D & S Realty v. Markel Ins. Co.

CASES DETERMINED
IN THE
SUPREME COURT OF NEBRASKA
(1)
D & S R ealty, I nc., appellee, v.
M aRkel I nSuRance coMpany,
a coRpoRatIon, appellant.
816 N.W.2d 1
Filed June 22, 2012. 	Nos. S-11-664, S-11-764.
1. Judgments: Appeal and Error. On questions of law, an appellate court is obli-
gated to reach a conclusion independent of the determination reached by the
court below.
2. Contracts. Performance of a duty subject to a condition cannot become due
unless the condition occurs or its nonoccurrence is excused.
3. ____. A condition is excused if the occurrence of the condition is prevented by
the party whose performance is dependent upon the condition.
4. Property: Valuation: Words and Phrases. Actual cash value is the value of the
property in its depreciated condition.
5. Insurance: Real Estate: Words and Phrases. Replacement cost insurance is
optional additional coverage that may be purchased to insure against the hazard
that the improvements will cost more than the actual cash value and that the
insured cannot afford to pay the difference.
6. Insurance. A repair/replace condition to replacement cost coverage is neither
ambiguous nor unconscionable.
7. Contracts. The doctrine of prevention states that where a promisor prevents, hin-
ders, or renders impossible the occurrence of a condition precedent to his or her
promise to perform, the promisor is not relieved of the obligation to perform and
may not invoke the other party’s nonperformance as a defense when sued upon
the contract.
8. Breach of Contract. Pursuant to the doctrine of prevention, where the impeding
act is the denial of liability in breach of the insurer’s obligations under a policy
with the insured, the breach may excuse the insured’s performance of a repair/
replace condition even if made because of a “good faith” misunderstanding of the
rights and liabilities of the parties.
9. Contracts. The law does not require the doing of a useless act.
10. Judgments: Contracts. Whether interference by one party to a contract amounts
to prevention so as to excuse performance by the other party is a question of fact
to be decided under all of the proven facts and circumstances.
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/01/2026 04:40 AM CST

2 	284 NEBRASKA REPORTS
11. 	Contracts. The doctrine of prevention does not require proof that the condition
would have occurred “but for” the wrongful conduct of the promisor, but requires
only that the promisor’s conduct contributed materially to the nonoccurrence of
the condition.
12. Insurance. The respective interests of parties acting in good faith can, in most
cases, be adequately protected by excusing the performance of the repair/replace
condition only for such time as it appears the insurer will not honor its obliga-
tions under the policy.
13. Insurance: Liability. If the delay in determining the insurer’s liability materi-
ally contributed to a situation where the insured can no longer perform the
condition after the coverage dispute is resolved, then the condition will be abso-
lutely excused.
14. Judgments: Testimony: Attorneys at Law. It is unreasonable to expect counsel
to attempt to present testimony in anticipation that a judge’s favorable rulings
will be reversed.
Appeals from the District Court for Douglas County: JoSeph
S. tRoIa, Judge. Reversed and remanded for a new trial.
Richard J. Gilloon and Heather B. Veik, of Erickson &
Sederstrom, P.C., and Tory M. Bishop and Angela Probasco, of
Kutak Rock, L.L.P., for appellant.
David A. Blagg, Charles F. Gotch, and James D. Garriott, of
Cassem, Tierney, Adams, Gotch & Douglas, for appellee.
heavIcan, 	c.J., 	WRIght, 	connolly, 	Stephan, 	and
MccoRMack, JJ.
MccoRMack, J.
I. NATURE OF CASE
This is an appeal after a retrial on remand in a breach of
contract claim by the insured against the insurer. At issue
in this appeal is the optional replacement cost coverage that
the insured contracted. The question is whether the insurer’s
general denial of liability excused the insured from comply-
ing with a policy condition requiring that the insured actually
repair or replace the damaged property before replacement
costs will be paid.
II. BACKGROUND
D & S Realty, Inc. (D&S), owned a building known as
the North Tower, in Omaha, Nebraska. D&S purchased the

D & S REALTY v. MARKEL INS. CO. 	3
Cite as 284 Neb. 1
property in 1999 for $1.75 million. At the time, it was approxi-
mately 40 years old. At some point prior to the loss in question,
the building was appraised at $4 million. The first six floors of
the building were for commercial use, and the top floors were
residential. Markel Insurance Company (Markel) insured the
North Tower through a standard indemnity policy with addi-
tional coverage for repair and replacement cost payments in the
event of a covered loss.
1. vacancy
D&S embarked on a plan to renovate the building, floor
by floor, in small increments. In order to conduct the renova-
tions, D&S began vacating the areas occupied by its tenants.
By November 2002, less than 30 percent of the building was
occupied. By January 2003, less than 5 percent of the building
was occupied. D&S put on a new roof, started demolition of
the second floor, and painted and replaced the carpet on most
of the residential floors. Markel was aware of the vacancy and
the renovations.
As part of the renovation project, in January 2003, D&S
decided to drain all the waterlines, put antifreeze into the sys-
tem so the pipes would not freeze, and shut down the boiler
system. However, without D&S’ knowledge, the maintenance
engineer turned off the boiler on a Friday night and did not
flush the lines or inject antifreeze.
The following day, a D&S employee discovered that pipes
throughout the building had burst. Massive amounts of water
flooded the building and froze into ice. According to witnesses
on behalf of D&S, there was extensive damage on every floor
of the building. D&S immediately attempted to mitigate the
damage and remove debris. In March 2003, when the weather
became warmer, the firelines thawed and burst, and again,
significant amounts of water flooded the building. Passersby
observed water gushing down three exterior sides of the North
Tower like a waterfall.
2. polIcy
D&S timely filed a claim with Markel for the losses incurred
as a result of the water damage in January and March 2003.
The policy with Markel explicitly included water damage.

4 	284 NEBRASKA REPORTS
However, the “Loss Conditions” section of the policy con-
tained a “Vacancy” clause stating that Markel would not pay
for water damage if the building had been vacant for more
than 60 consecutive days before the loss or damage. The
vacancy clause defined a building as “vacant” when 70 percent
or more of its square footage was neither rented nor used to
conduct customary operations. The clause further stated that
“[b]uildings under construction or renovation are not con-
sidered vacant.” “Construction” and “renovation” were not
defined in the policy. A Nebraska endorsement to the policy
provided that “[a] breach of warranty or condition will void the
policy if such breach exists at the time of loss and contributes
to the loss.”
In the event of a covered loss under the policy, the standard
“loss payment” clause of the policy stated that at Markel’s
option, it would either (1) pay the value of lost or damaged
property, (2) pay the cost of repairing or replacing the lost or
damaged property, (3) take all or any part of the property at
an agreed or appraised value, or (4) repair, rebuild, or replace
the property with other property of like kind and quality. The
loss payment clause also stated that Markel would not “pay
[the insured] more than [its] financial interest in the Covered
Property.” A “valuation” clause stated that Markel would deter-
mine the value of the loss or damage at actual cash value as
of the time of loss or damage, subject to certain exceptions
for specified items. The policy provided limited coverage for
debris removal.
D&S had purchased optional additional coverage for “replace-
ment cost.” Under the terms of the policy, “Replacement Cost
(without deduction for depreciation) replaces Actual Cash Value
in the Loss Condition, Valuation, of [the policy’s] Coverage
Form.” The replacement cost clause provided that the insured
had the option of making a claim for loss or damage on an
actual cash value basis instead of on a replacement cost basis.
And it provided that
[i]n the event [the insured] elect[s] to have loss or dam-
age settled on an actual cash value basis, [the insured]
may still make a claim for the additional coverage this
Optional Coverage provides if [the insured] notif[ies

