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 tips on how to interpret precise money worth (ACV), substitute value 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, significantly these managing property losses involving large-scale repairs, the implications are price noting. It additionally reminds policyholders that lawsuits require a exhibiting 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 cost 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 complicated sufficient to require a normal contractor. She maintained that GCOP is often included within the estimated restore prices, even when the house owner by no means incurs that expense. Dow’s place was that when an insurer determines that GCOP within reason more likely to be incurred, it should be included within the ACV calculation. Importantly, Dow argued that what the insured finally 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 value to restore, much less depreciation, and specified that RCV would solely be paid after the insured accomplished repairs. Safeco had, in actual fact, paid Dow over $28,000 for roof repairs as soon as they have been accomplished, together with a GCOP allowance. Dow later tried to argue {that a} revised estimate issued by Safeco after the repairs have been completed entitled her to a brand new or supplemental ACV cost primarily based on that later determine.
Safeco efficiently argued the next:
[T]he Court docket could also be left with the misimpression that Dow solely sought an ACV cost for the injury to her roof, and that the Coverage’s ‘substitute value’ provisions are due to this fact irrelevant. This argument fails as a result of Dow explicitly invoked and sought and acquired ‘substitute value’ advantages. Certainly, the proof conclusively establishes that Dow repaired her roof after which sought cost from Safeco for her roofer’s $27,345 bill (which explicitly included GCOP). The undisputed file additional establishes Safeco paid greater than that invoiced quantity for Dow’s roof declare. Additional, the Coverage gives that Safeco shall pay the ‘full value of restore or substitute’ however not exceeding ‘the quantity really and essentially incurred.’ Thus, Dow’s declare does, in actual fact, 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 method, stating that ACV is forward-looking and should be primarily based on potential estimates—not utilizing precise invoices or revised inner estimates. The court docket additionally famous that simply because precise prices transform decrease than anticipated, or as a result of RCV finally ends up protecting the hole between ACV and the complete restore invoice, doesn’t imply the preliminary ACV cost was incorrect or that further GCOP is owed primarily based upon coverage language. The Ninth Circuit emphasised that the coverage construction is designed to entrance ACV as an inexpensive estimate after which true-up with RCV. As a result of Safeco paid each ACV and an quantity better 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 are not 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 could possibly be a declare for damages. Nonetheless, usually, an insurer paying greater than the quantity incurred to repair the injury isn’t going to end in a profitable lawsuit for the policyholder.
One further merchandise of word. RCV and ACV in most jurisdictions are each theoretical quantities. Certainly, for adjustment functions, property insurance coverage adjusters ought to admire that these figures fluctuate relying on a number of components. Certainly, for adjustment functions, they need to be regarded as being in a spread of reasonableness.
A few of it would be best to problem me on this notion. That can assist you, contemplate how totally different retailers and contractors cost totally different affordable costs for a similar services or products. Whereas courts require a jury to supply one set quantity, the adjustment is happily not a court docket of legislation. Changes are alternatives to contemplate claims earlier than a matter turns into one within the palms of attorneys and judges, the place even the Almighty might not know what’s going to occur.
For these on this matter, please learn Alternative Value Is Theoretical Even If Alternative Has Been Made, and a very good submit 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. Might 19, 2023).
