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Last Post 05/25/2010 12:20 AM by  Ray Hall
First day Covers
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Leland
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04/20/2010 10:18 AM

    I was just working on a contents spreadsheet and was wondering if anyone ever ran across First Day Covers.

     

    A lot of policies exclude "stamps" but a First Day Cover is an envelope with a stamp on the first day it was issued. They are collected by Philatelists just like stamps but they aren't  technically  "stamps".

    What do you folks think? Should be excluded just like stamps? Or paid for ?

     

    Any other examples of similar things, where a slight difference in what something is makes it compensable?

     

    As I look at the "property not covered" section I notice it excludes Gold, silver, and platinum. (DP1)

     

    It does not use the word "jewelry".

     

    So if there was a big ruby in a gold ring, would that get paid? It is not "gold" per se, but a "ring".

     

    A lot of things get paid on a DP1 that don't get paid on an HO3.

     

    I'd love to hear examples of these kinds of issues.

    Tom Toll
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    04/20/2010 6:34 PM

    Applying logic here, I see that the envelope has a permanent stamping affixed to it, not a stamp from a roll. The envolope would be covered and the cost  of it.

    Success is not final, failure is not fatal: it is the courage to continue that counts.
    Leland
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    04/20/2010 8:52 PM
    most first day covers have actual stamps. Some are officially issued in pretty envelopes but any person can buy the stamp, address an ordinary envelope, and get the special first day postmark. First day covers are bought and sold in stamp shops. They are included in "stamp collections". But I don't think they are stamps.

    So if a collector had a big collection with some first day covers mixed in, it sounds like the carrier might need to pay for those while issuing a denial for the individual stamps.

    Here's a link to a photo of a first day cover honoring the United States Marines raising the flag at Iwo Jima:


    http://www.postalhistorystore.com/s...ima/Detail
    Leland
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    04/20/2010 9:23 PM
    Here's the wording from a policy that is very similar to an HO3:

    Special Limit of Liability... $200.00 for money, bank notes, bullion, gold other than goldware, silver other than silverware, platinum, coins, medals, stamps and numismatic property.

    CLAIM SCENARIO

    the insured has total loss personal property of:

    A) $50,000 of various stamps

    B) $3000.00 of first day covers, including several duck hunting fee covers

    C) A rare set of gas station tokens from the 1960's showing all the presidents up to 1961. Each token resembles a coin and was originally redeemable for $1 of gasoline.

    D) $6000.00 of 150 year old cowrie shells originally used as money in Timbuktu, North Africa. (see the explanation below)

    The insured also collects old "ephemera" such as

    E) a rental contract written between Elvis Presley and his landlord,

    F) a never used Rolling Stones concert ticket from 1970 and

    G) a completed 1970 Blue Chip Stamp book, with the stamps affixed to the pages.

    (For the younger adjusters, Blue Chip Stamps was a customer loyalty program still around when I was a kid. At many stores you would be given a few stamps with purchase to stick in a book. After you collected enough stamps you would go to the Blue Chip stamp store and get something you wanted.)

    Please reply to this posting, using the Special Limit of Liability above, what you deny and what would you recommend payment on?

    -------------------------------------------------------------------------------------------------------------------------------------------------------------------


    NOTES ON BLUE CHIP STAMPS

    Berkshire Hathaway, the investment vehicle of Warren Buffett, began investing in Blue Chip Stamps in 1970. Berkshire's investment in Blue Chip went from 36.5% in 1977, to 60% in 1979, and finally merged in a stock swap in 1983.[2]

    According to Buffett's 2006 letter to Berkshire shareholders, Blue Chip had 1970 sales of $126 million as about 60 billion of "stamps were licked by savers, pasted into books, and taken to Blue Chip redemption stores." He also said, "When I was told that even certain brothels and mortuaries gave stamps to their patrons, I felt I had finally found a sure thing." Sales dropped to $19.4 million in 1980 and $1.5 million in 1990. In 2006, revenues came in at $25,920.[3]

    NOTES ON COWRIE SHELL MONEY

    In western Africa, shell money was usual tender up until the middle of the 19th century. Before the abolition of the slave trade there were large shipments of cowry shells to some of the English ports for reshipment to the slave coast. It was also common in West Central Africa as the currency of the Kingdom of Kongo called locally nzimbu.