D & S REALTY v. MARKEL INS. CO. 	5
Cite as 284 Neb. 1
Markel] of [its] intent to do so within 180 days after the
loss or damage.
Further provisions of the replacement cost clause stated:
d. [Markel] will not pay on a replacement cost basis for
any loss or damage:
(1) Until the lost or damaged property is actually
repaired or replaced; and
(2) Unless the repairs or replacement are made as soon
as reasonably possible after the loss or damage.
e. [Markel] will not pay more for loss or damage on
a replacement cost basis than the least of (1), (2) or (3)
. . . :
(1) The Limit of Insurance applicable to the lost or
damaged property;
(2) The cost to replace, on the same premises, the lost
or damaged property with other property:
(a) Of comparable material and quality; and
(b) Used for the same purpose; or
(3) The amount [the insured] actually spend[s] that
is necessary to repair or replace the lost or damaged
property.
The policy limit of the insurance policy issued by Markel to
D&S was $4.5 million, subject to a deductible of $50,000.
Markel generally denied coverage for the claimed water
damage loss. Markel informed D&S that its investigation had
revealed the North Tower was more than 70-percent vacant at
the time of the loss. Markel told D&S that under the vacancy
clause of the policy, Markel does not pay for water damage
if the property is vacant. Because Markel generally denied
liability under the vacancy clause of the contract, the par-
ties did not discuss cash value versus replacement costs and
neither specifically made any election between cash value
and replacement cost. Believing Markel’s denial of liabil-
ity was wrongful, D&S brought a breach of contract action
against Markel.
3. laWSuIt
In its complaint, D&S sought replacement cost damages.
D&S acknowledged that it had not yet repaired or replaced the

6 	284 NEBRASKA REPORTS
damaged property. However, D&S pled that it was Markel’s
denial of coverage, in breach of its policy obligations, which
caused D&S to be unable to repair or replace the property.
In its answer, Markel generally denied D&S’ claims. In
its affirmative defenses, Markel pled the vacancy clause, but
did not plead as a defense D&S’ failure to actually repair or
replace as a condition to replacement cost coverage.
Thus far, D&S’ complaint has resulted in two trials. The
first trial occurred in 2008. The first trial principally con-
cerned the parties’ dispute over the vacancy clause of the
policy. D&S attempted to show that the North Tower was not
“vacant” because it was “under construction.” Alternatively,
D&S attempted to show that Markel had waived the vacancy
clause or was estopped from asserting it because Markel was
aware of the vacancy and continued to accept premiums with
that knowledge. Finally, D&S asserted that Neb. Rev. Stat.
§ 44-358 (Reissue 2010) was applicable to the vacancy clause.
Therefore, in the event D&S had breached the vacancy pro-
vision, such vacancy would not preclude recovery under the
policy unless it contributed to the loss. D&S also relied on the
Nebraska endorsement to the policy, which endorsement mir-
rored § 44-358.
At the close of D&S’ case in the first trial, Markel moved
for a directed verdict and raised for the first time the issue
of D&S’ nonperformance of the repair/replace condition to
replacement cost coverage. Markel renewed the motion at the
close of all the evidence. Markel also asked the court to find
(1) the evidence was undisputed that the North Tower was
more than 70-percent vacant for more than 60 days immedi-
ately prior to the loss, (2) the building was not under construc-
tion or renovation, and (3) Markel had not waived the loss
conditions regarding vacancy.
The court found as a matter of law that the building was
more than 70-percent vacant, but left the question of whether
it was under construction or renovation for the jury. The
court found, as a matter of law, that Markel had not waived
the vacancy clause and was not estopped from relying on the
vacancy clause. The court determined that § 44-358 and the
Nebraska endorsement did not apply to the vacancy clause.

D & S REALTY v. MARKEL INS. CO. 	7
Cite as 284 Neb. 1
But the district court overruled Markel’s motion for a
directed verdict as to replacement cost damages. The court
explained that Markel had failed to raise the issue of the
repair/replace condition “in anything up until [its] motion for a
directed verdict” and that it was “not going to allow [Markel]
to go on with that argument under the policy.”
Consistent with its rulings on the motion for a directed ver-
dict, during the instructional conference at the first trial, the
court refused D&S’ request to instruct the jury on § 44-358. It
also refused D&S’ request to allow an instruction on waiver or
estoppel based on the fact that Markel had accepted premiums
after learning the building was vacant.
Consistent with its denial of Markel’s motion for a directed
verdict, the court denied Markel’s request for an instruction
that D&S could recover replacement costs for only those items
D&S had actually replaced prior to trial. At the instructional
conference, D&S argued that pursuant to Bailey v. Farmers
Union Co-op Ins. Co.,1 its performance of the repair/replace
condition to replacement cost coverage was excused. In Bailey,
the Nebraska Court of Appeals stated that the condition to
actually repair or replace was excused because the insurer’s
denial of the claim prevented the insured’s performance of
the condition.2 D&S argued that Markel’s wrongful denial of
any liability for the water damage loss likewise prevented its
performance of the repairs or replacement of the damaged
property. D&S suggested it would be unreasonable to expect
an insured to repair or replace when the insurer has told the
insured it will not pay regardless. The district court agreed: “I
have an issue with making [D&S] go spend millions of dollars
. . . and then seek recovery . . . .” The court also noted that
Markel had failed to raise the replacement cost condition until
its motion for a directed verdict.
The instruction given on damages stated in part:
1 Bailey v. Farmers Union Co-op Ins. Co., 1 Neb. App. 408, 498 N.W.2d
591 (1992).
2 Id.

