In situations where a property insurer denies coverage, the insured often complains that it is faced with a difficult dilemma – use its own money to fund repairs or avoid making repairs and risk having its recovery limited to actual cash value (ACV) if the insurer is later found liable for coverage. A Pennsylvania federal court recently clarified the insured’s ability to recover replacement cost value (RCV) in this situation. In the case of Utica Mut. Ins. Co. v. Cincinnati Ins. Co., No. 18-cv-1646 (E.D. Pa. January 23, 2019), the parties disputed coverage following a property loss. After the insurer denied coverage, the insured did not repair or replace the damaged property. Like most property policies, the policy limited recovery to ACV until such time as the damaged property is repaired or replaced. The insured argued the insurer’s coverage denial hindered its ability to rebuild and therefore it should be excused from the policy’s requirement to replace the damaged property to be eligible to recover RCV.
In reviewing the case law, the court focused on the insurer’s actions and whether denying coverage made it impossible, or at least unduly risky, for the insured to comply with the replacement requirement. The court held that the insured may recover RCV despite noncompliance with a replacement requirement where the insured demonstrates that “but for” the insurer’s denial of coverage, the insured would have repaired or replaced the property. Unfortunately, the court did not identify any of the factors to be considered in the “but for” analysis. The court left open the question of whether the insured would actually be required to repair or replace the damaged property if the court found coverage and awarded RCV.
It should be noted that this reasoning has not been adopted by Pennsylvania’s highest court. A public policy question to consider is whether this court’s holding discourages proper upkeep of damaged property if the insured believes it can credibly blame the insurer for its failure to make repairs.