Under a homeowner’s policy providing “open actual cash value coverage,” the insurer must pay, on a partial loss claim, the lesser of (a) the policy limits or (b) the actual cost of repair, even if the repair cost exceeds the property’s pre-loss market value. Under Ins. Code 2051, a homeowner’s policy providing open (meaning the policy doesn’t state the value of the insured home) actual cash value coverage, requires the insurer pay on a partial loss claim the lesser of (a) the policy limits or (b) the amount it will cost the insured to repair, replace or rebuild the damaged portion of the structure, less an allowance for depreciation. This is true even though the cost of repair exceeds the value of the value of the home before it suffered the insured damage—and even though upon a total loss of the structure the same statute provides that the insurer must pay the lesser of policy limits or the structure’s fair market value. Under Ins. Code 2071, the fire coverage provided by a homeowner’s policy may depart from the standard set in section 2051 only if it is no less favorable to the insured. So, here, despite the wording of its policy, the Fair Plan had to pay the estimated $325,000 repair cost on a structure that pre-fire was worth only $75,000.
California Court of Appeal, First District, Division 2 (Stewart, J.); May 26, 2017; 2017 WL 2303165