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The Insurance Company’s Right to Repair in the Event of a Loss Creates a New Repair Contract with New Rights Imposed on both the Insured and Insurance Company

insurance_claim_form-resized-600.pngThe insurance company often has a right to repair the damaged property in the event of a loss. This right is found in many insurance policies. Moreover, when the insurance company elects to repair the damaged property, that election is binding on the insured.

But the insurance company’s election to repair the damaged property creates a new contract with its insured. If the insurance company breaches that new contract to repair then the insurance company becomes liable for the damages proximately caused by this breach despite the policy limits. Thus, for instance, if an insurance company elects to repair property and then fails to do so, the insured may recover damages for loss of use.

Today, more and more insurance companies are invoking the right to repair. When they do so, they are creating a new repair contract with no limit of liability. Please contact our office today if you are in doubt regarding your rights under the insurance policy.

However, what many field adjusters working for insurance companies are doing is often “pushing” an insured into selecting a contractor of the insurance company’s choosing without so much as giving the insured an option to select a different contractor. That contractor “selection” often times becomes a source of dispute in litigation, especially when the insured is never given a choice to select a different contractor.

For instance, in Drew v. Mobile USA Ins. Co., 920 So.2d 832 (Fla. 4th DCA 2006), the appellate court concluded that a jury must decide whether the insured had in fact selected the contractor that performed repairs to the damaged property, or if the contractor was selected by the insured. In so ruling, that court concluded as follows:

where the insurer elected to repair, the insured could recover damages for loss of use proximately caused by the failure to repair it within a reasonable time, even though there was no coverage in the policy for loss of use. when the insurer makes its election to repair, that election is binding upon the insured and creates a new contract under which the insurer is bound to restore the property within a reasonable time. Where the insurer breaches this new contract to repair, it becomes liable for the damages proximately caused by this breach. Thus, this court allowed the insureds to recover damages outside of the scope of the policy in their breach of contract claim, even though the insurer was not alleged to have acted in bad faith. See also State Farm Mut. Auto. Ins. Co. v. Dodd, 276 Ala. 410, 162 So.2d 621, 626 (1964) (“It is the general rule that where a policy gives the insurer an election to repair or pay, the exercise of the option to repair converts the original contract into a contract to repair, subject of course to various refinements and exceptions.”).

If the insurance company selects the contractor to repair the property, and if the repairs are done poorly, then the insured could be able to recover damages in excess of the policy limits including damages for loss of use.

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