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You Can't Go Home Again – If You Seek to Recover Replacement Costs For a Second Home
Insurance Law Update
May 2010
In Nunez v. Allstate Ins. Co., __F.3d __, 2010 WL 1579410 (5th Cir. (La.) April 20, 2010), the Fifth Circuit Court of Appeals ruled that under the plain meaning of the term "replace" in a homeowners' policy, the insureds' purchase of a home in Texas after their Louisiana home was partially destroyed but retained, did not constitute a substitute or replacement entitling them to additional payment under the policy.
Chet and Wendy Nunez had flood and homeowners' insurance policies with Allstate Insurance Company when Hurricane Katrina damaged their home in Louisiana. The Nunezes received their flood policy limits, and Allstate made some payments for wind-related damage under the homeowners' policy. After the hurricane, the Nunezes moved to Houston and bought a house with the money they had received from Allstate. In the meantime, they gutted the Louisiana house, elevated it, and patched the roof.
The Nunezes filed suit against Allstate to recover additional payments under the homeowners' policy for wind damage to their home. The trial court heard evidence, including deposition testimony, that the Nunezes intended to someday repair and return to the Louisiana property. The trial court granted summary judgment in favor of Allstate.
On appeal, the Nunezes argued they were entitled to recover replacement costs because the policy expressly provided for replacing the damaged building through the purchase of an existing structure. They asserted that their purchase of the Houston home replaced the insured property and their intent to someday return to the Louisiana house was irrelevant. Allstate argued that the Nunezes did not "replace" their insured property because they had already made some structural repairs.
In affirming, the Fifth Circuit explained that since neither the policy nor Louisiana case law defined the term "replace," the term must be given its "generally prevailing meaning." The court observed that, although the Houston home presently served the same function as the Nunezes' Louisiana house once did – as their primary residence, the Nunezes stated intent was to return to the Louisiana home. Therefore, the court concluded, "according to the plain meaning of the term 'replace,' the Nunezes' purchase of their Houston home does not constitute a substitute or replacement under the policy." Thus, as a matter of law, they could not recover under the policy's replacement provision.
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