    As the value of the cowry was much greater in West Africa than in the regions from which the supply was obtained, the trade was extremely lucrative. In some cases the gains are said to have been 500%. The use of the cowry currency gradually spread inland in Africa. By about 1850 Heinrich Barth found it fairly widespread in Kano, Kuka, Gando, and even Timbuktu. Barth relates that in Muniyoma, one of the ancient divisions of Bornu, the king's revenue was estimated at 30,000,000 shells, with every adult male being required to pay annually 1000 shells for himself, 1000 for every pack-ox, and 2000 for every slave in his possession.

    In the countries on the coast, the shells were fastened together in strings of 40 or 100 each, so that fifty or twenty strings represented a dollar; but in the interior they were laboriously counted one by one, or, if the trader were expert, five by five. The districts mentioned above received their supply of kurdi, as they were called, from the west coast; but the regions to the north of Unyamwezi, where they were in use under the name of simbi, were dependent on Muslem traders from Zanzibar. The shells were used in the remoter parts of Africa until the early 20th century, but gave way to modern currencies. The shell of the land snail, Achatina monetaria, cut into circles with an open center was also used as coin in Benguella, Portuguese West Africa.
    claims_ray
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    04/21/2010 11:02 AM
    Unless this insured has a rider on his policy offering coverage for these items as antiques or collectables then the value of these items is not as great as you believe in the eyes of the policy. The stamp and envelope only have the value of the cost of a useful stamp and envelope at current retail price. The special limits of liability that you have noted only give $200.00 for money, bank notes, bullion, gold other than goldware, silver other than silverware, platinum, coins, medals, stamps and numismatic property. I would suggest that these items at best would be included in the special limits of liability and at worst only the useful current retail value. The useful current retail value of almost all of these items that you have noted is a big fat Zero.
    Leland
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    04/21/2010 11:43 AM
    OK fair enough if the policy is an HO3. I almost never adjust personal property under HO3's anymore, so I tend to forget about some of the exclusions, like for collectibles.

    Ninety percent of the total loss personal property I do is on DP1.

    On a DP1 or DP3 most of this stuff would be covered.

    This thread is a good reminder for me to watch the exclusions on collectibles the next time I adjust an HO3 policy.

    I would just humbly point out that you guys & gals that do DP1's (isn't Texas windpool DP1? and Louisina Fair Plan?) might want to be aware that there is no exclusion like that on DP1's. On the DP1's that I work, we pay collectibles and antiques all the time.

    DP3's same thing. If there is a wildfire in California, some of the high end homes will have DP3's through Lloyds.

    Leland
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    04/21/2010 4:24 PM
    OK, Here's the wording from the HO3:

    tickets and stamps are covered up to $200. The the concert ticket and stamps would be covered up to $200.00

    if the Elvis rRent contract is a "personal record" (whose "personal record" - the insured's or anybodies?) it is covered up to $1500.00

    The word "collectible" does not appear in my version of the HO3. So "collectibles" per se aren't excluded.

    Claims Ray wrote : "The useful current retail value of almost all of these items that you have noted is a big fat Zero."

    I prefer to use the terms Actual cash value" and "replacement cost Value". I'm not familiar with "useful current retail value".

    I know for a fact fact stamps can be worth $50,000.00 ACV or RCV. In fact ONE stamp can be worth that much.

    Any Ebay research will reveal that First Day Covers also sell for money, etc.

    Here's a link for a gas station token for sale on Ebay:

    ttp://cgi.ebay.com/1968-Shell-Oil-Gas-Station-Game-Abraham-Lincoln-Token-/380166273560?cmd=ViewItem&pt=LH_DefaultDomain_0&hash=item5883acfa18

    It's only one offered at $3, but a set of 30 could be worth $100 then.

    Now let's get specific- If you say that's not covered on an HO3 you need to step up to the plate and quote policy language. Deny it for being a coin that exceeds the special limit, if you think it is a coin.

    Now here is an Ebay link to $12 of Cowrie shells:

    http://cgi.ebay.com/1-Pound-Cut-Mon...5ad8bfc678

    If you want to deny the Cowrie shells, again, it is neccesary to step up to the plate and and quote policy language. If you think it is money then you can deny it (to the extent) it exceeds the special limit. If you think it was money 150 years ago, but now it is a collectible, then you might need to pay for it.

