The basis for any adjustment shall be fully explained to the claimant in writing.Under a policy, subject to California Insurance Code Section 2071, where the insurer is required to pay the expense of repairing, rebuilding or replacing the property destroyed or damaged with other of like kind and quality, the measure of recovery is determined by the actual cash value of the damaged or destroyed property, as set forth in California Insurance Code Section 2051. Except for the intrinsic labor costs that are included in the cost of manufactured materials or goods, the expense of labor necessary to repair, rebuild or replace covered property is not a component of physical depreciation and shall not be subject to depreciation or betterment.The “California Conundrum,” in the opinion of the authors, makes no practical sense under an indemnity theory.

Some states even require that form standard insurance policies include an appraisal clause requiring either party to, on demand, submit a dispute over the amount of a loss to an appraisal panel. (See Virginia Code § 38.2-2105; Cal. Ins. Code § 2071; McKinney’s Ins. Law§ 3404; N.J.S.A. § 17:36-5.20.) That panel typically consists of two appraisers, who select an umpire.

Because of the construction delays, the Meusers filed suit against Allstate in Alameda County Superior Court. The Meusers’ alleged causes of action included counts for breach of contract, bad faith, fraud, and violations for California’s Insurance Code. Pursuant to California Insurance Code Section 2071, Allstate moved to compel appraisal of the Meusers’ loss. While the appraisal was pending, Allstate made a supplemental payment to the Meusers for additional landscaping repair and damage to appurtenant structures, bringing Allstate’s total payments under its structural coverage to $196,978.22.

The state Supreme Court just granted review last week. At issue is whether an insurer may enforce an exclusion in a fire policy that denies coverage to "innocent insureds" for damages from a fire intentionally caused by a coinsured. The gist of the insured’s argument is that California Insurance Code Section 2071 mandates the language of fire policies, and it couches the intentional acts exclusion in terms of "the insured." Century National’s policy barred coverage for all when any insured acted intentionally.