§ 175:16 – MODERN VIEW THAT POLICY LIMIT APPLIES TO EACH LOSS
§ 175:47 – DIMINISHED VALUE AFTER REPAIR
§ 175:49 – REPAIR OR REPLACEMENT COST AS AFFIRMATIVE DEFENSE
§ 175:60 – GENERALLY
§ 176:38 – CONVERSION; INSURER’S FAILURE TO RETURN PROPERTY AFTER REPAIR
§ 177:19 – RECOVERY OF DIMINUTION IN VALUE
§ 177:45 – MEASURE OF DAMAGES
§ 177:68 – PARTY WALLS


§ 175:16 MODERN VIEW THAT POLICY LIMIT APPLIES TO EACH LOSS

Contrary to the view that total amount available for recovery for each successive loss is reduced by the amount of prior losses, [FN61] other jurisdictions hold that the insured may recover up to the face value of the policy regardless of the number of successive losses provided that the insured sustains an actual loss. [FN62]

    Observation: This rule has practical limits. If an initial loss lowers the value of the property, and the property is not restored to its prior value by the time the second loss occurs, the second loss is potentially “limited” not by reduction of the applicable policy limit, but by the diminished value of the covered property. [FN63]

Policy provisions may expressly address this result, as where the insured purchases a policy which expressly states that losses thereunder will not reduce the amount available for each covered occurrence; however, the policy may also provide that the insurer may terminate the policy within a specified period after the initial loss, and where termination occurs in a timely fashion, the insured’s recovery for a subsequent loss may be limited to the recovery of unearned premiums during the cancellation period. [FN64]

Observation: Where the insurer is liable for successive losses, such liability may also dictate the insurer’s ability to offset a separate deductible as to each loss. [FN65]
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§ 175:47 DIMINISHED VALUE AFTER REPAIR

A vehicle is not restored to substantially the same condition if repairs leave the market value of the vehicle substantially less than the value immediately before the collision. [FN80] Hence, where the property is repairable but after repair the property does not have the same market value as before the harm was sustained, such additional loss element may be taken into consideration. [FN81] Thus, it has been held or recognized in a number of cases that an element of damage for which recovery may be had under an automobile collision insurance policy is the difference in value before the collision and after repairs have been made. [FN82]

However, there is some authority to the contrary, holding that under a homeowners’ policy limiting recovery for loss to covered building structure to the smaller of the replacement cost or the cost of repair, the insurer could not be held liable, in addition, for loss in the market value of a house after repair of a collapsed basement wall. [FN83]
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§ 175:49 REPAIR OR REPLACEMENT COST AS AFFIRMATIVE DEFENSE

An insured in an action on a policy insuring property or a dwelling to the extent of its actual cash value at the time of loss, but not exceeding the amount it would cost to repair or replace, properly alleges actual cash value as damages; [FN85] the cost of repair or replacement has to be pleaded defensively by the insurer, since the actual cash value is the basic measure of loss. [FN86]

    Observation: In some jurisdictions if this defense is not affirmatively pleaded in an answer by the insurer, it is waived and lost. In addition, the insurer should request that an interrogatory be submitted to the jury that determines the market value as well as repair or replacement cost in order to determine how the jury arrived at any potential award. This will help prevent an inconsistent verdict.

Nevertheless, under such a provision covering “actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind or quality within a reasonable time after such loss,” a jury is entitled to award damages based on replacement cost where, following the insureds’ presentation of evidence of such cost, the insurer did not argue that it exceeded market value or make any effort to establish the property’s market value. [FN87]
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§ 175:60 GENERALLY

There are cases allowing full recovery to the owner of a qualified or limited interest. These cases either draw a distinction to justify the divergence, or are distinguishable on their facts or on some fundamental legal principle rendering a contrary view inequitable and unjust. In some instances, the ruling is clearly because the limited interest of the insured was only temporary, and was made complete before the insured claimed the proceeds. [FN29] Other rationales are less clear. Thus, where a building supported by a party wall is insured and such wall is destroyed, the insured may recover the diminution caused thereby in the value of its building, which may include the full value of the wall, since the value of the building is dependent upon the full use of such wall. [FN30]

    Observation: It is extremely difficult to reconcile this line of cases with the cases in the preceding division based upon traditional principles. The practitioner should initially research the law in the particular jurisdiction and, if not satisfied with the holdings in that jurisdiction, review the cases in other jurisdictions to determine whether there is a basis to argue for a change in the law.

Where the insured is merely the agent, bailee, consignee, factor, and so forth, of the owner and insures the property as such representative of the owner, he or she may recover the full value of the property and hold the excess for the owner. [FN31]

Some cases which allow full recovery to the qualified owner base their holdings upon elements of estoppel on the part of the insurer, as where the insurer, with full knowledge of the nature of the insured’s interest, insures the property for its full value and charges premiums accordingly. [FN32]
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§ 176:38 CONVERSION; INSURER’S FAILURE TO RETURN PROPERTY AFTER REPAIR

Where an automobile collision insurer agrees to settle a loss by making repairs, and makes repairs but wrongfully withholds the use and possession of the car from the insured, it converts it and is liable as for the conversion. [FN28]

    Observation: In most jurisdictions, a conversion cause of action must be separately pled and must contain specific allegations pertaining to ownership rights and the interference with those rights.

