Insurer forced to pay repair costs – even though they’re four times what the home is worth

Insurer forced to pay repair costs – even though they’re four times what the home is worth

Insurer forced to pay repair costs – even though they’re four times what the home is worth Under a new rule, insurers covering homes in California may be on the hook for home repairs – even if they exceed the home’s total value.

Earlier this week, the California Supreme Court unanimously denied a review of an insurance group’s appeal of a lower-court decision that favored a homeowner. The high court also denied the insurer’s request to prohibit the use of the lower-court ruling as a precedent for future cases. Essentially, that means the ruling is binding on trial courts across the state.

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Simply put, the ruling means that insured homeowners whose homes have been damaged without being destroyed are entitled to coverage for the cost of repair – even if that cost is far more than the home’s market value, according to a report by SFGate.

The ruling stems from a 2011 kitchen fire that badly damaged the home of Richmond, Calif., resident Marlene Garnes. Her insurer, the California Fair Plan Association, paid Garnes only $75,000, the home’s market value at the time. Garnes sued the insurer and won the right for coverage of $320,549, according to SFGate.

In its ruling in May, the First Circuit Court of Appeal said that a 2004 state law allowed homeowners to recover repair costs – and that insurance coverage is limited to market value only if a home has been completely destroyed or damaged beyond repair.

“Courts have recognized that homes may have values to an owner that are distinct from economic worth, such as familiarity, comfort and the memories they invoke,” Justice Therese Stewart wrote for the appeals court.

Garnes’ lawyer, Dylan Schaffer, said homeowners should be able to depend on their insurance coverage without worrying how fluctuating property prices will affect it.

“The point of having insurance is to be able to fix your house, not to be able to make a profit,” Schaffer told SFGate.

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  • Robbo 8/11/2017 11:39:21 AM
    Coverage A is designed to cover the cost of rebuilding the physical structure of the building after a covered loss; the policy doesn't provide for a "lesser of Cov. A limit or the appraised value of the lot and building" settlement. An average 2,000 square foot house on a 1/4 acre in Mentone might sell for $160,000 while the same house/lot in Corona del Mar would sell for $2,000,000 even though the cost to rebuild the structures would be similar at @$270k or thereabouts. Any difference in the rebuild cost would be due to the cost and availability of labor and materials, and the cost of permits in those communities. If both homeowners paid premium and entered into a contract based on the cost to rebuild their houses, should the insurance company be allowed to make a decision to rebuild the one in Corona del Mar because the value of the real estate is so much higher but "cash out" the homeowner in Mentone at the appraised value of his real estate?

    I've personally seen claims where the Coverage A limit is significantly higher than the value of the real estate- one of our policyholders owned a home in Indio that he purchased for $49,500. It was a builder-grade 1,100 square foot structure that had an estimated rebuild cost of $117,000. It burned, but the insurance company never blinked. The house was rebuilt at a cost of @$110,000 and they wrote him a series of checks totaling close to $40,000 for his personal property under the replacement cost coverage.

    The problem in a situation like that is convincing the client to purchase $117,000 in Coverage A limit when the purchase price of the home was $49,500.
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