8 	284 NEBRASKA REPORTS
If you find in favor of [D&S] on its claim for breach
of the insurance contract, then you must determine the
amount of its damages.
In accordance with the insurance policy, [Markel] is
obligated to pay the cost of repairing or replacing the
damaged property. [Markel] is only obligated to pay
the amount it would cost to repair the covered prop-
erty with comparable material and quality up [to] the
policy limits of $4.5 million and less the deductible of
$50,000.00.
The jury returned a verdict for Markel, presumably determin-
ing that the North Tower was “vacant” and that Markel was
therefore not liable under the policy.
D&S appealed the judgment to our court. Markel did not
file a cross-appeal. D&S asserted on appeal that the district
court erred in refusing to submit to the jury the issues of
§ 44-358, waiver, and estoppel. D&S did not contest the jury’s
implicit finding that the building was not under construction
or renovation or the district court’s conclusion that the build-
ing was more than 70-percent vacant for more than 60 days
preceding the loss.
In D & S Realty v. Markel Ins. Co.,3 we affirmed the dis-
trict court’s determinations as to waiver and estoppel, but we
reversed the district court’s determination on § 44-358. We
held that the vacancy clause was a condition subsequent. Thus,
under § 44-358, vacancy could not operate to avoid liability
under the policy unless the vacancy contributed to the loss.
We held that the jury should have been so instructed and that
D&S should have been allowed to argue that the contribute-
to-the-loss standard applied to preclude Markel from denying
liability for the loss. We remanded the cause “for further pro-
ceedings limited to the issue of whether D&S’ breach of the
vacancy condition contributed to the loss.”4 In D & S Realty,
we did not address whether replacement cost was the proper
measure of damages or whether the instruction on damages
3 D & S Realty v. Markel Ins. Co., 280 Neb. 567, 789 N.W.2d 1 (2010).
4 Id. at 590-91, 789 N.W.2d at 19.

D & S REALTY v. MARKEL INS. CO. 	9
Cite as 284 Neb. 1
was erroneous, presumably because neither D&S nor Markel
contested that issue.
On remand, during the pretrial conference, it was dis-
cussed that the issues to be tried were whether the breach of
the vacancy provision contributed to the loss and, if not, the
measure of D&S’ damages for Markel’s breach of the insur-
ance contract. In accordance with the jury instruction given at
the first trial, the court appeared to believe replacement cost
was the proper measure of damages. Markel filed a motion in
limine asking that the court prevent D&S from offering any
evidence of repair or replacement costs and that it prohibit
D&S from addressing repair or replacement costs in voir
dire, its opening statement, and its closing argument. Markel
asserted, similarly to the first trial, that D&S failed to satisfy
the repair/replace condition to replacement cost coverage.
Indeed, Markel noted that D&S had sold the North Tower at
the end of the first trial in December 2008. Markel asserted
that in the event it was liable under the policy, the proper
measure of damages should instead be the difference in actual
cash value of the North Tower immediately before and after
the water damage.
The district court took the matter under advisement and
did not expressly rule on it at that time. But when Markel
renewed the motion in limine at trial and objected to D&S’
evidence of replacement costs, the court overruled the objec-
tions and received the evidence. D&S’ expert was allowed to
present a detailed document listing, as of July 25, 2003, a total
replacement cost of $2,309,721.97 for the damages incurred in
January and March 2003. A revised estimate as of August 29,
2008, which took into account inflation, listed the total replace-
ment cost as $3,138,516.45.
David Abboud, the president of D&S, testified that other
than removing certain water-logged items, D&S had not actu-
ally conducted the repairs or replacements listed in the docu-
ment presented by D&S’ expert. When asked why, Abboud
responded, “Lack of money[,] primarily.” Markel did not cross-
examine Abboud on that point.
The court granted D&S’ motion to preclude Markel from
eliciting testimony concerning the sale of the North Tower, on

10 	284 NEBRASKA REPORTS
the ground that it would confuse the issues. Markel made an
offer of proof that D&S sold the North Tower for $437,000
after the water incidents.
At the close of D&S’ case, Markel moved for a directed
verdict on the grounds that (1) the vacancy did contribute to
the loss and (2) D&S presented evidence of only replacement
costs, which it could not recover because it had not actually
repaired or replaced the damaged property. The court overruled
the motion.
Markel entered into evidence an estimate by its insurance
adjuster stating that the total repair and replacement costs for
the damaged property were only $59,208. Markel renewed its
motion for a directed verdict at the close of all the evidence,
based again on D&S’ failure to actually conduct any repairs or
replace any damaged items. The motion was overruled.
An instruction on damages virtually identical to the instruc-
tion in the first trial was given to the jury over Markel’s objec-
tion. The jury was instructed that the measure of damages was
replacement cost.
The court rejected Markel’s proposed instruction on the
measure of damages, which read in part as follows:
[D&S] must . . . prove the amount of its damages,
that is, the least of the following amounts as provided in
the policy:
1. The limit of insurance applicable to the damaged
property;
2. The cost to replace, on the same premises, the lost or
damaged property with other property:
(a) Of comparable material and quality; and
(b) Used for the same purpose; or
3. The amount [D&S] actually spent that is necessary
to repair or replace the damaged property.
On a special verdict form, the jury first found that the
vacancy did not contribute to the subject loss. The jury then
determined the amount of replacement cost damages to be
$784,421.89.
Subsequently, D&S filed a motion to tax costs and fees
pursuant to Neb. Rev. Stat. §§ 25-1708 (Cum. Supp. 2010)

D & S REALTY v. MARKEL INS. CO. 	11
Cite as 284 Neb. 1
and 44-359 (Reissue 2010). On May 19, 2011, Markel filed
a motion for judgment notwithstanding the verdict or, in the
alternative, for a new trial. Markel asserted that the district
court erred in failing to sustain its motion for a directed verdict
because D&S failed to show it had repaired or replaced any of
the damaged property and that furthermore, D&S had failed
to offer any evidence of the actual cash value of the North
Tower immediately before and immediately after the damage
occurred. Thus, according to Markel, D&S had failed to pre-
sent any evidence of recoverable damages.
Markel also averred that the district court erred in permit-
ting D&S to present evidence of the cost to repair or replace
the damage to the North Tower, because D&S did not repair
or replace the damaged property. Finally, Markel alleged that
the district court erred in failing to instruct the jury that D&S
was entitled to the lesser of three items, one of which was
“the amount actually spent that is necessary to repair and
replace the damaged property,” as set forth in Markel’s pro-
posed instruction.
On July 1, 2011, the court overruled Markel’s motion for
judgment notwithstanding the verdict or, in the alternative,
for a new trial. On August 12, the court entered an order
granting attorney fees in the amount of $385,471.50 and
costs in the amount of $3,598.49. Markel timely appealed the
final judgment.
III. ASSIGNMENTS OF ERROR
Markel assigns that the district court (1) erred in overrul-
ing Markel’s motions for a directed verdict because D&S did
not repair or replace the water-damaged portions of the North
Tower; (2) erred in refusing Markel’s requested jury instruc-
tion on the measure of damages; (3) abused its discretion in
overruling Markel’s motion for judgment notwithstanding the
verdict or, in the alternative, for a new trial; and (4) erred in
awarding attorney fees and costs to D&S, because D&S would
not have recovered a verdict for damages had the proper jury
instructions been given.

