An Indiana church that sought payment at replacement-cost level for fire damage to its property learned the hard way that procrastination can carry a price tag when it comes to settling insurance contracts.
A federal appeals court ruled last week that Church Mutual doesn’t owe replacement-level coverage to Lighthouse Tabernacle Church in Crothersville, Indiana, because higher replacement-cost benefits applied only if the church promptly made repairs, which it didn’t.
Lighthouse Tabernacle got knocked for procrastinating in court, as well. A panel of the 7th Circuit Court of Appeals said that the church waited far too long to argue it was relieved of its contractual obligation to timely rebuild.
The underlying dispute involves whether Church Mutual owes anything beyond baseline coverage for actual cash value of the church.
Lighthouse Tabernacle’s church building caught fire in June 2018, causing extensive damage to the sanctuary, offices, classrooms, and baptismal area. The policy with Church Mutual carried a $2.3 million property-loss limit and provided replacement-cost coverage only under the condition that Lighthouse Tabernacle repairs the property “as soon as reasonably possible.”
Replacement-cost insurance covers “the difference between what [a] property is actually worth and what it would cost to rebuild or repair that property,” as defined in court proceedings.
The baseline coverage for the policy was the property’s actual cost value, which accounts for depreciation.
From the start, Lighthouse Tabernacle sought payment at replacement-cost level, but disputes soon arose over estimates of the cost to replace the building. Church Mutual paid $1.2 million for the undisputed cash value of the property, and in the months that followed paid another $500,000 to cover additional agreed amounts.
Each check was accompanied by a letter that stated the payment was based on the actual cash value, and that for Lighthouse Tabernacle to recover replacement costs in excess of that amount, it should complete repairs within 180 days and provide receipts.
Over the next two years, Lighthouse Tabernacle objected to Church Mutual’s repair estimates and adjustor reports, while not making any progress on reconstruction to the church.
In June 2020, Lighthouse Tabernacle sued Church Mutual for breach of contract and bad-faith denial of replacement-cost benefits.
A district court granted Church Mutual’s motion to dismiss, ruling that Lighthouse Tabernacle had failed to engage with the insurer’s central argument on the church’s failure to comply with the policy’s prerequisites for replacement-cost recovery. Any disputes over replacement cost estimates were irrelevant, the district court said.
In an appeal to the Seventh Circuit, Lighthouse Tabernacle argued it was unable to begin repairs while the dispute over the replacement-cost estimates remained unresolved. The church argued that the dispute relieved if of its contractual obligation to promptly make repairs, citing a pair of Indiana Court of Appeals rulings.
The latter argument, which was new on appeal, isn’t permissible to be reviewed, the Seventh Circuit ruled, citing the limitations of plain-error review in civil cases.
The justices said that if Lighthouse Tabernacle wanted to advance its argument that disputes over repair cost estimates relieved it of its obligation to make timely repairs, it should have done so earlier.
“We’ve observed that litigants who ‘do not do their legal research until after losing in the district court have wasted a judge’s valuable time,’” the court wrote.
The Seventh Circuit affirmed the district court’s judgment in Church Mutual’s favor.
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