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Replacement Cost Policy Must Actually Provide Replacement Cost Coverage (PA)

July 21, 2017

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<p style="text-align: justify;">In <em>Kurach v. Truck Insurance Exchange,</em> a Pennsylvania Court awarded summary judgment to a homeowners' policy holder who alleged that the replacement cost coverage policy was actually not replacement cost, as the terms of the policy allowed the insurance company to reduce the reimbursement by utilizing depreciation costs.</p>
<p style="text-align: justify;">Pennsylvania law defines replacement cost as the actual value of the property at the time of the loss, without deduction for depreciation or deterioration. But here, as the insured learned when he sought coverage for a water damage claim, the policy coverage did deduct for depreciation. The policy further excluded general contractor “overhead” in clear and unambiguous language and plaintiff also challenged the legality of this provision in a policy labeled and marketed as a“Replacement Cost Coverage” policy.</p>
<p style="text-align: justify;">The court held that a replacement cost coverage policy may not exclude general contractor overhead or profit, as that would run contrary to the definition under Pennsylvania law. Even though this exclusion was clearly written into the policy,  the court stated that a policyholder paying a premium for replacement cost coverage cannot be reimbursed for less. The same rationale applied to the depreciation claim – because this policy was labeled as a replacement cost coverage plan the court took issue with the policy diminishing full reimbursement, regardless of the reason. Specifically, the court took issue with Truck Insurance purporting to provide a policy that provided replacement cost coverage but defined replacement cost coverage in a manner that provided far less coverage.</p>
Thanks to Matt Care for his contribution to this post and please write to <a href="mailto:">Mike Bono</a> for more information.


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