typical rule). In fact, a detailed understanding of the relevant insurance policies is essential to ensuring that policyholders are adequately protecting their interests. Policyholders can avoid costly mistakes and prepare to navigate the nuanced nature of insurance claims by contacting an insurance advisor who can help them better understand their insurance coverage.