A Zurich Insurance Group Ltd. unit has prevailed in litigation against a construction company over compensation for damage to a condominium caused by 2017’s Hurricane Irma.

The Orchards, a condominium association in Naples, Florida, had an insurance policy with Zurich unit Empire Indemnity Insurance Co. when Hurricane Irma damaged 31 of its buildings, according to Tuesday’s ruling by the 11th U.S. Circuit Court of Appeals in Atlanta in CMR Construction and Roofing, LLC v. Empire Indemnity Insurance Co.

The policy let the insured choose the payment type.  It could choose to receive the actual cash value, which is the replacement cost minus depreciation; it could choose the replacement cost value, which is the replacement cost without the deduction for depreciation; or it could make a claim based on both the actual cash value and the replacement cost value if it notified Empire of its intent to do so within 180 days of the property damage, according to the ruling.

The policy provided, however, that Empire would not pay the replacement cost value until the property was repaired or replaced, and unless the repairs were made as soon as “reasonably possible” after the damage.

After the hurricane, Empire inspected the property, and based on its estimate of the repair cost and factoring in the deductible and depreciation, it paid The Orchards $96,763.53. 

It is not clear from the record “why Empire issued this payment, whether it was meant to be for the actual cash value, or whether it was obligated to make this payment at all,” the ruling said.

After Empire issued the payment, The Orchards assigned its rights to Naples-based CMR Construction.  About five months after Empire’s payment, CMR sent the insurer an estimate for the replacement cost value, which it said was $4.95 million.  CMR had not completed any repairs.

Empire responded by sending CMR its own estimate “and invited questions for its expert’s consideration,” according to the ruling.

CMR responded by filing suit against the insurer in U.S. District Court in Jacksonville, Florida, charging the insurer with breach of contract, because Empire had allegedly underestimated the costs necessary to make the repairs and “had failed to acknowledge coverage for all covered damages sustained.” Discovery revealed CMR was requesting replacement cost value and not actual cash value.

The district court granted the insurer summary judgment dismissing the case, which was unanimously affirmed by a three-judge appeals court panel.

The district court found “Empire had not breached because CMR sought only replacement cost value yet had not completed any repairs, which under the plain language of the policy was a requirement to receive replacement cost value,” the appeals court ruling said.

“We cannot rewrite the plain terms of the insurance policy,” the panel said, in affirming the lower court’s ruling.

Attorneys in the case did not respond to requests for comment.