Property Must be Replaced to Gain the Difference between ACV and RCV


Insurer Properly Held Back Depreciation Before it was Obligated to Pay for Full Replacement Cost

In an insurance coverage dispute, plaintiff Jeanette Lanier appealed from a Law Division order granting summary judgment to defendant Farmers Mutual Fire Insurance Company of Salem County. In Jeanette Lanier v. Farmers Mutual Fire Insurance Company Of Salem County, DOCKET NO. A-1398-19T2, Superior Court Of New Jersey Appellate Division (December 31, 2020) the court dealt with the need to actually replace before a homeowners insurer is required to pay full replacement cost.


Viewed in the light most favorable to plaintiff, the pertinent facts are as follows: In December 2016, plaintiff’s home was damaged when a pipe suddenly burst. Plaintiff submitted a timely claim under the homeowner’s insurance policy issued by defendant, which accepted the claim as a covered loss.

The parties thereafter disputed the extent of damages to plaintiff’s home and the cost of repairs. Defendant’s adjuster provided an estimate of damages, with a replacement cost value (RCV) of $48,997.31. Plaintiff retained an inspector, who estimated the RCV at $174,635. Defendant paid plaintiff $39,163.25 as the actual cash value (ACV) for damages to the building after removing $9,834.06 for depreciation.1

Plaintiff’s policy provided $305,000 in coverage for the building, with a $1000 deductible. The policy also contained the following precondition for replacement coverage:

We are not liable for payment on a replacement basis until the repair or replacement is completed by you or us, unless the total cost for full repair or replacement is less than $2,000. You may submit a claim on an actual cash value basis and then, no later than 180 days following settlement on an actual cash value basis (or our offer of such if you decline settlement) make further claim on repair or replacement. Repair or replacement is to be completed by the time you make such claim.”

It is undisputed that plaintiff did not provide proof of “repair or replacement” under the terms of the policy. Nor did plaintiff request payment of depreciation hold-back. Instead, she sued defendant, alleging: breach of contract (count one); breach of implied covenant of good faith and fair dealing (count two); and violations of the Consumer Fraud Act, (count three). Plaintiff thereafter retained an expert, who opined in his December 2018 report that the RCV was $129,166.82.

When deposed in June 2019, plaintiff said her contractor had begun repairs two weeks prior. In that regard, plaintiff produced in discovery a May 9, 2019 repair contract with a total repair price of $210,041. Plaintiff acknowledged defendant’s 2017 estimate for RCV for the structure but testified she did not select defendant’s contractor to perform the work because its estimates were “very low” compared to other estimates she had received. Plaintiff therefore assumed defendant’s contractor would “do bad, shoddy work.”


Following the close of discovery, defendant moved for summary judgment. Relevant here, defendant primarily argued plaintiff failed to produce any evidence “that the ACV of payments made” was “inadequate.” Plaintiff countered that an “impossibility of performance” excused the satisfaction of the precondition set forth in the policy. Plaintiff argued she could not afford to repair or replace the property without the insurance proceeds for the total amount of repairs sought.

In a comprehensive statement of reasons that accompanied the order, Judge Frank Covello granted defendant’s motion. Squarely addressing the issues raised in view of the governing law, the judge concluded the terms of the policy were clear and plaintiff failed to provide defendant with proof of repair or replacement. The judge further found plaintiff “did not provide evidence to show that the ACV [wa]s not sufficient.” And, plaintiff conceded “she did not produce reports on the ACV of building loss.”

Citing the decision in Ward v. Merrimack Mutual Fire Insurance Co., 332 N.J. Super. 515, 522 (App. Div. 2000), the motion judge recognized that a party to a contract may not avail itself of a condition precedent where its own conduct rendered compliance with the condition impossible. The judge noted his concern that defendant appears to have no mechanism to provide payment of RCV value until the repairs or replacements are completed, thereby requiring the insured to front the money and seek reimbursement later. But the judge nonetheless found “the plain language of the contract provides for a process whether RCV can only occur after the acceptance of a settlement amount or rejection thereof.”

The judge reiterated his earlier conclusion that the precondition “is a valid and enforceable policy provision.”

On appeal, plaintiff reprised her argument that issues of fact precluded summary judgment as to whether impossibility of performance existed, thereby excusing the policy’s replacement precondition for recovery of RCV. The appellate court affirmed the trial court because of the thoughtful and thorough reasons articulated by Judge Covello in his accompanying decision and concluded that there are no material factual disputes.


It is axiomatic that clear and unambiguous language in an insurance policy contract is always enforceable. The language of the policy allowed the insured to collect the actual cash value of the loss and, after completing repairs, request the held back depreciation. She did not do so but, rather, filed an overzealous and early lawsuit – ignoring the ability to have the amount of loss determined by disinterested appraisers but concluded, unilaterally, that the calculation of the insurer was based upon would “do bad, shoddy work.” The case proved the problem with assuming sine the word “ass u me” can be broken into its component parts.

© 2020 – Barry Zalma

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 52 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 53 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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