Residential and commercial real estate sales occur on a daily basis. Usually, the title transfer of a sale occurs without much fanfare, regardless of whether the transaction involves a residential home or business real estate. The same is true when it comes to transferring insurance from the seller to the buyer. Up to the closing point, the seller generally insures the property. At closing, the buyer generally insures the property.
An important question to ask during this process is, can the sale of a property negatively affect an existing insurance claim on the property when it comes to the financial interests of the seller?
Can I make an insurance claim if I’m selling my property?
The Seventh Circuit Court has addressed this issue with a legal opinion that gives hope to the policyholder seller. The Court found that the sale of a property prior to the completion of repairs does not prevent the seller from eventually recovering the “replacement cost.”
In Edgewood Manor Apartment Homes vs. RSUI Indemnity Company, the insured policyholder was the owner of an apartment complex who recaptured the “actual cash value” from the insurance company from damage caused by Hurricane Katrina. The insured then successfully sold the property before repairs were made. The terms of the sale included an assignment of the insurance claim to the buyer.
The Court ultimately determined that the assignment was not valid and that the insured seller held rights to the insurance claim and possessed a legitimate claim for the “replacement cost” after the buyer performed the repairs.
What is “insurable interest?”
One hurdle for the policyholder seller is to demonstrate that he or she has an insurable interest in the property. The Court’s decision explained that no state requires the insured to maintain an insurable interest during the course of residential or commercial property claim litigation. The existence of an insurable interest is determined either at the time of loss or at the time of the policy’s inception.
How do I recover replacement and repair costs?
The second challenge is to recover the proceeds of the “replacement cost.” In the Edgewood Manner case, the insurance company asserted that it was not responsible for paying any replacement cost because the insured seller sold the property prior to the completion of repairs. Regardless, the Court pointed out that nothing in the policy requires the insured party to perform the repairs on the property. Therefore, the insured party may sell the property and as long as the buyer completes repairs in a reasonable timeframe according to policy requirements, the seller can recoup the replacement cost proceeds.
In summary, you have options when a commercial or residential property claim is pending during the sale of any property. The seller or buyer may recover replacement costs, depending on the sales agreement and the policy. In addition, the sales price may or may not be modified to ensure the seller and buyer are in the financial position they would have expected to be in absent the insured event.
If you filed a claim against your commercial or residential insurance policy and received a denial, you may have grounds to file a lawsuit. Our Tennessee insurance dispute attorneys at McWherter Scott & Bobbitt are here to help you receive the compensation you are owed based on your claim. Please call 731-664-1340 or fill out our contact form. We maintain offices in Nashville, Chattanooga, Memphis, Jackson and Knoxville.