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increase to account for postissuance inflation. The policy also
provided for extended replacement cost. The extended replacement
coverage, however, was limited to 50 percent of the policy’s
coverage limits. Replacement was an alternative option and could
not be claimed in addition to damage recovery. In the latter
part of 1991, after its adjusters examined the property, Chubb
paid decedent $478,939.25. That payment represented the maximum
possible recovery for loss of decedent’s dwelling and/or its
contents under the terms of the policy, as adjusted for
inflation.
Within 6 months after the fire, reportedly under pressure
from the California State Insurance Commissioner, the insurance
industry (including Chubb) unilaterally agreed, in connection
with the Oakland Hills fire, to disregard the 50-percent cap2 on
replacement costs, and to pay the actual cost of replacement,
even if that cost exceeded the policy limits. That change in
approach occurred after Chubb had paid decedent the maximum
recovery possible under the terms of the policy.
After Chubb unilaterally offered to pay an amount in excess
of its obligations for replacement under the policy, decedent
invited a bid for construction of a replacement residence from
Krueger Brothers Builders, Inc. (Krueger). Krueger’s initial bid
2 Apparently, the 50-percent cap on replacement was a policy
refinement that was employed in decedent’s geographical area.
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Last modified: May 25, 2011