In Hoover v Country Mutual Insurance Company, 2012 IL App (1st) 110939, the Illinois First District Appellate Court shot down every argument the policyholders made in an attempt to recover full replacement costs for their home and contents when an explosion completely destroyed it.  The Court’s opinion is a road map for unsuspecting homeowners who might foolishly believe that they can rely on the insurer’s agent to sell them a policy that actually provides what the agent tells them they are buying.

It is not often that you find an Illinois trial and appellate court so unsympathetic to a policyholder who has suffered such an egregious loss and is left without any remedy.  This case is also an excellent example of almost all of the ways that most property owners get caught by surprise in how insurance actually works.

First, in order to collect the replacement cost of one’s home, one must actually rebuild.  Until you rebuild, you only get to collect the “actual cash value” of your property, which is typically the “depreciated” value of the replacement cost.  An excellent example of the difference between actual cash value and replacement cost is reflected in a recent U.S. Court of Appeals for the Ninth circuit unpublished case, Sierra Pacific Power Company v. Hartford Steam Boiler, No. 09-16662 (7/27/2012).

Second, if you don’t sue your insurer within the one-year suit limitations clause in your policy, you won’t be able to hold the insurer liable for breach of contract, i.e., failing to pay what you say is owed under the contract. 

Third, because the policyholder purchased a liability limit that was less than 80% of the actual replacement cost of their home (“co-insurance clause”), the insurer had no obligation to pay the actual replacement cost. 

Fourth, even though the agent assured the homeowner he had procured full replacement cost coverage for his home and contents, which was false, the action for negligent misrepresentation was barred by the “economic loss doctrine” and the negligence action was barred by the statute of limitations.  The Court refused to apply the “discovery rule” exception to the statute of limitations argument, finding that the homeowner had a duty to read the policy, understand the co-insurance clause, and recognize within 2 years from receiving the policy (and before the denial), that he had failed to buy enough limits to obtain full replacement cost coverage.  The Court also refused to apply the “knowledgeable fiduciary” exception to the economic loss doctrine, finding that the insurance agent was not in the business of supplying information for the guidance of others, but was merely selling insurance. 

This case gives new meaning to the adage, “buyer beware.”