State Farm Fire & Cas. Co. v. Patrick
1994 WL 697375, 647 So. 2d 983, 1994 Fla. App. LEXIS 12177 (1994)
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Rule of Law:
Under a replacement cost insurance policy, an insurer's liability is limited to the amount the insured actually spends to repair or replace the damaged property, and the obligation to pay the withheld depreciation amount does not arise until the repair or replacement is complete and the insured has incurred costs exceeding the initial actual cash value payment.
Facts:
- Charles B. Patrick held a replacement cost insurance policy with State Farm Fire and Casualty Company on his property.
- Patrick's property sustained damage as a result of Hurricane Andrew.
- State Farm estimated the total cost to repair the property at $14,207.28.
- State Farm made an initial payment to Patrick of $11,102.87, which was the estimated cost less a $250 deductible and $2,854.41 withheld for depreciation.
- The policy provided that the withheld depreciation amount would be paid once the repair work was completed.
- Acting as his own contractor, Patrick completed all necessary repairs for a total cost of $11,034.86.
- After completing the work, Patrick demanded that State Farm pay him the $2,854.41 that had been withheld as depreciation.
- State Farm refused to make the additional payment.
Procedural Posture:
- Charles B. Patrick sued State Farm Fire and Casualty Company in a Florida trial court.
- The trial court entered an order of partial summary judgment in favor of Patrick, ruling that State Farm had wrongfully withheld the depreciation amount of $2,854.41.
- State Farm, as the appellant, appealed the trial court's order to the District Court of Appeal of Florida, Third District.
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Issue:
Does a replacement cost insurance policy, which limits payment to the amount an insured 'actually spend[s],' obligate an insurer to pay withheld depreciation when the insured's actual repair costs are less than the initial payment for the property's actual cash value?
Opinions:
Majority - Per Curiam
No. An insurer's liability under a replacement cost policy is limited to the amount the insured actually spends on repairs. The plain language of the insurance contract is controlling. The policy explicitly states that State Farm 'will not pay more for loss in any one occurrence on a replacement cost basis than ... the amount you actually spend that is necessary to repair or replace the lost or damaged property.' Furthermore, the policy creates a condition precedent, stating that State Farm 'will not pay for any loss on a replacement cost basis until the lost or damaged property is actually repaired or replaced.' Citing 'Kolls v. Aetna,' the court reasoned that the replacement cost benefit, which is the withheld depreciation, does not become available to the insured until they have expended an amount greater than the initial actual cash value payment. Because Patrick's actual repair costs ($11,034.86) were less than the actual cash value payment he received ($11,102.87), he never incurred costs that would trigger the insurer's obligation to pay the withheld depreciation.
Analysis:
This decision reinforces the principle that replacement cost insurance is a contract of indemnity, not a vehicle for profit. It clarifies that an insured's recovery is tied directly to their actual, incurred expenses rather than to the insurer's initial estimate of loss. The ruling provides a clear precedent that an insured cannot perform repairs for less than the actual cash value payment and then claim the withheld depreciation. This interpretation of the 'actually spend' clause protects insurers from paying for theoretical losses and solidifies the two-stage payment process (actual cash value first, depreciation later) as conditional upon the insured's expenditures.
