The Court of Appeals of Indiana held that, as a matter of first impression, the owner's failure to repair or replace the building was excused such that he was not limited to a recovery of actual cash value under the insurance policy but rather he could recover the replacement cost of the building.

This was despite the condition precedent in the policy that the insurer would "pay no more than the actual cash value of the damage until actual repair or replacement is completed." The court reasoned that the owner had indicated to the insurer that he wanted his replacement costs paid, the insurer offered $80,000 to "cash out" the policy even though the policy limit was $193,000, and the owner refused that offer because he could not get the building repaired for that amount. The insurer had then waited six months—after the mortgage foreclosure process had started and the city had condemned the property—to offer $69,874, with the balance of the $193,000 to be paid when the property was repaired, at which time the owner was in a very bad position to start any repairs.

The court also held that the insured owner could recover consequential damages in excess of the policy limits. The insurer claimed that its liability should be capped at the policy limits, as its dispute with the insured over the actual cash value was in good faith, thereby precluding an award of consequential damages.

The court explained that consequential damages may be awarded when the non-breaching party's loss flows naturally and probably from the breach and was contemplated by the parties when the contract was made. The party seeking damages must prove by a preponderance of the evidence that the breach was the cause in fact of its loss. This generally limited consequential damages to reasonably foreseeable economic losses.

Although the insurer claimed that while consequential damage awards might be recoverable as a matter of contract law, they might likely be precluded on a public policy analysis. The court determined that the insured's consequential damages stemming from the insurer's failure to pay following the fire were reasonably foreseeable such that they were recoverable. Further, the cost of repairs, utilities, and property taxes were likely to increase during the seven-year period between the damage to the building and the jury's award. Those damages flowed directly from and were proximately caused by the insurer's failure to pay, and, had the insured been able to use the building as a rental property during those years, the rent likely would have increased. The insurer's argument that consequential damages were erroneously awarded thus failed.

Finally, the court reviewed the evidence to determine it was sufficient to support the consequential damages award.