Thus, for example, where an automobile collision insurer left a draft with the repairer for the amount of repair bill less deductible portion, and instructed the repairer not to deliver the car to the insured unless he or she executed a full release notwithstanding that the insured had the contractual right to collect from the insurer for the diminution in value of the automobile, and insured refused to execute the release, insurer was liable for conversion and insured could recover actual and punitive damages. [FN29]

Where the insured under an automobile collision policy and the insurer were unable to agree upon the amount of the loss after the insured refused to allow repair because he or she considered the automobile a total loss, and the insurer took the liberty of removing the automobile from the shop where it had been stored following the accident and sold it to a salvage company while ownership was still vested in the insured, the insurer tortuously converted the automobile. [FN30]

A collision insurer covering a tractor trailer which performed acts of dominion over the unit after the collision in defiance of the insured’s right to possession was liable for conversion, as against the contention that since such acts were part and parcel of an effort to repair, the insurer’s good intentions should be a complete defense. [FN31]

While a collision insurer of a tractor trailer had contractual duties and obligations to perform with regard to repairs after a collision, it was not entitled to approach those duties in such a manner as to breach the rights of the insured in the performance, and had no right of conversion. [FN32]
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§ 177:19 RECOVERY OF DIMINUTION IN VALUE

By one view, an automobile collision policy limiting liability to actual cash value or what it would cost to repair or replace with an other of like kind and quality does not require that the repairs restore market value, but only restore physical condition. [FN72] By an opposing view, under an automobile collision policy with a liability limit of the lesser of the actual cash value of the damaged vehicle or the amount necessary to repair or replace the vehicle, less the deductible, the term “repair” means restoration of the vehicle to substantially the same condition and value as existed before the damage occurred, so that the correct measure of loss caused by collision is the difference in market value of the automobile immediately before the collision and the combined amount of its market value immediately after being repaired, plus the deductible; thus, where the insurer elects to pay the insured the repair cost less the deductible, which was less than the actual cash value of the vehicle, the insured was entitled to recover the difference in value of the vehicle before the collision and after the repairs, plus the deductible. [FN73] Stated otherwise, where the repairs by the insurer under a collision policy did not substantially restore the automobile to its former condition and value, the proper measure of damages was the difference in the value before it was wrecked and the value after it was wrecked, repaired, and tendered to the insured. [FN74]

And, under yet another view, which may perhaps explain the different conclusions actually reached in the foregoing cases, the issue of recovery of loss of value in addition to repair costs presents a question of fact under the particular circumstances; [FN75] where the fact finder determines that the insured is entitled to recover any diminution in value, the insured could establish this loss by showing the reasonable value of labor and materials used for repairs and the amount of any permanent impairment in value of the property after it is repaired, provided the aggregate of these amounts, together with loss on property while incapable of being used, does not exceed the value of the property immediately before injury or damage together with interest thereon. [FN76]

Observation: The insured should make a public policy argument that any formula used must be adequate to place the insured in the same position he or she was prior to the loss.
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§ 177:45 MEASURE OF DAMAGES

Under a policy of boiler insurance providing that where liability arises on account of an explosion, proper deduction for previous depreciation should be made in determining the true cash value, the difference between the value of the boiler immediately before and immediately after the explosion is the measure of damages, unless it is believed that the boiler has been adequately repaired, in which case it is the cost of such repairs plus the diminution in value caused by the explosion and repair. [FN73]

Where a machinery and boiler policy covering a turbine and generator insured against loss to the property directly damaged by an accident, and expressly excluded losses indirectly resulting from such damages, the damage sustained by the turbine is the measure of damages, [FN74] whereas incidental loss resulting therefrom, such as expenditures for fuel in excess of what would have been expended had the turbine continued in service, the cost of purchasing electric current, and the cost of using a standby plant, cannot be recovered. [FN75]
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§ 177:68 PARTY WALLS

The owner of a building supported by a party wall which is injured by the burning of the adjoining building may recover, under the insurance policy on his or her building, an amount equal to the diminution in its value because of the injuries to the party wall, which may include the full value of the wall. [FN61]

Where an insurance policy covers property described as a frame building and an undivided interest in a brick wall, and no separate valuation is placed upon the building and the wall, and subsequently the building is destroyed by fire without injury to the wall, and the insurer is prevented from restoring the building by the fire ordinances of the city in which the property is located, in which event it is provided in the policy that the insurer shall be liable for the amount that it would cost to make such repairs, the insurer is liable for the amount it would thus cost to restore the premises, or the actual loss to the insured, without deduction for the value of the wall. [FN62]

But the owner of adjoining buildings, who obtains from different companies a separate fire insurance policy on each building, is not entitled, on the complete destruction by fire of one of the buildings, together with the party wall, for which loss he or she has recovered judgment against the insurer, to duplicate his or her recovery for the damage to the wall from the other insurer, whose policy contains a provision for prorating insurance on the property, but his or her recovery should be limited to that proportion of the cost of replacing the wall which the amount of the policy bears to the whole insurance. [FN63]