12 	284 NEBRASKA REPORTS
IV. STANDARD OF REVIEW
[1] On questions of law, an appellate court is obligated to
reach a conclusion independent of the determination reached
by the court below.5
V. ANALYSIS
[2] Markel argues that the district court erred in several rul-
ings below because Markel’s duty to pay replacement costs
under the policy never became due. Performance of a duty
subject to a condition cannot become due unless the condition
occurs or its nonoccurrence is excused.6 D&S failed to ful-
fill the repair/replace condition to replacement cost coverage
under the policy. And Markel argues that its good faith denial
of liability for the water-damage loss should not excuse D&S
from performing the repair/replace condition.
Markel argues in the alternative that any theory which might
excuse performance based on a good faith denial of coverage
would involve specific factual showings which D&S failed
to make. Markel acknowledges that under the jury’s verdict,
D&S would have been entitled to actual cash value. However,
Markel argues that D&S failed to prove actual cash value.
Therefore, Markel asks that we reverse and that we remand
with directions to dismiss the case with prejudice.
D&S, in contrast, argues that Markel’s denial of liability
for the loss excused the repair/replace condition as a matter of
law. D&S alternatively asserts that even if excusal is a matter
of fact, there was sufficient uncontroverted evidence that the
denial of liability actually prevented D&S’ performance of the
repair/replace condition.
D&S argues that when the insurer has unequivocally stated it
will not reimburse any replacement costs, it is unreasonable to
require the insured to procure the money for repairs and incur
the financial risk of repairing or replacing the damaged prop-
erty. D&S argues that it paid for replacement cost coverage and
5 See Sarpy Cty. Farm Bureau v. Learning Community, 283 Neb. 212, 808
N.W.2d 598 (2012).
6 13 Samuel Williston, A Treatise on the Law of Contracts § 39:1 (Richard
A. Lord ed., 4th ed. 2000).

D & S REALTY v. MARKEL INS. CO. 	13
Cite as 284 Neb. 1
that Markel should not be allowed to benefit from its wrong-
ful denial of coverage, which forced D&S to bring the current
breach of contract action.
1. Bailey v. Farmers Union
Co - op ins. Co.
[3] D&S relies on the Nebraska Court of Appeals’ opinion
in Bailey v. Farmers Union Co-op Ins. Co.7 for the proposition
that denial of coverage excuses performance of repair/replace
conditions. In Bailey, the Court of Appeals held that the insured
was “prevented” from satisfying the repair/replace condition of
replacement cost coverage “by [the insurer’s] refusal to assure
[the insured] that, in addition to the actual cash value figure,
the cost of rebuilding her home would be covered up to the
policy limit.”8 The Court of Appeals reasoned that “an insured
should not be barred from recovery for failure to rebuild
within the time constraints of the policy when the conduct of
the insurer prevented the insured from rebuilding.”9 The court
relied on the general principle of law that “[a] condition is
excused if the occurrence of the condition is prevented by the
party whose performance is dependent upon the condition.”10
The trial court had found that the insurer’s conduct prevented
the insured from rebuilding, and the Court of Appeals said such
finding was not clearly wrong.
Markel, however, argues that the facts of Bailey are distin-
guishable from those of the case at bar. The insurer in Bailey
acted in bad faith in delaying acknowledgment of liability for
the accidental loss of the insured’s home. While the insurer
delayed, the remains of the house were condemned and the
insured incurred additional demolition costs and other dam-
ages.11 Markel asserts that while a bad faith denial can excuse
performance of the repair/replace condition, a good faith denial
should not.
7 Bailey v. Farmers Union Co-op Ins. Co., supra note 1.
8 Id. at 418, 498 N.W.2d at 598.
9 Id. at 419, 498 N.W.2d at 599.
10 Id. at 418, 498 N.W.2d at 598.
11 Bailey v. Farmers Union Co-op Ins. Co., supra note 1.

14 	284 NEBRASKA REPORTS
Neither our court nor the Court of Appeals has had occa-
sion to consider whether a good faith denial of coverage
which is ultimately determined to be in breach of contract
excuses performance of a repair/replace condition. And our
courts have never been squarely presented with the question
of whether the prevention of a repair/replace condition by
virtue of the insurer’s denial of coverage may be determined
as a matter of law or must instead be determined by the trier
of fact. In order to answer these questions, we turn first to
the nature of replacement cost coverage as an optional rider
to standard indemnity policies and the reason for the repair/
replace condition.
2. What IS R eplaceMent
coSt coveRage?
[4] Standard casualty protection for residential and com-
mercial property insures the property only to the extent of
its actual cash value.12 Actual cash value is the value of the
property in its depreciated condition.13 The purpose of actual
cash value coverage is indemnification.14 It is to make the
insured whole, but never to benefit the insured because the
loss occurred.15
Most standard indemnity policies allow the insurer to choose
to pay the lesser of actual cash value or the cost of repairing or
replacing the damaged property. Thus, where the cost to repair
or replace is greater than the actual cash value, the insured, not
the insurer, is responsible for the cash difference necessary to
replace the old property with new property.16
[5] Replacement cost insurance is optional additional cov-
erage that may be purchased to insure against the hazard
12 See Johnny Parker, Replacement Cost Coverage: A Legal Primer, 34 Wake
Forest L. Rev. 295 (1999).
13 3 Allan D. Windt, Insurance Claims & Disputes: Representation of
Insurance Companies and Insureds § 11:35 (5th ed. 2010).
14 See Parker, supra note 12.
15 Id.
16 12 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 176:56
(2005). See, also, Annot., 1 A.L.R.5th 817 (1992).

D & S REALTY v. MARKEL INS. CO. 	15
Cite as 284 Neb. 1
that the improvements will cost more than the actual cash
value and that the insured cannot afford to pay the differ-
ence.17 In essence, replacement cost coverage insures against
the expected depreciation of the property.18 Unlike standard
indemnity, replacement cost coverage places the insured in a
better position than he or she was in before the loss.19 “Any
purported windfall to an insured who purchases replacement
cost insurance is precisely what the insured contracted to
receive in the event of a loss.”20 Replacement cost coverage
is, accordingly, more expensive than standard indemnifica-
tion coverage.21
But because replacement cost coverage places the insured
in a better position than before the loss, there is a moral
hazard that the insured will intentionally destroy the insured
property in order to gain from the loss.22 For this reason, most
replacement cost policies require actual repair or replace-
ment of the damaged property as a condition precedent23 to
recovery under the replacement cost rider.24 The repair/replace
condition generally requires, as it did here, that the repair or
replacement occur “as soon as reasonably possible after the
loss,” or a similar time constraint.
If the insured has contracted for replacement cost cover-
age, the insured will normally be entitled under the policy
to an immediate payment representing the actual cash value
of the loss, which can be used as seed money to start the
17 See, Rockford Mut. Ins. Co. v. Pirtle, 911 N.E.2d 60 (Ind. App. 2009);
Parker, supra note 12.
18 Parker, supra note 12. See, also, John H. Magee & David L. Bickelhaupt,
General Insurance (7th ed. 1964).
19 Parker, supra note 12.
20 Rockford Mut. Ins. Co. v. Pirtle, supra note 17, 911 N.E.2d at 65.
21 Id.
22 See, e.g., Ohio Cas. Ins. Co. v. Ramsey, 439 N.E.2d 1162 (Ind. App.
1982); Patton v. Mutual of Enumclaw Ins. Co., 238 Or. App. 101, 242 P.3d
624 (2010).
23 See, Rockford Mut. Ins. Co. v. Pirtle, supra note 17; Higgins v. Insurance
Co. of N. America, 256 Or. 151, 469 P.2d 766 (1970).
24 See 12 Russ & Segalla, supra note 16, § 176:60.