    Now here's a sign letter from Jesse James offered for over 5million retail.

    http://www.historyforsale.com/html/...48&start=1

    I bet they would negotiate but I don't think it's accurate to such an item is worth "zero".
    claims_ray
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    04/21/2010 5:26 PM
    I used the word useful as in what would it cost for you to go down to the post office and buy a stamped envelope that you can place a letter in and mail it. A stamp or stamped envelope that is collectable that you can purchase for $50k has no Useful ACV or RCV. It is simply a collectable stamp with the value placed on it by a collector. I used the word current to represent today and not 1945. The first day cover is collectable as part of a stamp collection and is considered in the same catagory because it is the stamp that makes it collectable.
    As far as the Elvis document being a "personal record" I think not. The value of the paper that it was written on at ACV.
    What is the usefulness of the items in question? That would help in determining the values. Other than that I would still suggest that the limits of coverage apply.
    Leland
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    04/21/2010 6:28 PM
    What you are saying might be applicable to HO3 losses. We've all heard that the value of the antique furniture is not covered; just the value of what a similar new piece of furniture would cost. This thinking comes from the HO3 wording "...When the new identical article is no longer manufactured or is not available, replacement cost shall mean the cost of a new article similar to the one damaged or destroyed and which is of comparable quality and usefulness, without deduction for depreciation. That's the wording that's behind paying insured's for new furniture cost when an antique is destroyed.

    But don't push that wording to far, it doesn't apply to everything. For example, let's say you had a one year old oil painting, from a deceased artist, that sold at auction for $10,000. Let's also assume that the painting could be expertly counterfeited for $500.00. Would you pay the insured $500.00 for their painting, based on the wording "cost of a new article similar to the one damaged or destroyed and which is of comparable quality and usefulness". ?

    Is a fake painting really "comparable quality and usefulness" to an original?

    Where do you draw the line?

    essentially you might be saying that a new stamped envelope is ""comparable quality and usefulness" to an old collectible one.

    The new one can be used to send a letter. The old one can be hung on the wall and admired.

    Old furniture and antique furniture might have the same "usefulness" but I don't think the same is true for a first day cover and an ordinary envelope.

    Forgetting about HO3 policies for a moment, DP policies don't have that wording I quoted above and insured's are paid all the time for antiques with no limitation other than the policy limit.

    claims_ray
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    04/21/2010 7:26 PM
    I am at a loss. I have been reading through a Texas DP1 and another DP1 policy that I have found online, which both vary slightly from your DP1. I can't find a reason to deny antiques, artwork or collectables other than what has been noted under the special limits of liability. I still say that the First Day Cover is still a stamp though and the limits of liability apply. The excess can be applied to the deductible.
    I will keep looking as I can't believe that such a limited policy would not have an exclusion for these items.

    What was the cause of loss?
    Leland
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    04/21/2010 8:51 PM
    see, that's the surprise. The DP1 is considered to have more limited coverage but there are no limits on antiques, furs, jewelry, artwork, etc.

    I was surprised when I started adjusting them. Only on a DP1 (ACV) will the carrier tell you to pay for only 2 broken floor tiles, forget about matching it, and then turn around on another claim and tell you to pay for some high dollar antiques, and get an appraiser/antique dealer to tell you what they are worth.

    One time I paid for an 1880's organ of some kind that was damaged by wildfire. We searched on ebay and paid what it was worth as an antique. Sometimes I find antique dealers for special items, call them up and ask what something is worth.

    In Santa Barbara I handled the home of a famous deceased artist from the '60's that had about 100 paintings burn up. I called a gallery that sells his work and they informed me that they had been to the house about a year earlier and had inventoried everything with a detailed computer list. I asked them to estimate the value and we used their opinion to pay policy limits on the personal property. The widow was spared from compiling a voluminous list of total loss personal property because the art work alone exceeded the limit. The carrier was very comfortable with adjusting the claim that way.

    One of the problems with this adjusting business is that you get used to a certain way of thinking and another state or type of policy needs a totally different way of thinking.

    And if an adjuster says or does something because they are unfamiliar with the difference, it's easy to think they are poorly trained or lack knowledge when maybe they just worked a different kind of claim.

    If you are a homeowner in an area of california that allows DP1s and you have a bunch of furs, guns, antiques etc. the DP1 is a fantastic deal. You just need to get an excess policy for everything the DP1 doesn't cover- water pipe leaks, liability, theft of personal property etc.

    I wonder how many times a CAT adjuster has told an insured with a DP1 that they would only get paid utility value for an antique.

    regarding your question about what peril, I just made up the scenario so there is no peril that I have chosen. As long as it is a covered peril, there isn't much difference between personal property and building property getting covered EXCEPT two things:

    1) personal property is never RCV like a lot of HO polices

    2) THEFT of building materials is covered (labor only) but zero coverage for THEFT of personal property.

