131_C150

BUILDING NOT REPAIRED: REPLACEMENT COST VALUE DENIED

Commercial Property	Depreciation	Fair Market Value
Replacement Cost	Actual Cash Value	Disputed Facts

Gordon Hackman owned a building in St. Charles Parish, Louisiana. A fire on May 16, 2003 partially destroyed it. Employers Mutual Casualty Insurance Company (EMC) insured the building. Hackman told EMC about the loss and sent it a formal Proof of Loss on June 9, 2003. EMC received it on June 13, 2003.

EMC sent Hackman a check for $64,775.07 that he received on July 15, 2003. A note that accompanied the check stated that the check was for “fire loss less $7,294.62 depreciation and $1,000 deductible.” Hackman did not make any repairs to the building and sold it “as is” on January 28, 2004.

Hackman filed a Petition in Suit for Fire Contract Damages against EMC on April 20, 2004. The suit stated that EMC refused to pay the market value of the repairs or the actual amount of damage to the building and instead deducted depreciation. Hackman sued to recover the actual damages and loss of rental income. EMC filed a Motion for Summary Judgment. It stated that Hackman was not entitled to replacement cost valuation because he did not make any repairs and that it must pay only Fair Market Value which includes a deduction for depreciation.

Hackman filed an opposition to EMC’s motion and a separate motion for summary judgment on September 20, 2005. It stated that Louisiana law required that EMC pay the full amount of the actual cash value to repair or replace property that fire damaged. He argued that EMC did not conform to the statute because it did not pay the actual cash value but deducted depreciation instead.

The trial court heard both motions on November 20, 2006 and rendered judgment in open court. It granted summary judgment in favor of EMC. It also determined that the policy allowed EMC to withhold amounts for certain repairs until they were actually made. It noted that Hackman did not make any repairs before he sold the building. As a result, EMC was not obligated to pay the amount it held back. The trial court signed the written judgment on January 20, 2007. Hackman appealed.

On appeal, Hackman argued that there were two reasons that the trial court was mistaken. It failed to apply the plain terms of the Fire Statute that required that EMC pay the actual cash value of the loss without deducting depreciation. It also erred in granting summary judgment based on disputed facts.

The appellate court examined the relevant parts of the policy and noted that it does not pay on a replacement cost basis until the damaged property is actually repaired as soon as reasonably possible after the loss. The Fire Statute required that the policy insure the property to the extent of its actual cash value, not to exceed the amount to repair or replace it with similar property. The policy provision stated that it would not pay on a replacement cost basis until the repair or replacement was actually done. The court determined that EMC did not violate the statute because it would have complied with it if Hackman had repaired or replaced the property. The court also noted that Louisiana law defines actual cash value as reproduction cost less depreciation.

In adjusting the loss, EMC retained an independent adjuster that determined that the building’s replacement cost was $72,069.69 after applying the $1,000 deductible and the $7,294.62 value of depreciation. These figures were used to arrive at the $64,775.07 payment. The court ruled that EMC complied with both the statute and the unambiguous language of the policy and affirmed the trial court’s grant of summary judgment in favor of EMC.

Court of Appeal of Louisiana, Fifth Circuit. Gordon Hackman and Gordon Hackman Law Corporation v. EMC Insurance Company.
No. 07-CA-552. March 25, 2008. 984 So.2d 139, 07-552 (La.App. 5 Cir. 3/25/08)