16 	284 NEBRASKA REPORTS
repairs.25 Depending on the policy, the acceptance of this
actual-cash-value payment may trigger a more limited time
constraint for completion of the repairs, as it does here.26 If
the insured repairs or replaces the property within the time
period stated in the policy, the insured will then be entitled
to an additional payment for the amount by which the
cost of the repair or replacement exceeded the actual cash
value payment.27
[6] When the insurer has not breached its obligations under
the policy, provisions which mandate actual repair or replace-
ment as a condition to recovery of replacement cost damages
are almost universally found enforceable.28 In other words, the
repair/replace condition is neither ambiguous nor unconscion-
able.29 If the insurer accepts liability for the loss under the stan-
dard indemnity portion of the policy, the insured is bound to
comply with the repair/replace condition before the insured can
recover replacement costs.30 But that is not the situation here.
25 See 3 Windt, supra note 13. See, also, e.g., Ward v. Merrimack Mut. Fire
Ins., 332 N.J. Super. 515, 753 A.2d 1214 (2000).
26 See Parker, supra note 12.
27 3 Windt, supra note 13.
28 Id.
29 See id.
30 See, Versai Management Corp. v. Clarendon America Ins., 597 F.3d 729
(5th Cir. 2010); Kolls v. Aetna Casualty and Surety Company, 503 F.2d
569 (8th Cir. 1974); Bourazak v. North River Insurance Company, 379
F.2d 530 (7th Cir. 1967); Huggins v. Hanover Ins. Co., 423 So. 2d 147
(Ala. 1982); Rhodes v. Farmers Ins. Co., Inc., 79 Ark. App. 230, 86
S.W.3d 401 (2002); Higginbotham v. Am. Family Ins. Co., 143 Ill. App.
3d 398, 493 N.E.2d 373, 97 Ill. Dec. 710 (1986); Burchett v. Kansas Mut.
Ins. Co., 30 Kan. App. 2d 826, 48 P.3d 1290 (2002); Porter v. Shelter Mut.
Ins. Co., 242 S.W.3d 385 (Mo. App. 2007); Nicolaou v. Vermont Mut. Ins.
Co., 155 N.H. 724, 931 A.2d 1265 (2007); De Lorenzo v. Bac Agency Inc.,
256 A.D.2d 906, 681 N.Y.S.2d 846 (1998); Bratcher v. State Farm Fire
& Cas. Co., 961 P.2d 828 (Okla. 1998); Burton v. Republic Ins. Co., 845
A.2d 889 (Pa. Super. 2004); Fitzhugh 25 Partners v. KILN Syndicate KLN,
261 S.W.3d 861 (Tex. App. 2008); Saleh v. Farmers Ins. Exchange, 133
P.3d 428 (Utah 2006); Hess v. North Pacific Ins. Co., 122 Wash. 2d 180,
859 P.2d 586 (1993).

D & S REALTY v. MARKEL INS. CO. 	17
Cite as 284 Neb. 1
We must determine whether and under what circumstances a
wrongful denial of coverage excuses the insured’s duty to com-
ply with the repair/replace condition.
3. D octRIne of pReventIon
When the insurer, in breach of the insurance contract,
denies liability for the insured’s loss, most courts conclude
that such denial may excuse the insured’s duty under the
repair/replace condition to replacement cost coverage.31 While
other theories are sometimes relied upon,32 most courts frame
the issue in terms of the doctrine of prevention.33 Thus, in
Bailey, the court referred to the insurer’s denial of liability as
having “prevented” the insured’s performance of the repair/
replace condition.34
[7] The doctrine of prevention states that where a promi-
sor prevents, hinders, or renders impossible the occurrence
of a condition precedent to his or her promise to perform, the
promisor is not relieved of the obligation to perform and may
not invoke the other party’s nonperformance as a defense when
31 12 Russ & Segalla, supra note 16, §§ 176:59 and 176:60; 3 Windt, supra
note 13. See Bailey v. Farmers Union Co-op Ins. Co., supra note 1. See,
also, Zaitchick v. American Motorists Ins. Co., 554 F. Supp. 209 (D.C.N.Y.
1982); City of Hollister v. Monterey Ins. Co., 165 Cal. App. 4th 455, 81
Cal. Rptr. 3d 72 (2008); State Farm Fire & Cas. Ins. Co. v. Miceli, 164
Ill. App. 3d 874, 518 N.E.2d 357, 115 Ill. Dec. 832 (1987); Rockford Mut.
Ins. Co. v. Pirtle, supra note 17; Conrad Brothers v. John Deere Ins. Co.,
640 N.W.2d 231 (Iowa 2001); Pollock v Fire Ins Exchange, 167 Mich.
App. 415, 423 N.W.2d 234 (1988); Cornelius v. Badger Mut. Ins. Co., 354
N.W.2d 100 (Minn. App. 1984); Ward v. Merrimack Mut. Fire Ins., supra
note 25.
32 See, City of Hollister v. Monterey Ins. Co., supra note 31; Conrad Brothers
v. John Deere Ins. Co., supra note 31.
33 See Bailey v. Farmers Union Co-op Ins. Co., supra note 1. See, also, State
Farm Fire & Cas. Ins. Co. v. Miceli, supra note 31; Rockford Mut. Ins.
Co. v. Pirtle, supra note 17; Pollock v Fire Ins Exchange, supra note 31;
Cornelius v. Badger Mut. Ins. Co., supra note 31; Ward v. Merrimack Mut.
Fire Ins., supra note 25; Parker, supra note 12; 1 A.L.R.5th, supra note
16, § 13[a].
34 Bailey v. Farmers Union Co-op Ins. Co., supra note 1, 1 Neb. App. at 418,
498 N.W.2d at 598.