    And I can respect that you would say the first day cover is limited coverage as a "stamp" but I myself would probably submit that as a question to the carrier.

    But I want to ask you guys that do HO policies all the time. Let's forget antique furniture for a minute.

    Let's consider something like a cowboy hat signed by president LBJ. (I picked him for all you Texans, and I picked a hat so we can avoid the issues about papers etc.)

    On an HO3 would you really value that at the value of an ordinary hat even if it was purchased for $500??? I mean come on y'all, were talking about LBJ, the man that brought us consumer safety caps!



    CatAdjusterX
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    05/22/2010 9:43 PM
    Posted By claims_ray on 21 Apr 2010 11:02 AM
    Unless this insured has a rider on his policy offering coverage for these items as antiques or collectables then the value of these items is not as great as you believe in the eyes of the policy. The stamp and envelope only have the value of the cost of a useful stamp and envelope at current retail price. The special limits of liability that you have noted only give $200.00 for money, bank notes, bullion, gold other than goldware, silver other than silverware, platinum, coins, medals, stamps and numismatic property. I would suggest that these items at best would be included in the special limits of liability and at worst only the useful current retail value. The useful current retail value of almost all of these items that you have noted is a big fat Zero.

    In 1993, My Aunt passed away and my father and myself went to the task of emptying her house of personal effects and furniture that we donated to a local hospice organization, we kept personal mementos and keepsakes and the like and one of the things I found was a sketch done in nude  either in charcoal or pencil on a linen type CANVAS 8 1/2 by 20 and was signed by PICASSO !!
     
    My father was not impressed and said my Aunt was a hoarder type and had all kinds of worthless trinkets found from garage sales and flea markets, so I kept it thinking it was cool .
     
    In 1994 , I had just kept it in a suitcase and decided to take it to Butterfield and Butterfield (An auction house in Beverly Hills) appraiser agreed with my father that it was probably a fake but that for verification to send it to a firm in Paris that authenticates such works, but I was forewarned that if this was indeed a fake , it would be destroyed !! They sent a courier service to my home to pick it up and two months later , I was sent a telegram that this was indeed an authentic  Picasso sketch.
     
    It was sent back and after many offers , I had an appraisal of around 22, 000 and after 6 months or so , sold it at auction for just over 26,000
     
    The whole point of this post was I was renting an apartment had a renters policy with no special riders , so if that sketch would have been stolen or destroyed in a fire , are you telling me that the sketch would have only have an insured value of the  materials used for the sketch(CANVAS AND CHARCOAL) and nothing else since the sketch was not insured separately ?
     
     
    Robby Robinson
    "A good leader leads..... ..... but a great leader is followed !!" CatAdjusterX@gmail.com
    ChuckDeaton
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    05/22/2010 11:11 PM
    Antiques are items at least 100 years old and fine art.
    "Prattling on and on about being an ass with experience doesn't make someone experienced. It just makes you an ass." Rod Buvens, Pilot grunt
    Leland
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    05/23/2010 11:31 AM
    If you had a dwelling policy (DP1 or DP3) it would generally be covered for full value (up to coverage limits).

    On an HO3 policy it is not subject to the special limits on the form I have, so again it would be covered.

    Here's a copy of the HO3 (10/00):

    http://server.iii.org/yy_obj_data/b...sample.pdf

    Since the Renter's policy is similar I think it would also be covered there.

    "Paintings" are not subject to special limits (like jewelry and guns) on my copy of the HO3.

    And even jewelry and guns are subject to the special limits when it is THEFT. It doesn't say they are subject to the limits for FIRE.

    So it seems to me, based on my copy of the HO3, the painting would be covered. Keep in mind different carriers have different versions of the HO3 by making their own proprietary form which is based on an HO3.

    But remember there is also the "Loss Settlement" section of the HO3. This section is why the carrier says "We only pay for the functional value of the the antique table".

    So the painting might be covered, but the carrier could apply the "Loss Settlement" section and pay what it would cost for a similar painting by an unknown artist.


    So there is a practical reason to "schedule" the painting (even if it is "covered") - rather than assume it is covered, and try to prove you owned it and it's value AFTER a fire, you can get it all documented BEFORE there is a fire.

