California law questions– collecting “incurred costs” for a replacement building– can I buy more than one? * Miranda Paton asked 1 month ago
California law questions– collecting “incurred costs” for a replacement building– can I buy more than one? *

I hope the headline encapsulates my question, but there is a twist: The property I lost in the Palisades fire was used as a rental. I did not live there. I cannot afford to rebuild as I am underinsured for my loss and for my ALE/Loss of Use. My only option is to re-buy another similar property elsewhere.

California law affords me the option of replacing my destroyed building with one that is already built somewhere else. As I understand it, I must replace this building with one of similar size and quality. I suppose that I can buy a more expensive building, adding my own cash to what my insurance company pays.

I have read a legal opinion (here, I believe) that says I cannot buy a less expensive building and then ask my insurance company to pay the full amount of the policy’s dollar limit, with some of that coming in cash. But I have never seen any information or opinions about buying multiple rentals as a replacement for the single lost building. I suspect my insurance company will try to deny this, but I want to know what California law has to say about this if it turns out that buying a few, smaller rentals does a better job of making me whole as an investor than does one more expensive rental. Thoughts?

1 Answers
Answer for California law questions– collecting “incurred costs” for a replacement building– can I buy more than one? * Gregg Clifford Expert answered 2 weeks ago
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Hi Miranda,

The question regarding “what” constitutes replacement of property is a question that is often asked after a property sustains a catastrophic or total loss.

While there is language under the Insurance code to help identify, it is important to have the policy read in it’s totality, as a simple “the” or “an” in a policy can change the content dramatically.

In general, the policy and insurance code provide language (in most cases) allowing an insured to “repair or replace” at the loss location or another location – noting the valuation of loss would be based on that work being done at the loss location. ( you can not expect to be paid the premium if you elect to build in a very exclusive and expensive place to build if your building was not located in a place similar).

Most policies ( not all) are typically silent as to what constitutes “replacement” of property. When adjusting we would typically take the position that we are replacing income property with income property. Meaning if you lost a duplex, you could buy or build another duplex, a rental home, strip mall, etc…. The argument would be “I have a property that generates “x” dollar amount in rents and I am replacing with something similar” – regardless of whether it is a single large, expensive rental or multiple smaller and less valuable rentals. Unless there is specific language prohibiting it, the policy does not have the ability to dictate what you replace income property with, or where. You could also consider purchasing a property and using the additional funds if it is bought inexpensively to expand or update the property to make it more desirable and the financial claim for payment

It is always smart to understand the specific policy and then “inform” the carrier of your intent – stating if there is an objection to please point to exactly where in the policy the language supporting the objection is written. In this way you can see whether the position is valid or just an opinion of the carrier hoping to influence your decision.

Good luck with the issue.

Gregg Cliffrord