A resident of Florida discovered that water from his kitchen sink leaked into his custom made kitchen cabinets. He filed an insurance claim with Prepared Insurance Company under his “replacement cost” insurance policy. The insurance company sent an adjuster to inspect the damages and the adjuster estimated the loss to be $8,653.47. The payment for this amount, minus the deductable owed, was issued to the insured. The insured then sued the insurance company claiming that the company had severely undervalued the loss by only looking at the cost to repair the custom cabinets and not the cost for a complete replacement.
Shortly before trial, the judge made a number of rulings that greatly impacted this case. As an initial matter, the judge ruled that since the policy was a “replacement cost” policy, the insurance company was required to replace the cabinets completely and could not instead pay for the cost of repairs. Failure to do so violated the insurance policy. Additionally, the court ruled that the insurance company’s failure to pay a general contractor’s overhead and profit as part of the insurance claim also violated the policy. Next, on the day of trial, the court ruled that since it found that a general contractor was required under the policy, only general contractors could testify as expert witnesses at the trial. As a result, both of the insurance company’s witnesses were not permitted to testify. Finally, the court ruled that the insurance company could not cross examine the expert retained by the insured on certain issues relating to water damage that happened after the initial incident. The court found them to be irrelevant. Following a jury trial, the insured was awarded $44,304.85 in damages.
On appeal, the insurance company primarily challenged the trial court’s decisions made pre-trial. Ultimately the court of appeals agreed with the insurance company on all points. First, the court addressed the trial court’s interpretation of the “replacement cost policy.” The appellate court found that “replacement cost insurance is designed to cover the difference between what property is actually worth and what it would cost to rebuild or repair that property.” The appellate court went on to state that both the law and the insurer’s own insurance policy expressly provided that an insurer may limit its liability to the “reasonable necessary cost to repair the damaged, destroyed, or stolen covered property.” Therefore, the appellate court found that the trial court incorrectly ruled on this issue.
Next, the appellate court found that an insurance agency is only required to pay for a general contractor’s overhead and profit under a replacement policy if necessary or reasonable to use a general contractor. In the current case, it was disputed whether a general contractor was necessary. The trial court should have allowed the insurance agency to present witnesses to testify on the matter regardless of whether the witnesses were general contractors and this issue should have been left to the jury to decide. The trial court’s ruling on this matter was in error.
Finally, the appellate court found that banning any questioning regarding the second leak was also an error. Although the expert claimed that the second leak did not change his decision, the insurance agency should have been allowed to challenge this testimony and the issue should have been left to the jury. Based on the above rulings, the appeals court ordered a new trial.