    For example some HO type policies require Persian rugs to be scheduled. Too many insured's claimed their rug was worth $10,000 when it was worth only $500. So carriers started requiring that they be scheduled to have (full) coverage. If the insured wants it scheduled and the carrier does not send an appraiser to verify, the carrier can't claim later that it was only worth $500- they had an opportunity to check it at the time the policy was purchased, after the fire they have to accept the fact that it is worth the $10,000 scheduled value or something close to it- I could be wrong on this point because I haven't seen many specifically scheduled personal property items but I think that's how it works- someone with more experience on this point please comment.

    If you google it you can find this (HO3) explanation all over the internet:

    Are my jewelry and other valuables covered?

    You get protection of about $1000-$2000 in case of theft of jewelry under a standard policy. If you are in possessions of family heirlooms and other jewelry which is worth more then you must opt for higher limits. Further more you must add a floater to your policy if you possess precious stamps, paintings, silver ware, electronic equipments, precious stones etc. A floater will protect specific pieces of possessions it has been bought for. The floater will also provide higher limits and cover additional risks not covered by any normal policy.

    The full article is here:

    http://ezinearticles.com/?Homeowner...id=3157874

    (Are golf clubs stolen from the trunk of a car covered under HO3? If you don't know, read the article above)


    There are several types of residential insurance policies. The HO-4 policy is designed for renters, while the HO-6 policy is for condo owners. Both HO-4 and HO-6 cover losses to your personal property from 16 types of perils.

    TYPES OF POLICIES:

    HO1 – Basic Form Homeowner Policy
    A basic policy form that provides coverage on a home against 11 listed perils; contents are generally included in this type of coverage, but must be explicitly enumerated. The perils include fire or lightning, windstorm or hail, vandalism or malicious mischief, theft, damage from vehicles and aircraft, explosion riot or civil commotion, glass breakage, smoke, volcanic eruption, and personal liability. Exceptions include floods, earthquakes.
    HO2 – Broad Form Homeowner Policy
    A more advanced form that provides coverage on a home against 17 listed perils (including all 11 on the HO1). The coverage is usually a "named perils" policy, which lists the events that would be covered.
    HO3 – Special Form Homeowner Policy
    The typical, most comprehensive form used for single-family homes. The policy provides "all risk" coverage on the home with some perils excluded, such as earthquake and flood. Contents are covered on a named peril basis. (Note: "All Risk" is poorly termed as it is essentially named exclusions (ie, if it is not specifically excluded, it is covered))
    HO4 – Renter's Insurance
    The "Tenants" form is for renters. It covers personal property against the same perils as the contents portion of the HO2 or HO3. [1]
    HO5 - Premier Homeowner Policy
    Covers the same as HO3 plus more. On this policy the contents are covered on an open peril basis, therefore as long as the cause of loss is not specifically exluded in the policy it will be covered for that cause of loss. (can also be achieved by endorsing an HO15 to the HO3)
    HO6 – Condominium Policy
    The form for condominium owners.
    HO8 – Older Houses
    The "Modified Coverage" form is for the owner-occupied older home whose replacement cost far exceeds the property's market value.

    So in conclusion, the painting would not be

    Leland
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    05/23/2010 4:20 PM
    And just to clarify and answer your question:

    I don't think it would be right for a carrier to pay for the value of the sketch MATERIALS only on an HO3 - they need to add an artist's labor and pay:


    "... actual cash value at the time of loss but not more than the amount required to repair or replace"

    To me this means that the value of an amateur sketch mass produced on cheap paper is NOT a fair settlement.

    But a professional done sketch, by a real artist, on the same quality of canvas or whatever material, might have a comparative value.

    One of the valuation problems is that an adjuster would need to determine a value for a similar item that INCLUDES the same quality of work but EXCLUDES any value related to historic signifigance, age, fame of the original painter etc. (On an HO3 policy)

    In my opinion, on an HO3, it would be wrong to pay ONLY for the value of the canvas and the charcoal.

    This principle is easier to understand with furniture.

    Let's say you have an antique desk where Thomas Jefferson sat. It is made of solid walnut and intricately carved. It has mother of pearl inlay. It was seen in a Hollywood movie. It has 7 layers of hand rubbed lacquer varnish that took 100's of hours to apply. The raw materials (before cutting and polishing and inlay) would cost $3000.

    An exact reproduction, made just like the original, is available in a catalog for $10,000. The actual desk was auctioned for $350,000.00.

    What does the carrier owe under a HO3?

