Facts: Nicolaou sought to recover the full replacement cost of his fire-damaged home. At the time of the fire, Nocolaou was insured under a homeowners’ policy issued by Vermont Mutual. The policy contained an additional coverage endorsement which required the insurer to pay the replacement cost provided that the insured met certain preconditions and elected to repair or replace the damaged or destroyed building. The policy also stated that the insurer would pay no more than the actual cash value of the damage until the repair or replacement was complete.
After the fire, Nicolaou made a claim under the policy for the replacement cost of the dwelling. Vermont Mutual paid him the policy’s stated limit on the dwelling, and denied Nicolaou’s demand for the full replacement cost, which exceeded the policy limits.
Vermont Mutual sought a pre-trial ruling that Nicolaou was not entitled to the full replacement cost of the dwelling unless he: (1) actually repaired or replaced the building; and (2) complied with policy conditions.
The trial court granted Vermont Mutual’s motion and Nicolaou appealed, arguing that: 1) under RSA 407:11, the policy value statute, he was entitled to the replacement value of the property regardless of whether he actually repaired or replaced the dwelling; 2) the repair or replacement requirement is unconscionable; and 3) the policy language was ambiguous.
First, the Court held that RSA 407:11 did not require Vermont Mutual to pay the replacement value of the home. RSA 407:11 provides that when a building is insured for a specific amount, that amount “shall be taken to be the value of the insured’s interest” in the property. The statute is simply intended to guarantee the insured the stated policy limits when a building is totally destroyed, and does not obligate the insurer to pay the difference between the stated limit and the replacement cost when the insured has elected not to undertake repair or replacement.
Second, the Court found that the repair or replacement requirement was not unconscionable since Vermont Mutual had promptly paid the policy limits, leaving the insured free to repair or replace without uncertainty as to whether coverage would be provided or denied.
The Court also concluded that the policy clearly and unambiguously required the insured to repair or replace the dwelling before the insurer was obligated to pay the replacement cost. The Court found that the term “actual cash value” was not ambiguous and could not be interpreted to refer to “replacement cost”.
Finally, the Court rejected Nicolaou’s claim that it was sufficient for him to indicate an intent to repair or replace in order to trigger the insurer’s obligation to pay the replacement value of the dwelling. The Court held that actual repair or replacement is a precondition to recovery on a replacement cost policy.