What Do YOU Expect?

tonyb · Joined: 04 Jan 2004 Posts: 17 Location: Montgomery, PA

Here are some references that may help:

Provisions Limiting Insurance Company's Liability

More often than not, the insurance company does not enact its option to repair and a cash settlement is in order payable to the policyholder. Naturally the mortgage company and any other parties who have an interest in the property will also be named as payee. The pertinent policy language provides: "To an amount not exceeding $______does insurer________and legal representatives to the extent of actual cash value of the property at the time of the loss but not exceeding the amount which it would cost to repair or replace the property with materials of like kind and quality within a reasonable time after such loss, without allowance for any increased cost of repair or reconstruction by means of any ordinance of law regulating construction or repair and without compensation for loss resulting from interruption of business or manufacture, nor in any event, for more than the interest of the insured..."
In simpler language, the specific limitations on recovery by the policyholder are as follows:
1. The Actual Cash Value of the insured property immediately prior to the loss
2. The cost to repair or replace the property with material of like kind and quality within a reasonable period of time after the loss
3. Face amount of the insurance policy
4. Interest of the policyholder

It is the insurance company's obligation to pay only the smallest of these four amounts under a policy that provides payment of Actual Cash Value.

Under a Replacement Cost Policy, the very same four limitations (shown previously) apply up until, and unless, replacement is made. The property in question must actually be replaced before the cost of replacement is owing. The replacement cost feature of the policy applies even if the damaged structure is not replaced on the same premises: Blanchette v. York Mutual Insurance, 455 A. 2d 426 (Me. 1983).

The amount owing on replacement is open for negotiation. The company may argue that the item could have been replaced for less through some other source. If on the other hand, the company takes its option to replace with "like kind and quality," the policyholder may argue that the item is not of the same quality or value.

Most company adjusters hesitate to enforce their option of replacement with "like kind and quality." It may become an act of futility in trying to convince a policyholder of satisfaction. Under these circumstances the insurance company takes on the added responsibility of guarantor (in which one person promises to make another secure in the possession, continued enjoyment, or the like, of something). Many policyholders mistakenly believe that this is the definition of what insurance owes, even without this option being enforced, á la advertising.

A policyholder can waive the Replacement Cost provisions in favor of an Actual Cash Value settlement by giving written notice.

Where the insurance company's denial of coverage prevented the policyholder from compliance with the one year time limit for replacement under the replacement cost coverage, the insurance company could not rely on that one year time limit: State Farm Fire & Cas. Ins. Co., 164 16 Ap3 874 518 N.E. 2d 357-360, 1987.

Because the insurance company decided not to take its option to repair the damaged property did not mean the policyholder could escape the replacement cost requirement that repair or replacement must first be made before the replacement benefits are owed: Unified School District v. St. Paul Fire & Marine Insurance Co., 6 Kan. App. 2d 244, 627 P. 2d 1147 Kan. Ct. App., 1981.

The court found that the proper standard of repair on the policyholder's roof would have been to replace the roof. The insurance company was held to be arbitrary and capricious in denying replacement cost damages. The insurance company was made to pay twelve percent of the total amount of the loss, as a penalty, plus attorney fees: Higginbotham v. New Hampshire Indemnity Co., 1987 F. & C. 1018 La. App. 3d Cir., 1986.

You are entitled to be "made whole as before the loss." If, for instance, roof rafters are partially burned but instead of complete replacement, rafters are estimated to be nailed alongside the partially burned rafters, the building code may allow such repair; however, you would not be made whole as before the loss. By claiming the replacement of all rafters that need total replacement in order to be as it was before the fire, you may also find that it will increase the scope of repair to roof sheathing and shingles because they must be removed in order to replace rafters. Also, adjusters commonly take the position that an elevation of a roof not in plain sight of the damaged elevation, should not be considered part of the loss. However, as an example of an argument for continuity, an aerial photo that happened to include the roof of an insured home with only the damaged elevation replaced, would stick out like a sore thumb. That may not be as remote a possibility as one may think. I recently inquired about property in the town where I live and was shown an aerial photo of the exact neighborhood. And, how is something that matched before the loss, that does no longer match after the loss, full indemnity? Keep in mind that what first appears to be the low estimate may not be the low estimate at all. Only after your comparison of estimates will you know the scope and cost of repairs you may want to claim. It is still your right to claim what you are entitled to on some policies.

The court held that the replacement cost provision that deducts part of the amount of the claim when the policyholder has not maintained the minimum amount of required insurance, was considered a form of coinsurance. For this reason the court found the replacement cost provision void: Surratt v. Grain Dealers Mutual Insurance Co., 328 S.E. 2d 16 N.C. App., 1985.

If the insurance company determines that you carried too little insurance and attempts to impose a penalty; remember, although you carry the burden of proof, by proving adequate insurance you may eliminate the penalty. If, for example the problem involves a building structure, shop for a replacement cost estimate much the same as insurance companies shop for repair estimates. You may locate a licensed building contractor who will establish that your insurance was adequate when compared to the contractor's building structure replacement estimate. Replacement estimates are not to be confused with repair estimates.

How to know what to expect in case of loss: http://www.disasterprepared.net/deserve.html
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What do You expect in case of loss?