    The adjuster must disregard the fact that it is an antique. The adjuster must disregard who owned it before. The adjuster must disregard the fact that it was in a movie.

    The adjuster must consider the quality of the finished piece: the quality of the wood, the quality of the carving, the quality of the inlay, the quality of the finish. Since a virtually identical item with those qualities sells for $10,000, that might be the fair RCV.

    Paying the insured $3000 in this example would be an incorrect adjustment in my opinion.
    claims_ray
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    05/23/2010 6:44 PM
    Leland, Picasso is dead he doesn't get much for his time and labor any longer. lol
    Paying the cost of an artist today may be an overpayment or an underpayment depending on the future marketability and there for cannot be measured.
     
    My suggestion would be if someone has an item of value they should determine if there is coverage under their policy.
    Leland
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    05/23/2010 9:41 PM
    If you reread my post carefully you will discern that I never advocated paying for Picasso's labor- quite the opposite. I apologize if I wasn't clear.

    What I posted is correct.

    What is posted is basically how major HO3 carriers adjust their claims, when they do it correctly, which is most of the time.

    Of course you don't generally need to analyze the hourly wage of the artist- but an adjuster must pay for the value of a comparable finished item, not some parts dumped in a pile or something assembled with less expertise than the destroyed item.

    If it would cost $3000.00 to have a professional make a similar painting with the same quality- ie. the same quality of shading, perspective, use of color etc, than that might be a good reference for what the destroyed painting is worth.

    If you insist that $300 of paints/canvas/frame is what the insured is owed for a professional painted work of art then you are simply wrong.

    Imagine how you would feel if the next time you went to a restaurant and ordered waffles the cook came out to your table and dropped flour and water on your plate.

    I mean I know that policy interpretation is a bit subjective, but this really shouldn't be so hard to understand.

    Why not just read the policy and think about it:

    "... actual cash value at the time of loss but not more than the amount required to repair or replace"

    A kindergartener's charcoal drawing is NOT a replacement for a Picasso charcoal drawing. A graduate art student's charcoal drawing might be. (Unless the kindergartener is really good...)

    An IKEA walnut veneer desk is NOT a replacement for Thomas Jefferson's solid walnut inlaid desk. A brand new solid walnut inlaid desk might be a good replacement.

    You wrote:

    "My suggestion would be if someone has an item of value they should determine if there is coverage under their policy."

    I have an alternative suggestion:

    My suggestion would be that adjusters determine if there is coverage under the policy, and determine the settlement based on correct interpretations of the "Loss Settlement" provisions of the policy.

    Here is a link to a court case about a very similar issue, where the judge thought the adjuster was doing it wrong for 20 years:

    http://www.wfkclaw.com/pdf/Federal%...Review.pdf


    And here is what the State of Massachussets says about scheduled antiques:

    9. I HAVE SPECIFICALLY INSURED ANTIQUE ITEMS LISTED ON MY HOMEOWNERS POLICY. IF I HAVE A TOTAL LOSS, WOULD THE INSURANCE COMPANY PAY ME THEIR INSURED VALUE?

    Your insurance company would first confirm the value of the items with one or more independent antique dealers. You should then be paid a dollar value based on the dealer(s) estimate of the worth of the antique items. If you disagree with the settlement offered by your insurer, then you can follow the dispute resolution process outlined in your policy. There is a simpler way. Get appraisals and have your agent establish the stated values in the policy. You should also keep your appraisals up-to-date.

    It looks like the attorneys working for the Massachusets Insurance regulators think the same way I do, at least about scheduling items.


    Here's another FAQ from the Massachussets website:

    2. WHAT IS THE DIFFERENCE BETWEEN ACTUAL CASH VALUE, REPLACEMENT COST AND MODIFIED OR FUNCTIONAL REPLACEMENT COST?

    Replacement Cost is the amount to repair or replace the damaged property using materials of like kind and quality, without deduction for depreciation. Depreciation is the loss of value that develops as an item ages or wears. Actual Cash Value is the replacement cost of an item, less the amount for depreciation. A new option available to consumers is modified or functional replacement cost. At the time of a loss, modified replacement cost will restore the home to a functional condition. This may mean that unique features in your home prior to a loss will be replaced with items that serve the same function, but are not aesthetically the same.

    Now if you notice, they used the term "Functional Replacement Cost" as an ALTERNATIVE to RCV or ACV on building property, not personal property. It's one of the three, not two or more. Personal property coverage is RCV or ACV - pick one.

    If the policy is ACV then it is ACV.

