When is Replacement Cost Fire Insurance Not Really Replacement Cost Fire Insurance?

By Gary Keller

A recent case decided in Ontario’s Superior Court of Justice interprets a section of a homeowner’s fire insurance policy that does not appear to have previously been judicially considered.

An accidental fire destroyed the house. The homeowner was covered under a fire insurance policy which included a Guaranteed Replacement Cost on Buildings (GRC) endorsement.

The homeowner decided to buy a home in another location rather than rebuild the insured property.

The homeowner claimed as his loss the amount of the fire coverage under the GRC endorsement. The insurer said that their liability under the policy was limited to the face amount of the basic fire coverage because the homeowner did not rebuild on the same location.

Both parties agreed that the rebuilding costs on the original location would have exceeded the amount of the basic fire coverage.

After a detailed analysis, the Court concluded that the homeowner was not entitled to the higher GRC amount and his claim was limited to the basic fire coverage.

The GRC endorsement stated that the homeowner was only entitled to the higher coverage if the house was rebuilt “on the same location”.

The homeowner argued that the choice of a replacement home at a different location unnecessarily limits the additional coverage which the homeowner paid for with the GRC endorsement.

It has long been recommended that the GRC endorsement should be carefully considered by the homeowner, as it transfers the risk of calculating the rebuilding cost to the insurer for an additional premium.

This case highlights the necessity of carefully reading the fire insurance policy and reviewing your plans with your agent to avoid disappointment in the event of a loss.