Replacement Cost Deadlines and Relief from Forfeiture

On March 4, 2005, the British Columbia Court of Appeal affirmed that "relief from forfeiture" is available to insureds to enforce replacement cost coverage even though the repairs were not made within the 180 day period required by the Policy.

Hua v. Optimum West Insurance Company involved a fire claim under a homeowners policy which provided the option of replacement cost loss settlement if the repairs or replacement were carried out "within 180 days after the damage".

The insured retained a public adjuster who dealt with the insurers adjuster respecting valuation of the loss. The coverage lawsuit was resolved by way of a summary trial based on affidavits from, among others, both adjusters, each of whom testified as to the negotiations between the parties and to different dates upon which the quantum of replacement cost was determined. Ultimately, the trial Judge preferred the evidence of the insureds public adjuster and ruled it was reasonable for the insured to have held off starting repairs until he had the insurers agreement as to how much of that cost the insurer would cover:

Section 10 of the Insurance Act provides:

In this case, the insurer advanced the ACV within 180 days of the loss but repairs were not carried out before the 180 days expired. The insurer therefore refused to settle the loss on a replacement cost basis. When the insured sued to enforce coverage by invoking the above relief from forfeiture provision of the Act, the insurer responded that failure to rebuild within the 180 days did not constitute imperfect compliance but rather was non-compliance and Section 10 of the Act therefore did not apply. The Court of Appeal agreed this was the critical issue.

Ultimately, the Court ruled that failing to repair/replace within 180 days constituted imperfect compliance with the Policy provision and therefore relief from forfeiture was indeed available under the Act in appropriate circumstances. The Court also ruled there was no basis for disturbing the trial Judges determination that it was reasonable for the insured to have held off starting the repairs or replacement of the property until he had the insurers agreement as to how much of that cost the insurer would pay. In light of the communication difficulties between the adjusters and the insureds acknowledged intention to reconstruct the property throughout, the Court upheld the relief from forfeiture which had been granted by the trial Judge.

This case exemplifies the rock and the hard place between which adjusters often find themselves. Theoretically, it is the insureds sole responsibility to carry out repairs and present the costs for reimbursement by way of the formal proof of loss procedures contemplated by the Policy. In practice, of course, insurers want their adjusters to play a significant role in that process to ensure the costs incurred, and therefore ultimate exposure under the Policy, are kept within reasonable limits. Should disagreements arise with respect to valuation issues, any debate between the parties may, as the Hua case demonstrates, result in any 180 day replacement period being waived, whether under the guise of relief from forfeiture or otherwise.

The Hua v. Optimum West Insurance Company case is available on the B.C.C.A. website at:

http://www.courts.gov.bc.ca/jdb-txt/
ca/05/01/2005bcca0123.htm

Readers with any questions are invited to contact Nigel Kent at npk@cwilson.com or 604-643-3135 (direct dial).