The insured has a Guaranteed Replacement Cost option on their policy with no limit. The limits were paid and we are dealing with the GRC. The insured's house suffered a significant fire and they chose to purchase another home instead of repairing. The insured residence was 7,000sf. The new home is 4,200sf. After deduction for land value, the amount available is substantially less than the full replacement cost settlement. The insured is doing renovations and the full amount claimed will be less than the total settlement available.
The carrier is stating they will not consider the renovations as part of the recovery and will only pay for the home purchase. The policy form is attached. Please advise your opinion on using the renovation cost as part of the GRC recovery.
Michigan Subscriber
The problem comes in when the insured bought a different dwelling to replace the damaged, covered building. The policy states:
"When there is a total loss to the building insured under Coverage A and you elect not to rebuild, we will pay the lesser of:
a. The replacement cost at the time of loss without deduction for depreciation; or b. The Coverage A limit of liability shown in the Declarations. "
This limits the insured to the cost of the replacement dwelling – the replacement cost of the house. Had the insured rebuilt at a separate location that would have been covered per this language under 4.2. " If the building is rebuilt at a new premises, the cost described in a. above is limited to the cost which would have been incurred if the building had been rebuilt at the original premises." Unfortunately for the insured he is not rebuilding the premises, he is renovating an existing premises that he bought to replace his old dwelling. The cost of the new house is the replacement – renovations are not considered part of the replacement, as the insured could have bought a different house, could have rebuilt his old house, or rebuilt it someplace else.