Sinatra & Co. Real Estate LLC v. Northern Security Ins. Co.

The U.S. District Court for the Western District of New York recently held that the replacement of a fire damaged building need only be functionally similar to the original building for an insured to recover withheld depreciation under a replacement cost policy. The insured alleged that the defendant insurer wrongfully denied payment for the holdback claim after the insured purchased a new property following a fire loss. The replacement building had the same number of residential units as the original building, but it also had some commercial space. The insurer argued that the replacement building was not of “like kind and quality” as the original, and therefore was not a “bona fide replacement” under the subject policy. As the terms “replace” and “replacement” were not defined in the policy, the court supplied the ordinary meaning of the terms, which dictated that the replacement building only needs to be functionally similar to the original. Ultimately, the insured was entitled to recover the depreciation holdback.