This week’s ruling by the Ninth Circuit in Dow v. Safeco Insurance coverage Firm of America 1 serves as a well timed reminder for claims professionals to revisit learn how to interpret precise money worth (ACV), substitute price worth (RCV), and normal contractor overhead and revenue (GCOP) beneath property insurance coverage insurance policies which outline the phrases. This case, which arose from hail injury to a Montana property, 2 examined the boundaries of ACV entitlement and whether or not an insured can later problem what was paid as soon as repairs are accomplished. For anybody working in insurance coverage claims, notably these managing property losses involving large-scale repairs, the implications are price noting. It additionally reminds policyholders that lawsuits require a displaying of damages as a result of courts don’t make moot findings.
On the coronary heart of the dispute was Safeco’s exclusion of GCOP from the ACV fee for roof repairs regardless of together with GCOP for different structural gadgets. The plaintiff, Susan Dow, argued that beneath the coverage’s two-step settlement course of, Safeco owed her the complete ACV upfront, together with GCOP for the roof, as a result of the restore work was advanced sufficient to require a normal contractor. She maintained that GCOP is often included within the estimated restore prices, even when the home-owner by no means incurs that expense. Dow’s place was that after an insurer determines that GCOP is fairly more likely to be incurred, it should be included within the ACV calculation. Importantly, Dow argued that what the insured in the end spends on repairs shouldn’t have any bearing on what was owed on the ACV stage.
Safeco’s protection was rooted in coverage language. The coverage outlined ACV because the estimated price to restore, much less depreciation, and specified that RCV would solely be paid after the insured accomplished repairs. Safeco had, in reality, paid Dow over $28,000 for roof repairs as soon as they had been accomplished, together with a GCOP allowance. Dow later tried to argue {that a} revised estimate issued by Safeco after the repairs had been accomplished entitled her to a brand new or supplemental ACV fee based mostly on that later determine.
Safeco efficiently argued the next:
[T]he Courtroom could also be left with the misimpression that Dow solely sought an ACV fee for the injury to her roof, and that the Coverage’s ‘substitute price’ provisions are due to this fact irrelevant. This argument fails as a result of Dow explicitly invoked and sought and acquired ‘substitute price’ advantages. Certainly, the proof conclusively establishes that Dow repaired her roof after which sought fee from Safeco for her roofer’s $27,345 bill (which explicitly included GCOP). The undisputed report additional establishes Safeco paid greater than that invoiced quantity for Dow’s roof declare. Additional, the Coverage offers that Safeco shall pay the ‘full price of restore or substitute’ however not exceeding ‘the quantity really and essentially incurred.’ Thus, Dow’s declare does, in reality, activate this loss settlement provision that she sought, the restore prices Dow really incurred, and the quantities Safeco paid Dow for these roof repairs. Measured by this language, Dow has no declare for extra money or for breach of contract.
The Ninth Circuit rejected Dow’s strategy, stating that ACV is forward-looking and should be based mostly on potential estimates—not utilizing precise invoices or revised inside estimates. The court docket additionally famous that simply because precise prices change into decrease than anticipated, or as a result of RCV finally ends up masking the hole between ACV and the complete restore invoice, doesn’t imply the preliminary ACV fee was incorrect or that further GCOP is owed based mostly upon coverage language. The Ninth Circuit emphasised that the coverage construction is designed to entrance ACV as an affordable estimate after which true-up with RCV. As a result of Safeco paid each ACV and an quantity higher than what had been really incurred as soon as the work was accomplished, the court docket discovered no breach of contract as a result of there have been no damages.
Dow additionally alleged violations of Montana’s Unfair Commerce Practices Act, however the court docket discovered Safeco’s interpretation of the coverage to be affordable and guarded beneath statutory defenses. As Dow lacked a viable particular person declare and her authorized staff was unable to discover a substitute class consultant, the court docket additionally upheld decertification of the putative class motion.
When the coverage says that the insurer has to pay the lesser of ACV, RCV, or the quantity incurred, and the insurer pays greater than the ACV and the quantity incurred, there aren’t any damages left to be paid. If the insurer pays too little on ACV and makes cash holding the float, and the jurisdiction permits for pre-judgment curiosity, there may very well be a declare for damages. Nevertheless, usually, an insurer paying greater than the quantity incurred to repair the injury is rarely going to end in a profitable lawsuit for the policyholder.
One further merchandise of notice. RCV and ACV in most jurisdictions are each theoretical quantities. Certainly, for adjustment functions, property insurance coverage adjusters ought to respect that these figures fluctuate relying on a number of elements. Certainly, for adjustment functions, they need to be regarded as being in a variety of reasonableness.
A few of it would be best to problem me on this notion. That can assist you, take into account how completely different retailers and contractors cost completely different affordable costs for a similar services or products. Whereas courts require a jury to offer one set quantity, the adjustment is luckily not a court docket of legislation. Changes are alternatives to contemplate claims earlier than a matter turns into one within the fingers of legal professionals and judges, the place even the Almighty could not know what will occur.
For these on this subject, please learn Alternative Value Is Theoretical Even If Alternative Has Been Made, and a very good publish by Chicago-based legal professional Ed Eshoo, Is a Restore Value Estimate Related When Repairs Are Primarily based on Precise, Incurred Prices?
Thought For The Day
“If at first you don’t succeed, then skydiving undoubtedly isn’t for you.”
— Steven Wright
1 Dow v. Safeco Ins. Co. of America, No. 23-2641, 2025 WL 1110742 (9th Cir. Apr. 15, 2025).
2 Dow v. Safeco Ins. Co. of America, No. CV 20-31 (D. Mont. Could 19, 2023).
