In Batton-Jajuga v Farm Bureau, a published Michigan Court of Appeals opinion, the plaintiff’s real property, insured by Farm Bureau, was destroyed in a fire. She purchased another property on land contract and submitted a claim under the policy for replacement cost coverage. Farm Bureau denied the claim, arguing that purchasing property on land contract is not a complete replacement for property owned in fee simple, and that, since the insured only paid $40,000 down on the $200,000 payment price, she had not “actually” incurred replacement costs. The trial court ruled in favor of the insured and the court of appeals affirmed.
The court discussed the legal interests created and exchanged when property is sold on land contract, noting that the purchaser obtains equitable title to the property while the seller retains legal title as security for payment of the balance. The court found that, under the plain meaning of the policy, the land contract purchase was a “complete” replacement of the destroyed property. It further found that, under the doctrine of equitable conversion, the insured had paid the entire amount of the purchase price at the time of entry into the land contract such that it had actually incurred the price, entitling the insured to full replacement benefits under the policy.