The Napa and Sonoma fires have destroyed thousands of properties. This post addresses the loss settlement provisions in property insurance policies. Loss settlement refers to the valuation method used to compensate the insured for a covered loss.
The statutory default rule provides that the insured will be indemnified for the “actual cash value” of the lost property. In the case of a total loss, this means the fair market value of the lost property. In the case of a partial loss, this means the cost to repair, replace or rebuild the lost property, less depreciation. The insured has the burden of proving the fair market value or cost of repair. The insurer has the burden of proving the amount attributable to depreciation. Some policies alter this rule by providing for replacement cost coverage, which does not include any deduction for depreciation. There are three types of replacement cost coverage. Standard coverage covers the replacement cost, up to the policy limits. Extended replacement cost covers the replacement cost, plus either a fixed dollar amount or percentage amount above the policy limits (e.g., 150% of the policy limits). Guaranteed replacement cost covers the full cost of the repair or replacement irrespective of the policy limits. Although the insured is not required to rebuild the lost property, many policies allow the carrier to withhold the difference between the lower actual cash value of the property and the higher replacement cost until such time as the repairs or replacement is complete. In effect, if the insured does not repair or replace the damage property, they may be limited to the lower actual cash value. In addition, many policies impose time limits. For example, some policies require that the insured enter into a contract to perform the repairs within a fixed amount of time. Other policies require the insured to complete the repairs within a fixed time (at least 12 months, or 24 months in the case of a state declared emergency). The failure to meet these conditions could result in a waiver of the increased replacement cost. Another issue with replacement cost involves the cost to comply with new building codes and laws. Most policies (through different provisions) do not cover the increased cost of complying with new building codes. Stated differently, they will pay to replace to repair the property as it was built (not at today’s cost which would reflect additional building code requirements). Some policies have an “ordinance or law” endorsement which does indemnify the insured for the increased cost of rebuilding to current code. Before preparing a proof of loss, it is imperative to understand the coverages and possible limitations or exclusions so these issues can be addressed from the outset with the carrier.
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11/6/2019 06:02:45 am
https://www.altheqa-eg.com/stone-prices/
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blogHi. I'm Stephen Flynn. Attorney and founder of the Law Offices of Stephen M. Flynn. This is my blog. Enjoy! Archives
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