Mark and Michelle Callahan sued their insurance company (Shelter Mutual Insurance Company) and insurance producer (Mr. Brant) after their home was completely lost to an electrical fire in 2019. Previously, in 2011, the Callahans purchased a “replacement cost” insurance policy from Mr. Brant, a Shelter agent. This insurance policy was paid in full; however, the Callahans sued because they learned that the cost of rebuilding their home would be greater than the payout they received from the home insurance policy.

The Callahans maintain that their home was underinsured and that they were harmed by:

(1) The negligence of their producer, Mr. Brant, who they allege inadequately calculated the replacement cost of their home and

(2) Mr. Brant verbally reassured both Mark and Michelle that they did not need to increase the amount of the policy to pay for total replacement. The Callahans claim they would have paid a higher monthly premium to insure their home for more money.

The Nebraska Supreme Court confirmed the lower court’s ruling, citing Nebraska’s valued policy statute, and held in favor of Mr. Brant and Shelter. The Court held that the public policy behind Nebraska’s valued policy statute barred the Callahans from presenting evidence that their home was undervalued. As such, the Callahans’ claims of negligence and negligent misrepresentation against Mr. Brant and Shelter described above were foreclosed as a matter of law.

By finding for Mr. Brant and Shelter, the Nebraska Supreme Court solidifies that when insuring real property, the dollar value set by the parties to the insurance contract controls in both directions. Further, that dollar amount effectively forecloses some tort claims (here, negligence and negligent misrepresentation) that might arise after the contract. In his dissent, Chief Justice Heavican identifies this outcome as unparalleled when compared to other states and atypical of tort law which often permits claims arising out of contract. Callahan, 314 Neb. at 247-49. Essentially, both parties to the insurance contract (the insured and insurer) are responsible for declaring and/or demanding their desired amount of coverage.

Depending on whether you side with the majority or dissent, Callahan v. Brant is either a renewed reminder for or an additional burden on the homeowner. The homeowner is responsible for knowing the cost of rebuilding their home and purchasing the precise dollar amount of insurance coverage they wish to receive in the event they suffer a total loss. This case solidifies that the remedies available to a homeowner (or other real property owner) after your home is completely lost to fire, tornado, windstorm, lightning, or explosion is limited, even if your policy presents as a “replacement cost” policy. Future allegations against an insurance producer alleging that the producer (1) suggested too low a dollar amount to cover the replacement cost of your home and/or (2) offered you reassurance that the “replacement cost” policy was adequate may not stand after your home is destroyed.

Here, the Callahans did not lose on the merits of their claims against Mr. Brant. It makes no difference to the Court whether Mr. Brant and/or Shelter Insurance failed to act reasonably when calculating the value of the Callahans’ home or whether Mr. Brant may have reassured the Callahans that their policy adequately covered their home. Instead, the Court found the Callahans’ claims inadequate as a matter of law under Nebraska’s valued policy statute.

The takeaway for homeowners in Nebraska: even when your home insurance policy identifies as a “replacement cost” plan, you are responsible for insuring your home to the amount of its replacement cost. Or at least to the amount you seek to be repaid in the event of a total loss. If your home would cost more to replace than your home insurance policy insures, you are “underinsured.” Under Nebraska’s valued policy statute and Callahan, the homeowner effectively self-insures the difference as a matter of law.

Special thanks go to Erickson|Sederstrom senior law clerk Steve Lydick for his assistance with this article.

Callahan v. Brant, 314 Neb. 219, 990 N.W.2d 1 (2023)