    ACV IS NOT "FUNCTIONAL VALUE" as many people are told. That is wrong, I don't care how many times you heard it on a storm site.

    What your supervisor should have told you is this:

    "On ACV personal property we don't pay for the portion of the value related to the fact that it is an antique, or the fact some famous person owned it"

    When your supervisor said "We pay for the functional value only" you supervisor was using verbal shorthand and sloppy language. Trust me, "functional value" is not in the HO3 policy or related case law.

    Functional value is when you get drywall instead of plaster and that's a whole 'nother policy.

    If the carrier could really pay "functional value" on an ACV policy they could give you a 4 year old Volkswagen when your 4 year old Rolls Royce burned up.

    Bottom line you have to replace with like kind and quality.

    If you have a 89 year old Winchester rifle with checkered walnut stock used by Teddy Roosevelt you might be entitled to a newer (but still used) rifle of similar quality and features. It is not correct to find the value of any old plastic stock rifle and say that it's a correct adjustment of the claim.

    Anyway I don't want to post on this anymore, anyone who doesn't agree with me can just keep doing whatever they've always done and if you do get lambasted by a judge like my link posted above I hope you have a major carrier to back you up.
    Ray Hall
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    Posts:2443


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    05/24/2010 12:17 AM
    Leland I have been working homeowner losses since 1960, I don,t think I have ever had as much problems settling losses as you bring up.

    Just work flood losses and its all spelled out , this may help bring you back down to earth. I also know what RC and ACV . Its just not as compicated as ypu make it.
    Leland
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    05/24/2010 12:37 AM
    I see the work that many CAT adjusters do- many times they are adjusting DIC HO3s on the same CAT claims I am working (Malibu fires for example). They get these things wrong and the lawsuits and appraisals are often happening when they are back home and don't even know about it.

    I routinely handles losses on multi-million dollar homes and these issues come up all the time.

    So maybe I'm just bored and shouldn't start these topics if nobody else deals with it very often in CAT claims



    Ray Hall
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    05/24/2010 1:04 AM
    Its been 15 years since I worked in California, but it seems the AllstateSuper Delux Policy, had limits on art, antiques, silver, rugs, jewely, etc. I could be wrong. I also worked for Farmers, but it was wind and flood only.
     
    I hust read the TX DP3 and IT DOES not have a limitation on the household goods you bring up. I will have to dig up the old NY 165 line fire & EC policy and the old TX.146 line policy. Leland you may be correct in California on the DP,s The old TX Fire & EC that the DP's replaced does not have the limitation clause like most homeowners I have ever seen . Sorry. Email me one of those "adjusters nightmare" if you can.
     
    I thought we sent our best out to California on the conflageration fires . We had a crappy crop a dew years back, guess you poor souls got the cream of the crap. Is it London placed for A coverage only and the UPP is a PPF Floater?
    RandyC
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    05/24/2010 11:46 AM
    I just spent some time pleasure reading through various policies. Calif. earthquake lists artwork as "property not covered" and NFIP has a special limit of $2500 for artwork. For other policies, the limitation language for art seems to be parked in replacement cost for personal property endorsements. For antiques, an equal quality replica would probably satisfy the contract, but replicating a painting for payment is probably against the law. At the least it would be a copyright violation.

    I don't think the HO-3 policy owes an exact replacement or even a match, but like kind and quality is probably a higher standard than just paying any old painter to paint a few trees and a mountain to replace a Thomas Moran painting. For an appreciating asset, AC is not that much less than RC.

    I've just read several different ISO DP and HO policies and found very little that limits coverage on paintings. I see a lot of different limiting language about antiques, fine art, historical value in the replacement cost endorsements, how would that limit coverage for the ACV of a painting that is worth more today than when purchased? I see some "functional value" language in guidelines, but I can't find any policy language like that this morning.

    Before I was an adjuster, I was an art dealer for several decades. We helped adjusters find comparable prices for damaged paintings and prints and we helped appraise values of art for insurance purposes. It wasn't our place in those days to worry about whether they were covered under the HO policy or SPP but I don't remember any adjuster asking us to paint a replacement. I know there are adjusters that deal with this everyday. Maybe one of them will chirp up!
    RandyC
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    05/24/2010 12:18 PM
    I wrote that wrong. We didn't help adjusters find replacements for paintings. We helped them find market prices for certain artists and certain subject matter. For instance, Porfirio Salinas is known for painting bluebonnets. A bluebonnet painting by him of a certain size would be worth a certain range. Other subject matter might be worth more or less. We just located a number of available pieces as similar in subject matter and size as possible. I don't know what they would do with this information to settle the claim. We did this as a free service. We got restoration work on frames and print sales for trouble.

