Insureds Are Entitled To Amount Incurred In Debt
Under a "withheld depreciation" provision of a fire insurance policy, insureds are entitled to the withheld depreciation even if they have not "spent" the money for the portion of the repair or replacement represented by the depreciation, the Supreme Court of Connecticut ruled on Dec. 1 Northrop v. Allstate Insurance Co. 15969.
Affirming the high court held that under the dwelling-protection provision of the policy, the limit of the insurer's liability to "the amount actually and necessarily spent to repair or replace the damaged building" covers the situation in which the insureds incurred a valid debt for the repair or replacement. Justice David M. Borden said, "[I]t would defy the reasonable expectations of the insured, and in many cases place undue burdens on him, to require the insured to finance the withheld depreciation portion of the repair or replacement of a fire loss in order to secure the replacement cost coverage for which an additional premium had been paid."
William and Cleo Northrop brought an action against Allstate, claiming breach of contract based on the insurer's failure to pay the withheld depreciation portion of their fire insurance coverage. Allstate argued that the Norhrops were not entitled to the payments because they had not actually spent the money for the depreciation portion of the repair, but had only incurred a debt for that amount.