Homeowner Limited to Cash Value of House in Fire Loss Claim

Plaintiff Dawn Dunkerly made a claim against her homeowner’s insurance company, Encompass Insurance Company, for the fire loss of her parents’ home. A fire swept through the house and completely destroyed it. As executor of her parents’ estate, plaintiff submitted a claim to defendant Encompass under her parents’ homeowners policy to be compensated for the loss.  In Dunkerly v. Encompass Ins. Co., 2017 U.S. Dist. LEXIS 179452 (D.N.J. Oct. 27, 2017), the issue was whether plaintiff was entitled to be compensated based upon the home’s higher replacement value or whether she was limited to the lower actual cash value of the home because she failed to rebuild the home.

Encompass paid plaintiff $341,521 for the actual cash value of the house, less a $500 deductible. Plaintiff contended, however, that she was entitled to an additional $108,006, representing the difference between the actual cash value of the house that was destroyed and the replacement value of the house. She sued Encompass to recover the additional monies she claims were due.

The dispute centered on 2 provisions in the insurance policy concerning the payment due. The first provision, Section (3), stated that the insurance company “will pay no more than the actual cash value of the damage until actual repair or replacement is complete.” However, it must be read in conjunction with Section (5), which stated that: “You may disregard the replacement cost less settlement provisions and make claim under this policy for loss or damage on an actual cash value basis. You may then make claim within one year after loss for any additional liability on a replacement cost basis.”

Encompass filed for a summary judgment to dismiss plaintiff’s claim, arguing that the plaintiff’s claim must be dismissed because she had not rebuilt the home. Hence, under its policy provisions, she was limited to the lower actual cash value of the home.

Plaintiff argued that there was a dispute of fact as to the interpretation of these clauses. Further, she argued that since insurance policies should be viewed most favorably to the insured party, the policy should be interpreted to award her the difference between the actual cash value and the replacement value of the house.

The District Court rejected the plaintiff’s arguments. It found that a difference in opinion over an insurance policy’s terms does not necessarily equate to a material dispute of fact. The interpretation of insurance policy language is generally a question of law because it is a contract. Ordinary principles of contract law would apply. Here, there was no dispute of fact. The parties simply disputed the legal consequences of the words of the policy.

The Court found that “a plain reading of the insurance policy supports Encompass’s position and cannot be read to support Dunkerly’s position.” It held that the relevant insurance policy provisions were clear and unambiguous and, based upon New Jersey law, should be enforced as written.

The Court found that the policy provisions clearly limited the homeowner’s recovery to the actual cash value of the house until “actual repair or replacement” is complete. Moreover, the policy also imposed a clear time limit on claims for replacement value in that a claim must be made within one year after the loss.

Nevertheless, the plaintiff claimed that she should be entitled to the additional monies under the replacement cost provision, arguing that she should still be entitled to the extra monies even if she did not rebuild.  The District Court rejected this argument because it was contrary to the plain language of the insurance policy provisions. It found that the policy language was not complex, not ambiguous, and did not contradict the understanding of the average purchaser. Hence, the Court granted the motion for summary judgment of the defendant insurance company and dismissed the plaintiff’s complaint.

Tags: homeowner’s policy, insurance policy