We suffered a fire last year that led to the partial loss of our home. Repairs have not started because we are arguing with our insurance company about the settlement amount and the extent of the damage. We have a replacement cost policy that makes no mention of ACV. In the Xactimate estimate produced by State Farm it only shows replacement cost values for materials. The State Farm generated estimate makes no mention of depreciation or ACV. It only lists replacement costs.
State Farm insists we are not entitled to the actual costs incurred to repair or replace the damaged areas of our home. Instead, State Farm says the measure of indemnity is defined by both Insurance Code Section 2051 and 2051.5. How can there be two measures of indemnity? Obviously Insurance Code Section 2051 says, “Under an open policy, the measure of indemnity in fire insurance is the expense to the insured of replacing the thing lost or injured in its condition at the time of the injury, the expense being computed as of the time of the commencement of the fire.” State Farm has latched on to the phrase, “the expense being computed as of the time of the commencement of the fire.”
The fire occurred on March 20, 2022. State Farm says it will only pay to repair or replace the home without a deduction for depreciation using the Xactimate price list not from “the time of the commencement of the fire” from Insurance Section 2051 as they chose to quote in the letter to us, but instead using the arbitrary time of August 2022. State Farm adjusted our contractors Xactimate estimate produced in June of 2023 using the Xactimate price list from August of 2022. State Farm says we are not entitled additional payment if the actual costs we incur are higher than the August 2022 Xactimate prices.
I am confused how a replacement cost policy can be interpreted in the way that State Farm is interpreting it. The policy language seems clear:
“We will pay up to the applicable limit of liability shown in the Declarations, the reasonable and necessary cost to repair or replace with similar construction and for the same use as on the premises shown in the Declarations, the damaged part of the property covered under SECTION I —PROPERTY COVERAGES, COVERAGE A —DWELLING.”
State Farm isn’t even following its own definition of the measure of indemnity that it quoted in its letter to us: “the expense being computed as of the time of the commencement of the fire.” It chose the arbitrary date of August of 2022 in its timing of loss computation, not the “time of the commencement of the fire”, which was around 2pm on March 20, 2022.
This property insurance coverage blog had an interesting take on using the “time of loss”. Please read the comments on the post for a full explanation of the author’s thoughts. The post says that insurance companies arguing the cost to repair damaged property must be calculated by using the price of labor and construction materials as of the time of the commencement of the fire aren’t thinking things through. The author argues that it would cost a fortune to repair or replace damage as the fire begins to rage. He argues that you’d have to pay a contractor or engineer an exobitant rate to drop everything and repair the property as a fire is burning. https://www.propertyinsurancecoveragelaw.com/2023/05/articles/insurance/the-insurance-industry-gets-what-it-deserves-pay-for-the-costs-at-the-time-of-loss/
One last thing, State Farm says Insurance Code 2051 AND 2051.5 apply to our replacement cost policy but in California Fair Plan Association v. Garnes the Court stated, “Section 2051 sets forth the “measure of indemnity in fire insurance” for an open ACV policy.” It seems that the Court has spoken that Insurance Code 2051 applies to ACV policies, not all open policies.
How can I get State Farm to pay for the actual incurred costs of our repairs as opposed to paying for costs using an Xactimate price list from some arbitrary date of their choosing?