Insured’s Attempt to Profit from Claims Fails

Insured Must Actually Spend the Difference Between ACV and RCV to Collect

Insurance is designed to provide indemnity to the insured. That means, simply, that the insured gets – in cash – what it lost by a peril insured against. If the policy provides for the full replacement cost value (RCV) of damage the insured must, under most policies, actually spend the money determined to be the full RCV.

In Mount Zion Lutheran Church v. Church Mutual Insurance Company, a foreign corporation, No. 78107-3-I, Court of Appeals for the State of Washington Division One (March 18, 2019) Church Mutual refused to pay the RCV hold back because Mount Zion did not spend the money to replace the damaged part of the church as agreed and lost its argument in the trial court. Mount Zion sought reversal.


On May 7, 2014, a fire caused significant interior damage to Mount Zion Lutheran Church in Mountlake Terrace, Washington. Mount Zion was insured by Church Mutual Insurance Company (the Policy). Under the Policy, Mount Zion could collect the “Actual Cash Value” (ACV) of the “Covered Property,” regardless of whether it chose to repair or replace the church. If Mount Zion chose to rebuild, it could file a claim for repair or replacement costs exceeding the ACV.

Church Mutual hired J.S. Held Construction Consulting to prepare a scope of repair and cost estimate. J.S. Held estimated the cost to replicate the church building as it existed before the fire to be $729,106.42 (the RCV). J.S. Held estimated the ACV of the church to be $593,361.66, which Church Mutual paid to Mount Zion. The Policy allowed Church Mutual to withhold the difference between the RCV and ACV, approximately $135,744, until Mount Zion completed the repairs.

J.S. Held’s estimate included the cost of replacing arched glulam beams in the church sanctuary and replacing the sanctuary roof, a cost of over $196,000. Slaed Spiller, an independent adjuster hired by Church Mutual, inspected the church, including the glulam beams, and discussed their replacement with Pastor Frank Paine. Pastor Paine indicated to Spiller that he preferred to repair, rather than replace, the glulam beams, as replacement would require removal of the church’s roof. Church Mutual hired Rimkus Consulting Group to assess the glulam beams, and it concluded they did not need to be replaced.

In late July 2014, Mount Zion retained a public adjuster, Drew Lucurell, to assist with its insurance claim. Although Rimkus and the four bidding contractors did not deem replacement of the beams to be necessary, Church Mutual acquiesced and allowed Mount Zion to replace them.

Mount Zion retained Seattle Remodeling Company to perform the repairs. Spiller performed a routine post-repair inspection of the church on October 28, 2015, and he discovered that the glulam beams had been repaired, not replaced.

Mount Zion presented evidence that it elected to refurbish, rather than replace, the arched glulam beams in the sanctuary because removing the roof would have added significant time to the reconstruction timeline. Believing it was entitled to the funds to install new glulam beams, Mount Zion chose to make “substitute expenditures” with funds otherwise allocated for the beam replacement.

Mount Zion chose to replace the old kitchenette with a full-size kitchen, redesigning it to make it more functional for the church’s current needs. The full-size kitchen had upgraded kitchen cabinets, an upgraded sink and faucets, new self-closing drawers, and upgraded appliances. Mount Zion also upgraded the hardware on the front entry doors, upgraded the flooring and base trim in the sanctuary and foyer, upgraded wall and ceiling insulation, reframed the mezzanine for use as storage, installed underground conduits for phone and internet cables, added custom built shelving to a meeting room and classroom, refurbished a street sign not damaged in the fire, and upgraded lighting in the foyer, fellowship building, and sanctuary.

Church Mutual refused to pay the cost of replacing beams the church did not replace. It also refused to reimburse the church’s “substitute expenditures” as “unnecessary” under the Policy.

Mount Zion sued Church Mutual. The trial court denied Mount Zion’s motion.


The sole issue on appeal is whether Mount Zion is entitled to receive the full RCV calculated by Church Mutual under the Policy.

Rules of Construction or Interpretation of Insurance Contracts

The court construes insurance policies as contracts. In construing the language of an insurance policy, its provisions must be construed together so as to give force and effect to each clause. If the language is clear and unambiguous, the court must enforce it as written and may not modify the contract or create ambiguity where none exists. Conversely, if a policy provision is, on its face, susceptible to multiple but reasonable interpretations, the policy is ambiguous, and the court must attempt to discern the intent of the parties and enforce the contract.The expectations of the insured cannot override the plain language of the contract.

Relevant Insurance Provisions

Mount Zion contends the trial court erred in ruling it had no right to receive the full RCV amount. The Court of Appeal concluded that Mount Zion is not entitled to the full amount of the RCV because the Policy limits Church Mutual’s obligation to pay for any loss until the lost or damaged property is actually repaired or replaced.

The Policy gives the insured the option of making a claim for loss or damage on an ACV basis instead of on a replacement cost basis. While the ACV explicitly covers the entire building and all of its component parts as one unit, the RCV explicitly covers only lost or damaged property within the Covered Property.


Although there is nothing in the Policy requiring Mount Zion to rebuild the church, its office, and its kitchen in the exact same configuration as existed before the fire the insurer is not obligated to allow an insured to profit from a loss. Since the ACV payment included the cost of replacing the GLULAM beams, failure to spend the money on the difference between the ACV and RCV does not allow the insured to obtain the RCV needed to replace the beams. Mount Zion was paid for its loss and was not allowed to profit by installing things that were not lost.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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