The HO 04 11 contains three provisions for loss settlement, and states that the insurer will pay no more than the smallest of three amounts “for like construction and use on the same premises.”

Therefore, the loss settlement provisions are identified as measures of amounts payable and not as instructions on rebuilding.

One of the amounts payable is “the necessary amount actually spent to repair or replace the damaged or destroyed building.” Here, the policy does not specify that the replacement must be on the same premises. It is this language that led the court in Conway v. Farmers Home Mutual Ins. Co., 26 Cal. App. 4 1185 (California 1994) to hold that the amount “for like construction” was a measure of damages, and not a requirement to rebuild. The “necessary amount spent to replace” could refer to a replacement home at another location.

The phrase “like construction and use on the same premises” serves to prevent the insured from claiming a greater amount than otherwise entitled to. For example, the cost to rebuild a ranch-style dwelling in your state will be considerably less than the cost to rebuild the same dwelling in Hawaii. So the amount payable is limited to what it would cost to rebuild a like dwelling on the premises where the loss occurs.

The insured is constrained, however, from collecting the replacement amount until actual repair or replacement is complete.