## Facts

- Michael Carey and James Fann owned a mixed-use Chicago building (eight apartments and a dentist’s office) insured under a commercial businessowners policy issued by American Family Brokerage, Inc.
- The owners bought the property in 1998 for about $225,000 and spent about $60,000 on improvements; they later paid about $25,000 to repair flood damage in three units.
- The policy in effect for September 1, 2000 to September 1, 2001 had an $850,000 limit and valued covered property at “actual cash value” (ACV) at time of loss or “cost of repair or replacement, whichever is less,” with replacement-cost payment available only if repairs or replacement were actually completed.
- A fire on February 6, 2001 substantially damaged the building; the owners made a claim.
- The insurer denied coverage, asserting an arson exclusion based on alleged participation by the owners.
- At trial, the insurer’s appraiser testified her $398,725.61 estimate was replacement cost and that ACV would be lower after deducting depreciation.
- After a bench trial, the circuit court rejected the insurer’s arson defense and entered judgment totaling $427,220.17, including $383,725.61 for building damage derived from the replacement-cost estimate minus the deductible and prior emergency-repair payments.
- On appeal, the insurer challenged only the building-damage calculation, not coverage, liability, lost rent, or business personal property awards.

## Issues

1. Whether, under a valuation clause limiting payment to ACV unless the insured repairs or replaces, the trial court could award building damages based on a replacement-cost estimate when repairs or replacement were not completed.
2. Whether the record supported the specific building-damage amount awarded without findings determining depreciation and ACV.

## Decision

- The appellate court affirmed the judgment for the insureds as to coverage and the unchallenged damage components (lost rent and business personal property).
- The court reversed the building-damage award and remanded for recalculation.
- The court held the trial court erred by using a replacement-cost figure without determining ACV as required by the policy where no repair or replacement occurred.

## Legal Principles

- Insurance policies are enforced as written; courts may not expand coverage or alter the contractual measure of loss.
- When a policy provides for payment of “actual cash value” or “cost of repair or replacement, whichever is less,” and conditions replacement-cost payment on completed repair or replacement, an insured who does not rebuild is limited to ACV.
- Replacement cost and ACV are distinct measures; ACV generally requires depreciation to be deducted from replacement cost.
- A damage award must be supported by evidence and findings consistent with the policy’s valuation method; absent evidence establishing ACV, remand for further findings may be required.

## Conclusion

The appellate court held that because the building was not repaired or replaced, the policy limited recovery for structural loss to actual cash value; it therefore reversed the replacement-cost-based building award and remanded for an ACV-based recalculation while leaving all other portions of the judgment intact.


Carey v. Am. Fam. Brokerage, Inc., 391 Ill. App. 3d 273, 909 N.E.2d 255 (Ill. App. Ct. 2009)