Home destroyed while under contract to be sold...what to do?

Interesting question on a real estate list serve I'm on:

Seller enters into contract for sale of vacant house, in need of repairs. Water pipes burst and house is almost destroyed. Seller has replacement insurance and now house is repaired to pristine condition. House is now worth 4 times sales offer. Buyer wants the house under original contract terms. Seller wants fair market value. Is this a reason for Seller to breach the contract and cause Buyer to pay fair market value. Has anyone represented anyone in such a situation?

Answer??

I forgot to mention the Vendor and Purchaser Risk Act. That would clearly leave the parties in the same position as when the contract was signed. Buyer wins.

What if the reverse occurred and the property went down in value? Then seller wins.

I've never had this situation but if you look at your form contracts they do always reference that Uniform Vender and Purchaser Risk Act.