OPINION ATTACHED–Third District Court of Appeal: Overhead and Profit Not Required to be Paid Under Replacement Cost Policy Unless Actually Incurred or Likely to Be Incurred

In an opinion released (Trinidad v. Florida Peninsula Ins. Co.) on May 18, 2011, Florida’s Third District Court of Appeal held that a carrier is not required to pay overhead and profit as a part of its replacement cash value payment to an insured if the insured never hires a contractor and does not repair the damage. 

The policy at issue was a replacement cost policy that obligated the carrier to pay the cost to repair or replace, “but not more than. . . the necessary amount actually spent to repair or replace the damaged building.”  Based on this policy language, the Court held that an insured must “actually incur” overhead and profit, or demonstrate that he or she is “likely to incur” overhead and profit. 

The Court was careful to point out that the policy language governed the outcome of the case.  Furthermore, the Court stated in dicta that, if the policy provided for payment of an insured’s loss on an actual cash value basis, the carrier would have been required to include overhead and profit where it is reasonably likely that a general contractor would be needed to make the repairs-regardless of whether the repairs are actually made.  

The opinion does not become final until disposition of any timely filed motion for rehearing. 

A copy of the opinion is attached for review.

Should you have any questions or comments, please contact Colodny Fass.

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