Replacement-cost value applies to calculation of coinsurance amount
A fire damaged an inn that was insured for $1,750,000. The property policy had a 90% coinsurance provision. According to an appraisal made after the fire, the damaged part of the inn had a market value of $950,000. The insureds submitted a claim on an actual cash basis for that amount, less their $1,000 deductible. Then the insureds submitted another claim, for replacement cost, amounting to $776,000, the difference between their policy's limit and the insurer's $949,000 actual-cash-value payment.

After the insurer disputed the amount of this additional claim, the insureds filed a declaratory judgment action, seeking a determination that the coinsurance provision did not apply to the replacement-cost claim. Noting that the building's replacement cost was $3,577,700 and that the coverage on it amounted to far less than 90% of that amount, the carrier claimed the coinsurance provision did apply, and that the size of the replacement-cost payment must be reduced in accordance with it. A trial court granted the carrier's summary judgment motion, and the insureds appealed.

The appeals court noted that the insureds' policy expressly allowed them to make an actual-cash-value claim and then follow it with a replacement-cost claim. But the court disagreed with the insureds' argument that in adjusting the replacement cost claim, the insurer should use actual cash value, rather than replacement value, to determine whether the coinsurance provision was satisfied.