    In those days, there were dealer networks. Today, with computers it is much easier to find the value of these things through subscription services.

    Ray Hall
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    05/24/2010 2:48 PM
    This topic of broader coverage on "household goods" (NY Std) definition has been very good for me as it seems I have forgotten something that I learned many years ago. This is the definition of the TX. policy which I think is a copy of the NY standard fire policy in many aspects. Household Goods-Insurance on household goods, shall include all personal property, usual to a residence, of the insured and family. Then the lines 8-13 spell out the excepted property. This policy does not cover, accounts, money, currency, securities,deeds or evidence of debt: nor, unless specifically named heron, cloth awnings, and books of records(except their physical value in blank), manuscripts, bullion, animals, motor vehicles, or aircraft.
     
    Leland I am sorry I called you out, I have learned a lot and can see why your are cleaning up DP,s for adjusters that thought they were dealing with a MIC-3 Homeowners.
     
    I think my excuse is I was out insurance adjusting from 1972 until 1982, when the DP,s were adopted in TX. The next time we send in adjusters for fire claims, we will have to get them on DP 1, DP2 and DP3 Policy form. Ah shoot lets start a certifications class, as many people will not learn from this back and forth post.
     
     
     
     
     
     
     
    Ray Hall
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    05/24/2010 2:50 PM
    Posted By Ray Hall on 24 May 2010 02:48 PM
    This topic of broader coverage on "household goods" (NY Std) definition has been very good for me as it seems I have forgotten something that I learned many years ago. This is the definition of the TX. policy which I think is a copy of the NY standard fire policy in many aspects. Household Goods-Insurance on household goods, shall include all personal property, usual to a residence, of the insured and family. Then the lines 8-13 spell out the excepted property. This policy does not cover, accounts, money, currency, securities,deeds or evidence of debt: nor, unless specifically named heron, cloth awnings, and books of records(except their physical value in blank), manuscripts, bullion, animals, motor vehicles, or aircraft.**** Thats makes you and the Underwriters @ Lloyds correct**
     
    Leland I am sorry I called you out, I have learned a lot and can see why your are cleaning up DP,s for adjusters that thought they were dealing with a MIC-3 Homeowners.
     
    I think my excuse is I was out insurance adjusting from 1972 until 1982, when the DP,s were adopted in TX. The next time we send in adjusters for fire claims, we will have to get them certified on DP 1, DP2 and DP3 Policy form. Ah shoot lets start a certifications class, as many people will not learn from this back and forth post.
     
     
     
     
     
     
     
    Leland
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    05/24/2010 3:13 PM
    Look, Ray I have to admit I'm not real clear myself on the precise way to adjust a fine art painting on an HO3 because I don't do a lot of HO3 personal property. I do know that it is always good to think these things through and even if some of these issues don't come up that often it's the one time it does come up that can bite an adjuster in the behind.

    And I do think that many people tend to just fall back on some rule of thumb that may not always be correct. Like the adjuster in the court case I mentioned who the judge says was doing it wrong for 20 years. Maybe it was the judge who was wrong but it didn't seem like the adjuster could give a good explanation of why he was doing it the way he was doing it.

    I think it's important to be able to explain why a loss was settled a certain way (using policy language) rather than say "that's how we always do it". That way, even if someone disagrees it is harder to claim bad faith, because the adjuster thought it through etc.

    I love the heartland of this country and someday hope to move to a farm in Texas. So I don't mean any disrespect at all but there are parts of this country where claims are filed for damaged farm equipment, hail damage to mobile homes, and livestock hit by cars. I happen to live in an area where I get claims for gunshots hitting buildings in one part of town and rich people with $20,000 antique walking cane collections. I would be lost trying to handle some of the claims you are familiar with and the reverse might be true also.

    Keep in mind that if you feel like fancy artwork questions don't come up that often for you think about it from my perspective: I've never handled a hail claim. We don't generally have hail in California.

    One mistake a lot of Cat adjusters make on California claims is that they will start adjusting the HO3 without asking or realizing that the HO3 is DIC and secondary to the DP1 that I am adjusting. A lot of times the CAT adjuster will have recommended payments without realizing the insured has a primary policy with a DP1 carrier.
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