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On November 20, 1991, Republic made an interim payment to
petitioners in an amount based on its adjuster's determination
that the actual cash value of the home was $110 per square foot.
During 1991, petitioners engaged the services of McInerney &
Dillon, P.C., Attorneys at Law (McInerney & Dillon), to resolve a
conflict with Republic as to replacement cost. During 1991,
petitioners also hired a firm to draw plans for their home and to
estimate the replacement cost of the Oakland Hills residence.
Such replacement cost was estimated to be $921,994.
On September 16, 1992, Republic increased its estimate of
replacement cost to $200 per square foot and made a further
payment to petitioners based on this estimate.
The terms of the Republic policy provided for a form of
arbitration in the event of a dispute over the replacement cost
of insured property. Pursuant to that procedure, petitioners and
Republic each chose an appraiser, and the two appraisers chose an
umpire. An appraisal hearing ensued over replacement cost, and a
decision was reached that the replacement cost of the home was
$825,000. During September 1993, Republic issued its check in
full satisfaction of the remaining balance due upon petitioners'
insurance claim.
In pursuing their claim with Republic, petitioners incurred
legal fees with McInerney & Dillon of $71,044.61 during 1991,
1992, and 1993. Petitioners paid $25,000 of that amount during
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