Actual Cash Value versus Replacement Value

Insurance lawyers in Parker County need to read a Houston Court of Appeals [1st Dist.] opinion issued in October 2105. It is styled, John Davis D/B/A J. D. House of Style v. National Lloyds Insurance Company.
This is an appeal by Davis from a Judge’s ruling on a JNOV in favor of National.
The court submitted two measures of damages to the jury, and the jury determined that Davis sustained $0 damages based on the actual cash value of the property claim and that he sustained $100,000 in damages based on the replacement value of the property claim. National Lloyds moved to disregard the replacement value finding, arguing, in part, that the plain language of the policy itself limited Davis to recovery for the actual cash value of his property damage claim.
Davis’s insurance policy provided that National Lloyds would “determine the value of the covered property in the event of loss or damage . . . at actual cash value as of the time of loss or damage.” The Optional Coverage provision stated that “Replacement Cost (without deduction for depreciation) replaced Actual Cash Value in the Loss Condition, Valuation of this Coverage Form” if such coverage was “shown as applicable in the Declarations.” The Declarations Page had a section stating, “Optional Coverages–applicable only when entries are made in the schedule below.” However, no entries for optional coverage were made on the schedule.
Reading all parts of the policy together and giving effect to each word, clause, and sentence, the court concluded that the policy expressly stated that it covered the actual cash value of a loss unless the optional coverage for replacement cost was entered into the schedule on the Declarations Page. Here, there was no such entry of optional coverage for replacement cost, and thus no optional coverage applied. Thus it was concluded, based on the plain language contained in the policy, that it covered only the actual cash value of Davis’s property damage claim.
Davis argues that the “(X)” in the heading for “Replacement Cost” under the Optional Coverage section of the Declarations Page indicates that he selected the Optional Coverage for replacement value, or it at least creates an alternative reasonable interpretation of the policy. He argues that because there is an ambiguity in the policy, it must be construed against National Lloyds.
However, the “(X)” that Davis relies upon to show his purported selection of optional coverage is insufficient under the plain language of the insurance policy to demonstrate the existence of replacement cost coverage. The Declarations Page expressly states that Optional Coverages are “applicable only when entries are made in the schedule below,” which requires the entry of a premium number and a building number in addition to other information depending on the type of optional coverage. No such entries were made on the Optional Coverage Schedule.
Davis argues in the alternative that the policy is at least ambiguous because there are two reasonable interpretations of the extent of his coverage, and, thus, the policy must be construed against National Lloyds. He cites the testimony of National Lloyds’ independent insurance adjuster, Mohr, regarding his understanding of Davis’s policy and his statement that it was “reasonable” to interpret Davis’s policy as covering the replacement-cost value of a property damage claim. However, Mohr’s testimony on the interpretation of Davis’s policy is irrelevant, as the interpretation of a contract is a question of law to be determined by the court based on the language in the policy itself.
Plus, the court disagreed that the policy is ambiguous. “If only one party’s construction is reasonable, the policy is unambiguous and the court will adopt that party’s construction.” Here, the only reasonable interpretation of the contract that gives meaning to all of the provisions in Davis’s policy is that the absence of any entries in the Optional Coverage Schedule means that the valuation provision applies as written: National Lloyds “will determine the value of Covered Property in the event of loss . . . at actual cash value as of the time of loss or damage. Because the wording of the policy can be given a definite legal meaning, no ambiguity exists. The policy here covered the actual cash value of Davis’s property claims and cannot reasonably be construed as providing coverage for replacement cost value “without deduction for depreciation.”
Finally, Davis argues that the trial court erred in disregarding the finding on replacement cost damages because the jury heard evidence regarding whether the policy was an actual cash value or a replacement cost value policy and that, by its award of $100,000 in damages for replacement cost value, it decided this question in his favor. However, as discussed above, the interpretation of an insurance policy is a question of law for the court to decide based on the language in the policy itself, not a question of fact to be determined by the jury. The question of whether the insurance policy covered the actual cash value or the replacement cost value was never submitted to the jury. The charge instructed the jury to find damages based on two different measures of damages, and the court must presume that the jury followed the instructions in the charge. The jury’s finding here on the amount of damages cannot be considered a finding determining the terms of the policy.
As a result of the above analysis, this court upheld the JNOV in favor of National.