18 	284 NEBRASKA REPORTS
sued upon the contract.35 “In short, under the doctrine of pre-
vention, where a party to a contract is the cause of the failure
of the performance of the obligation due him or her, that party
cannot in any way take advantage of that failure.”36
(a) Doctrine of Prevention Is Not
Limited to Bad Faith
[8,9] But, at least where the conduct is in breach of the
promisor’s obligations under the contract, “prevention” is not
necessarily limited to “bad faith” acts.37 Thus, where the imped-
ing act is the denial of liability in breach of the insurer’s obli-
gations under a policy with the insured, the breach may excuse
the insured’s performance of a repair/replace condition even if
made because of a “good faith” misunderstanding of the rights
and liabilities of the parties.38 It has been said that “a party
typically ‘acts at its peril if that party, insisting on what it mis-
takenly believes to be its rights, refuses to perform its duty.’”39
Furthermore, whether the denial was in good or bad faith, it
would be “wasteful[] and useless” to require the insured to
comply with the repair/replace condition when, by doing so,
the insured would not obtain recognition of coverage.40 The
law does not require the doing of a useless act.41 According
35 13 Williston, supra note 6, § 39:3.
36 Id. at 519.
37 See id. Accord Restatement of Contracts § 295 (1932).
38 See, State Farm Fire & Cas. Ins. Co. v. Miceli, supra note 31; Rockford
Mut. Ins. Co. v. Pirtle, supra note 17; Conrad Brothers v. John Deere Ins.
Co., supra note 31; Ward v. Merrimack Mut. Fire Ins., supra note 25;
Restatement, supra note 37; 13 Williston, supra note 6, § 39.3. See, also,
Go Travel Toledo, Inc. v. American Airlines, 96 Fed. Appx. 290 (6th Cir.
2004); 13 Williston, supra note 6, § 39:10.
39 Conrad Brothers v. John Deere Ins. Co., supra note 31, 640 N.W.2d at 241
(quoting 2 E. Allan Farnsworth, Farnsworth on Contracts § 8.21 (2d ed.
1998)).
40 Conrad Brothers v. John Deere Ins. Co., supra note 31, 640 N.W.2d at
241.
41 Id. (quoting 13 Williston, supra note 6, § 39:37). See, also, e.g., BSB
Constr. v. Pinnacle Bank, 278 Neb. 1027, 776 N.W.2d 188 (2009); Bank of
Papillion v. Nguyen, 252 Neb. 926, 567 N.W.2d 166 (1997).

D & S REALTY v. MARKEL INS. CO. 	19
Cite as 284 Neb. 1
to Williston on Contracts, “the performance of a condition
precedent is waived where the other party has unequivocally
declared by word or act that performance of the condition will
not secure performance of the counterpromise.”42
Courts have explained that not allowing claims of preven-
tion based on the erroneous denial of coverage would trap
the insured “in a no win situation.”43 The insured, in order to
recover under the replacement cost coverage he or she pur-
chased, would have to incur the cost of repairs and replace-
ments when there is no guarantee that a future breach of con-
tract action by the insured will be successful. Indeed, Bailey
and other cases have recognized that it would be very difficult
for most insureds to obtain the financing necessary to conduct
the repairs or replacements when the insurer has denied liabil-
ity for the loss.44 This is equally true whether the denial has
been made in good or bad faith.
In Ward v. Merrimack Mut. Fire Ins.,45 the court thus held
that the insurer’s good faith denial of the insureds’ claim could
excuse performance of the repair/replace condition. The trial
court below had concluded as a matter of law that the insured
was entitled only to actual cash value, because the insured did
not perform the repair/replace condition. The trial court had
found that the doctrine of prevention did not apply to good
faith denials of coverage. The Superior Court of New Jersey
reversed, specifically rejecting the trial court’s view that a good
faith denial of coverage rendered the doctrine of prevention
inapplicable. The court explained that an insurer’s denial of a
claim is no less “‘wrongful’” because it is made in good faith.46
42 13 Williston, supra note 6, § 39:39 at 672-73.
43 Rockford Mut. Ins. Co. v. Pirtle, supra note 17, 911 N.E.2d at 65.
44 See Bailey v. Farmers Union Co-op Ins. Co., supra note 1. See, also,
Rockford Mut. Ins. Co. v. Pirtle, supra note 17; Smith v Michigan Basic
Ins, 441 Mich. 181, 490 N.W.2d 864 (1992) (superseded by statute as
stated in Salesin v State Farm, 229 Mich. App. 346, 581 N.W.2d 781
(1998)); McCahill v Commercial Ins Co, 179 Mich. App. 761, 446 N.W.2d
579 (1989); Ward v. Merrimack Mut. Fire Ins., supra note 25.
45 Ward v. Merrimack Mut. Fire Ins., supra note 25.
46 Id. at 524, 753 A.2d at 1219.

20 	284 NEBRASKA REPORTS
We agree, and we reject Markel’s assertion that a good faith
denial of liability cannot excuse D&S’ duty to perform the
repair/replace condition. We have said in other contexts that
if a promisor prevents or hinders the occurrence of a condi-
tion precedent, the condition is excused.47 We have never said
the prevention must be in bad faith. And in Bailey, while bad
faith formed the basis for the insured’s separate tort claim, the
Court of Appeals never discussed bad faith when it held the
insured was excused from performing the repair/replace con-
dition.48 This was the correct approach. An insurer can prevent
the performance of a repair/replace condition without acting in
bad faith.
(b) Prevention Is Question of Fact
However, Markel is correct that most courts view prevention
as a question of fact under the particular circumstances pre-
sented and that the insured has the burden to prove those cir-
cumstances.49 In Ward,50 for example, because the question of
prevention was never presented to the jury, the court remanded
the matter for the necessary factual determination of whether
the insurer’s denial actually prevented the insureds from repair-
ing or replacing the property.
In contrast, the court in Rockford Mut. Ins. Co. v. Pirtle51
affirmed the verdict in favor of the insured when the jury
had been instructed as follows: “‘When one party prevents
the other from performing any part of the contract, the
other party is excused from the remainder of his duties. The
party excused may also recover for any work and any other
damages sustained as a direct result of the prevention of
performance.’”
47 See Chadd v. Midwest Franchise Corp., 226 Neb. 502, 412 N.W.2d 453
(1987).
48 Bailey v. Farmers Union Co-op Ins. Co., supra note 1.
49 See, Rockford Mut. Ins. Co. v. Pirtle, supra note 17; Ward v. Merrimack
Mut. Fire Ins., supra note 25. But see State Farm Fire & Cas. Ins. Co. v.
Miceli, supra note 31.
50 Ward v. Merrimack Mut. Fire Ins., supra note 25.
51 Rockford Mut. Ins. Co. v. Pirtle, supra note 17, 911 N.E.2d at 66.

