Valued Policy Laws and Limits

Post number 5394

Sometimes Easy and Sometimes Very Difficult

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Valued policy laws require an insurer to pay the limits of liability of a policy regardless of the actual cash value, actual cost to repair or actual replacement value of a property. As a result, it provides an incentive to an insured to have the property, after a covered loss, declared a total loss. Many states have refused to enact valued policy laws to avoid the temptation to buy a distressed property, buy excessive insurance, and then cause a total loss recognizing that the valued policy laws create a moral or morale hazard to increase the risk of loss.

In Behrndt v. Austin Mut. Ins. 356 Wis.2d 329, 855 N.W.2d 493 (Wis. App. 2014) the Wisconsin Court of Appeal was called upon to resolve a dispute over the application of the Wisconsin valued policy law.

After their home was damaged by a fire, Cole and Ashley Behrndt sued Austin Mutual Insurance Company, alleging they were entitled to the face value of their homeowners insurance policy because their property was a total loss under the valued policy law. The circuit court granted summary judgment in favor of Austin Mutual. On appeal, the Behrndts argued that Austin Mutual was not entitled to summary judgment because their house was a total loss and because Austin Mutual should be equitably estopped from arguing their property was not a total loss.

In July 2008, the Behrndts purchased a home prior to a foreclosure for $132,000. Believing they purchased the house below market value, the Behrndts wanted to insure the house for $150,000 or $175,000, and they purchased a homeowners insurance policy from Austin Mutual. In late 2008, after determining the replacement cost of the Behrndts’ home was greater than their current policy, Austin Mutual increased the value of the Behrndts’ policy. The Behrndts accepted this increase and paid the increased premiums accordingly.

A fire damaged the Behrndts’ home on November 25, 2011. At the time of the fire, the homeowners insurance policy issued by Austin Mutual had a face value of $263,500. Austin Mutual hired adjuster Michael Heck, to adjust the Behrndts’ loss; structural engineer Geoffrey Jillson, to inspect and evaluate the structural integrity of the Behrndts’ home and any building code issues; and licensed contractor Rene Bockart, to evaluate the scope of and damage to the Behrndts’ house.

Heck averred that, from the outside of the home, there was no indication that a fire had occurred other than some smoking of the windows. The fire damage was not apparent until he entered the structure. Heck opined, “The foundation, roof and outer walls did not sustain any damage. There was some fire damage on the interior of the dwelling, but the majority of the repairs will be for remediation due to smoke damage.” Jillson reached similar conclusions as did Bockart. Bockart estimated that the actual cash value of repair was $120,275.11 and the replacement value was $147,579.55.

Based on the opinions of Heck, Jillson, and Bockart, Austin Mutual appealed the Town’s raze order. A special board meeting was held on January 19, 2012. After viewing the structure and hearing the evidence presented by Austin Mutual and the Behrndts, the Town overturned the raze order. Austin Mutual tendered a check to the Behrndts in the amount of $120,257.11. The Behrndts continued to dispute the amount of the loss. Austin Mutual invoked the appraisal provisions of the Behrndts’ insurance policy. The appraisal panel determined the property could be repaired and determined the actual cash value of the repairs was $100,476.35 and the replacement cost value was $154,579.

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