Church Mutual wins appeal in $1.7 million replacement cost dispute
A small Indiana church’s insurance dispute shows how replacement-cost conditions – and how lawyers frame arguments - can determine the outcome of a significant property claim.
On March 2, 2026, the US Court of Appeals for the Seventh Circuit affirmed a win for Church Mutual Insurance Company, S.I., against Crothersville Lighthouse Tabernacle Church, Incorporated. The case began after a fire in early June 2018 caused extensive damage to the church building in Crothersville, Indiana.
The church carried a property policy with a $2.3 million limit. The policy paid losses on an actual cash value basis by default and offered replacement-cost coverage on top of that, but only if certain conditions were met. In practical terms, the insurer would pay more than the depreciated value only if the church actually repaired or replaced the damaged property within a reasonably prompt time after the fire. Any replacement-cost payment was capped at the lowest of three numbers: the cost to rebuild with similar materials, the amount the church actually spent on repairs or rebuilding, or the $2.3 million policy limit.
Soon after the fire, the parties clashed over what it would cost to rebuild. In August 2018, a building consultant hired by Church Mutual estimated replacement cost at about $1.4 million. A month later, the church’s public adjuster put forward a much higher figure of more than $2.2 million, close to the limit of insurance. Church Mutual revisited the numbers and raised its own estimate by nearly $200,000.
In November 2018, Lighthouse Tabernacle submitted a proof of loss that put replacement cost at $1.7 million and actual cash value at $1.2 million. In early December, about five months after the fire, Church Mutual issued a $1.2 million check for the undisputed actual cash value. Before that, the company had also paid several separate amounts for loss of business property.
Each check went out with a letter explaining that the payment represented actual cash value only. The letters told the church that to receive any extra replacement-cost money, it would need to complete repair or replacement within 180 days and send in receipts so any additional amounts could be calculated. The letters also asked the church to contact the adjuster if it could not complete the work within that time.
The valuation continued to move. In February 2019, Church Mutual again revised its replacement-cost estimate, this time to more than $1.7 million. The church still disagreed, and the dispute narrowed to one key item: the projected cost of a new sanctuary ceiling. In August 2019, Church Mutual advised that it would bring in an engineering firm to review the ceiling issue and prepare another estimate. That same month, Lighthouse Tabernacle submitted another proof of loss, which the insurer rejected as incomplete. In October 2019, Church Mutual paid another $170,000 in additional undisputed actual cash value.
Through all of this, the church did not start demolition or rebuilding. In December 2019, its agent told Church Mutual that the church wanted to proceed with demolition. The insurer responded that Lighthouse Tabernacle was free to move ahead with demolition and replacement as it saw fit, but that the remaining part of the claim was still under review and no commitments could be made about further payments until the engineer’s report was in. The church did not proceed at that time.
Later in December, the engineering firm delivered its estimate. It was higher than Church Mutual’s last figure but still well below the church’s numbers. Lighthouse Tabernacle objected and challenged the engineer’s qualifications and findings. In March 2020, the church invoked the policy’s appraisal process to resolve the valuation dispute, and Church Mutual named its appraiser. At the end of that month, Church Mutual made a final payment of about $20,000, representing the difference between the engineer’s estimate and what had already been paid. Altogether, the insurer had paid nearly $1.7 million on the claim. By then, nearly two years after the fire, the church still had not begun to repair or replace the building.
In early June 2020, Lighthouse Tabernacle sued Church Mutual in Indiana state court, claiming breach of contract and bad faith in denying further replacement-cost benefits. The insurer moved the case to federal court in the Southern District of Indiana and asked for summary judgment, arguing the case could be decided on the undisputed facts.
Church Mutual’s core position was that, under the policy, replacement-cost benefits above actual cash value were conditional on the church actually rebuilding or repairing the property within a reasonable time after the loss. Because the church had not started that work, the insurer said no further replacement-cost payments were owed beyond the nearly $1.7 million already paid.
In its response, the church focused on the size of the competing estimates and on the credibility of two adjusters involved in the claim. It did not, however, directly answer the key point about the policy conditions: how it could still claim replacement-cost benefits even though it had not begun repairs.
The district court sided with Church Mutual and granted summary judgment. The judge held that the church had not meaningfully engaged with the insurer’s main contractual argument and that disputes about the numbers or the adjusters did not change the undisputed fact that repairs had never started. With no legal theory explaining why the church should still receive replacement-cost benefits under those circumstances, the court entered judgment for the insurer.
On appeal, now with new lawyers, Lighthouse Tabernacle tried a different approach. It argued that ongoing disputes over the replacement-cost estimates had effectively excused its duty to start repairs promptly, and it pointed to two Indiana Court of Appeals decisions, Rockford Mutual Insurance Co. v. Pirtle and Westfield National Insurance Co. v. Nakoa, where insurers delayed paying anything, including actual cash value, until it was impossible or nearly impossible for policyholders to rebuild.
The Seventh Circuit noted that this argument had not been raised in the trial court at the summary judgment stage and treated it as waived. The court stressed that civil litigants are generally bound by the arguments they choose to present, or not present, to the trial judge.
The church asked the Seventh Circuit to consider the new argument anyway under a limited form of plain-error review sometimes applied in civil cases. The court declined, emphasizing that this type of review is extremely restricted and reserved for rare situations. It drew a clear distinction between this case and Pirtle and Nakoa. In those Indiana decisions, the insurers had withheld all payment until repairs were essentially impossible. In contrast, Church Mutual had paid almost $1.7 million in actual cash value and other undisputed sums, while the church did not start rebuilding as it continued to push for a higher number for the sanctuary ceiling.
Seeing no exceptional circumstances and no basis to revisit the district court’s ruling, the Seventh Circuit affirmed summary judgment for Church Mutual. The result underlines for insurers, brokers and policyholders that replacement-cost benefits depend not only on coverage language and valuation, but also on whether the insured actually moves forward with repairs within the time expectations built into the policy – and on whether key legal arguments are raised at the right time in court.