D & S REALTY v. MARKEL INS. CO. 	21
Cite as 284 Neb. 1
There was no determination that the insurer in Rockford
Mut. Ins. Co. had acted in bad faith. The insurer had offered
to “‘cash out’” the insurance policy at an amount which would
not be enough to repair the insured’s damaged building.52 While
the dispute over the value of the claim continued, the insured
was unable to keep his tenants in the building and fell behind
on his mortgage. When the insurer finally made an actual-cash-
value payment with agreement that the insurer would addition-
ally pay for the repairs once conducted, the insured had to use
the cash value payment for the mortgage instead of beginning
repairs. The court observed that if the condition of actually
repairing or replacing the property were not excused under
these facts, the replacement cost endorsement paid for by the
insured “would be rendered illusory.”53
[10,11] It is true that some courts have held that the insurer’s
good faith denial of liability excuses the insured from per-
forming the repair/replace condition as a matter of law.54 But
the greater weight of authority, in accordance with general
principles of contract law, is that whether interference by one
party to a contract amounts to prevention so as to excuse per-
formance by the other party is a question of fact to be decided
under all of the proven facts and circumstances.55 And the bur-
den to prove those facts is on the party bringing action under
the contract.56 The doctrine of prevention does not require
proof that the condition would have occurred “but for” the
52 Id.
53 Id.
54 See, State Farm Fire & Cas. Ins. Co. v. Miceli, supra note 31; Conrad
Brothers v. John Deere Ins. Co., supra note 31. See, also, Smith v
Michigan Basic Ins, supra note 44.
55 See, e.g., 13 Williston, supra note 6, § 39:3.
56 See, Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 717 (4th Cir. 2000);
Chadd v. Midwest Franchise Corp., supra note 47; 81A C.J.S. Specific
Performance § 130 (2004). See, also, Zaitchick v. American Motorists Ins.
Co., supra note 31; Chambers v. Pingree, 351 S.C. 442, 570 S.E.2d 528
(S.C. App. 2002); Paddock v. Mason, 187 Va. 809, 48 S.E.2d 199 (1948);
O’Brien v. Hunt, 464 P.2d 306 (Wyo. 1970); 71 Am. Jur. 2d Specific
Performance § 226 (2001).

22 	284 NEBRASKA REPORTS
wrongful conduct of the promisor, but requires only that the
promisor’s conduct contributed materially to the nonoccurrence
of the condition.57 However, if the promisee could not or would
not have performed the condition, or it would not have hap-
pened whatever had been the promisor’s conduct, the condition
is not excused.58
(c) Excusal May Be Only Temporary
Markel is also correct that at least when a good faith denial
of liability is the cause of the nonperformance, many courts
hold that the duty to perform the condition is merely sus-
pended while the issue of liability is undetermined.59 These
courts reason that it would “not be necessary to excuse the
performance of a condition precedent that would still be
capable of performance following the resolution of the cover-
age question.”60 On the other hand, “a coverage dispute may
excuse performance by the insured of certain conditions that
could no longer be performed even after the coverage dispute
is resolved.”61
In Smith v Michigan Basic Ins,62 the Michigan Supreme
Court held that the excusal of the insureds’ performance of the
repair/replace condition was only temporary. The court distin-
guished its facts from those in Pollock v Fire Ins Exchange,63
57 See Moore Bros. Co. v. Brown & Root, Inc., supra note 56.
58 Ward v. Merrimack Mut. Fire Ins., supra note 25 (citing 5 Samuel
Williston, A Treatise on the Law of Contracts § 677 (Walter H.E. Jaeger
ed., 3d ed. 1961)).
59 See, Dickler v. CIGNA Property and Cas. Co., 957 F.2d 1088 (3d Cir.
1992); Miller v. Farm Bureau Town & Country Ins., 6 S.W.3d 432 (Mo.
App. 1999); Todd v. Wayne Co-op. Ins. Co., 31 A.D.3d 1026, 819 N.Y.S.2d
179 (2006). See, also, Conrad Brothers v. John Deere Ins. Co., supra
note 31. But see, State Farm Fire & Cas. Ins. Co. v. Miceli, supra note
31; Rockford Mut. Ins. Co. v. Pirtle, supra note 17. See, additionally,
Restatement (Second) of Contracts § 245 and comment a. (1981).
60 Conrad Brothers v. John Deere Ins. Co., supra note 31, 640 N.W.2d at
240.
61 Id.
62 Smith v Michigan Basic Ins, supra note 44.
63 Pollock v Fire Ins Exchange, supra note 31.

D & S REALTY v. MARKEL INS. CO. 	23
Cite as 284 Neb. 1
a case involving the bad faith denial of a claim and which the
Nebraska Court of Appeals extensively discussed in Bailey.64
The insurer in Smith had, in good faith, denied the insureds’
claim 	after 	fire 	destroyed 	their 	home, 	believing 	that 	the
insureds deliberately set the fire.65 When it appeared that the
home would not be repaired, the city demolished what was left
of the structure, and the insureds had not replaced it. Prior to
trial, the trial judge had made a special determination as a mat-
ter of law that the insureds would be entitled to replacement
costs if the jury determined they had not committed fraud. The
Michigan Court of Appeals had affirmed the judge’s ruling that
the insureds could recover the replacement costs without actu-
ally having repaired or replaced the home. But the Michigan
Supreme Court reversed.
The Michigan Supreme Court agreed that “‘a bank would
be chary to lend money on the basis of an unlitigated law suit
in which the defendant and its vast resources intend to present
several defenses to payment.’”66 Thus, the insureds “could not
be expected to repair, rebuild, or replace while this litigation
was pending.”67 However, once litigation has determined the
insureds are entitled to coverage, the insurer’s defense to cov-
erage “no longer stands in the way of lender-assisted financing
of repair, rebuilding, or replacement.”68
Although the insured’s house in Smith had been demolished
by the time the policy dispute was decided, the policy allowed
the insured to rebuild in a different location from the site of
the loss. Accordingly, the Michigan Supreme Court concluded
that the insureds’ “interest in obtaining payment of replace-
ment cost can be protected without estopping the insurer from
requiring actual repair, rebuilding, or replacement.”69 The court
64 Bailey v. Farmers Union Co-op Ins. Co., supra note 1.
65 Smith v Michigan Basic Ins, supra note 44.
66 Id. at 190, 490 N.W.2d at 867 (quoting Zaitchick v. American Motorists
Ins. Co., supra note 31).
67 Id. at 190, 490 N.W.2d at 867.
68 Id. at 190, 490 N.W.2d at 868.
69 Id. at 191, 490 N.W.2d at 868.

24 	284 NEBRASKA REPORTS
remanded with directions that the judgment award the insureds
actual cash value and require an additional payment by the
insurer when and if the insureds actually repaired, rebuilt, or
replaced their home.
In other cases, courts have similarly denied an award of
replacement costs, while at the same time expressly allowing
the insured additional time to repair or replace the property
after the judgment which determined that the insurer was liable
under the policy.70 In other words, those courts found that the
insurer’s denial of liability excused the repair/replace condi-
tion only while the question of liability was undecided. We
observe that, in those cases, the facts showed that it was still
possible to satisfy the repair/replace condition after the deci-
sion was rendered.71
[12] There are courts which hold that the good faith denial of
liability under the policy absolutely and permanently excuses
or waives the insured’s obligation to perform the repair/replace
condition.72 But we agree with the reasoning in Smith.73 The
respective interests of parties acting in good faith can, in most
cases, be adequately protected by excusing the performance of
the repair/replace condition only for such time as it appears the
insurer will not honor its obligations under the policy. Where
the insured can still conduct the repairs/replacements and be
reimbursed by the insurer, then the good faith denial of liabil-
ity should not operate to give the insured a benefit it did not
contract for.
[13] Neither, however, should the insurer be permitted to
take advantage of the insured’s failure to perform a condition
precedent under the contract when the insurer has materially
contributed to that failure. Thus, we conclude that if the delay
in determining the insurer’s liability materially contributed to
70 Dickler v. CIGNA Property and Cas. Co., supra note 59; Todd v. Wayne
Co-op. Ins. Co., supra note 59. See, also, Miller v. Farm Bureau Town &
Country Ins., supra note 59.
71 See id.
72 Rockford Mut. Ins. Co. v. Pirtle, supra note 17; Ward v. Merrimack Mut.
Fire Ins., supra note 25.
73 Smith v Michigan Basic Ins, supra note 44.

D & S REALTY v. MARKEL INS. CO. 	25
Cite as 284 Neb. 1
a situation where the insured can no longer perform the condi-
tion after the coverage dispute is resolved, then the condition
will be absolutely excused.74
4. neW tRIal
In this case, the trier of fact did not determine whether
Markel’s conduct materially contributed to D&S’ failure to
repair or replace the property. Instead, the jury was improperly
instructed as a matter of law that the measure of damages was
replacement costs. Nevertheless, each of the parties in this case
wishes to hold the other to its proofs, or lack thereof, on mat-
ters neither tried nor determined below.
Markel argues that Abboud’s testimony that a “[l]ack of
money[,] primarily,” caused D&S not to repair or replace the
property is insufficient to make even a prima facie case of
prevention. D&S disagrees and argues that since Markel did
not rebut D&S’ evidence, we should determine prevention as
a matter of law.
Markel argues that if D&S’ evidence of prevention was
insufficient, then D&S cannot recover anything at all. Markel
points out that D&S presented no evidence of actual cash
value—which Markel concedes was recoverable. Markel argues
that D&S chose to focus on only one measure of recovery and
that it took the risk of being wrong. While Markel made an
offer of proof of the sale price of the North Tower after the
loss and D&S presented evidence of the original purchase price
and an appraisal after the loss, Markel argues that this evidence
is inadequate.
We find neither party’s arguments on these points persua-
sive. The district court conducted both trials under the theory
that an insurer’s erroneous denial of liability excuses perform-
ance of the repair/replace condition as a matter of law. From
the time of the first trial, the judge stated, “I have an issue
with making [D&S] go spend millions of dollars . . . and then
seek recovery . . . .” In both the first and second trials, the
district court did not give the jury the opportunity to determine
74 See Conrad Brothers v. John Deere Ins. Co., supra note 31.

26 	284 NEBRASKA REPORTS
actual prevention and it did not give the jury an opportunity to
determine actual cash value.
As a result of the district court’s rulings, D&S had no rea-
son to believe evidence of actual cash value was relevant or
even admissible. Under the terms of the policy, where replace-
ment costs are recoverable, that measure “replaces Actual
Cash Value in the Loss Condition, Valuation, of [the policy’s]
Coverage Form.”
Likewise, D&S presented only Abboud’s one-line statement
about “[l]ack of money” on the matter of proving prevention,
because the district court’s rulings indicated it believed the
good faith denial of coverage absolutely excused the repair/
replace condition as a matter of law. As mentioned, such
a view is not unprecedented in other jurisdictions, and we
had never before determined this issue. Because Markel was
similarly unaware that actual prevention was a factual issue
at trial, Markel did not question or rebut Abboud’s testimony
of causation.
[14] A party may rely on a trial court’s favorable ruling.75
It is unreasonable to expect counsel to attempt to present
testimony in anticipation that a judge’s favorable rulings will
be reversed.76 D&S’ presentation of the evidence, or lack
thereof, was in reliance on the trial judge’s favorable position.
The judge conducted the trials on the theory that the only
issues to be determined by the jury were whether the vacancy
contributed to the loss and, if it did not, the amount of the
replacement costs to be granted D&S. D&S and Markel fol-
lowed suit.
The parties did not litigate the factual questions necessary
to the determination of their respective rights and liabilities,
and the jury below was not given an opportunity to determine
those factual questions. We will not decide for the first time
on appeal the factual question of whether D&S was actu-
ally prevented from performing the repair/replace condition.
That question is for the trier of fact. We make no comment
75 U.S. ex rel. Bostick v. Peters, 3 F.3d 1023 (7th Cir. 1993).
76 See id.

D & S REALTY v. MARKEL INS. CO. 	27
Cite as 284 Neb. 1
on whether the record before us could adequately support a
finding that Markel prevented D&S from fulfilling the repair/
replace condition. Likewise, we do not reach the issue of
whether the record is sufficient to demonstrate actual cash
value in the event that D&S was not excused from performing
the repair/replace condition.
There is no longer any issue that Markel was liable under
the policy for the water damage which occurred at the North
Tower. The only question remaining is whether Markel must
pay D&S actual cash value or replacement costs. In most cases
involving good faith denial of coverage, the interests of the
parties would be adequately protected by granting a judgment
to the insured for actual cash value and, in addition, a declara-
tory judgment that the insured will be reimbursed for the dif-
ference between actual cash value and any repair/replacement
costs actually conducted within the time stated in the policy,
running from the time of the judgment.
But the North Tower has been sold. And the policy issued by
Markel to D&S required that the replacement be “on the same
premises.” Thus, future repair or replacement by D&S is now
impossible. Therefore, if D&S can demonstrate to the trier of
fact on remand that Markel’s general denial of liability and the
resulting litigation materially contributed to this impossibil-
ity, D&S may recover replacement costs without ever actually
repairing or replacing the damaged property.
If the jury finds that D&S was thus permanently prevented
from repairing or replacing the property, then D&S would be
entitled to replacement costs in the amount that the jury has
already determined—an amount which D&S has not contested
in this appeal. If D&S cannot prove that Markel’s general
denial of liability for the loss materially contributed to its per-
manent inability to repair or replace the property, then D&S
can recover only actual cash value, which may be determined
in a new trial on remand.
We find no merit to Markel’s assignment of error on costs
and attorney fees, since we find no merit to its argument that
good faith denial of coverage can never operate to excuse the
insured’s performance of the repair/replace condition.

28 	284 NEBRASKA REPORTS
VI. CONCLUSION
We reverse the judgment and remand the cause for a new
trial on the limited issue of the extent to which Markel’s con-
duct prevented D&S from complying with the repair/replace
condition to replacement cost coverage under the policy. Also
to be tried on remand is the amount of the actual cash value
of the loss in the event D&S is not excused from the condition
precedent to replacement cost coverage.
R eveRSeD anD ReManDeD foR a neW tRIal.
MIlleR-leRMan, J., not participating.