Forums

Use the words betterment and its easy to understand/. Just like their is no betterment of a house that hasthe sheetrock ceiling patch and ceiling painted in  one  room.

Posted By Ray Hall on 30 Sep 2009 03:20 PM

...Just like their is no betterment of a house that hasthe sheetrock ceiling patch and ceiling painted in  one  room.

No betterment in sheetrock, but most carriers want to see depreciation as applicable to wearable surfaces (such as paint, flooring, roofing).

With a small claim like your example, the loss may not even exceed the deductible. 

the HO-3 (2000 version) says to pay RCV on claims under 2,500.  so again, your example would = the check that gets issued.

But I would not want to train people to ignore depreciation on paint, ever, because that is the one thing claims managers know to look for.  They may not take the depreciation, but they want to see it mentioned in the estimate. 

Think of it like the tires & battery in a car.  They don't last forever.  The average room gets painted about every 7 years if you believe the statisticians.

 This is one of those subjects easily put in the "search" box, you will find threads like this one from 8 years ago covering the same topic http://www.catadjuster.org/discus/m.../3192.html

We have discussed this topic at length over the past few years, but I will respond with a brief comment that reflects some of the previous postings:

I know that the policy with a lot of insurance companies is to hold back the depreciation but do not understand what allows them to do so.  I do not recall seeing that written into the HO policies that I have dealt with, but the adjusters only responsibilty is to show the depreciation, not deal with the issuing of the check. At least that has been my experience as an independent adjuster although I realize that salaried adjusters do deal with such issues. 

As to the comment about the homeowner making money on a claim, how are they making money if they are compensated for the amount of the total loss on the house including RC that the adjuster and carrier have calculated and agree is the cost to repair and replace? There have been several court cases in different states over the years about this exact issue that I have read, with all of them ruling that the insured is entitled to the total amount less the deductible on an RC policy and that they may do the work them selves.  If the work does not get done, or is shoddy, the policy can be canceled or non renewed by the carrier. 

Posted By rickhans on 25 Oct 2009 02:41 AM

...I know that the policy with a lot of insurance companies is to hold back the depreciation but do not understand what allows them to do so.  I do not recall seeing that written into the HO policies that I have dealt with, but the adjusters only responsibilty is to show the depreciation, not deal with the issuing of the check... 

Every policy will have a section called "Loss Settlement". 

It's not in the front of the policy, first they have to explain coverages & exclusions.  People who have not fallen asleep will get to the  "Loss Settlement" section which is one of the more clearly written sections of a Homeowner or commercial policy.  It will define settlement as Replacement cost, without deduction for depreciation, or it may be an ACV only policy.

Replacement cost in states other than Florida typically has "conditions" to get the full replacement cost, such as the work being completed.  It is clear as day for everyone to see.  Think of it as 2 chapters.  The first check is the depreciated value, the final check is based on actual cost to repair up to the amount allowed.

Ever replacement cost policy states very clearly the RC is the amount you actualy spent. Part tense.

Posted By rickhans on 25 Oct 2009 02:41 AM

As to the comment about the homeowner making money on a claim, how are they making money if they are compensated for the amount of the total loss on the house including RC that the adjuster and carrier have calculated and agree is the cost to repair and replace? There have been several court cases in different states over the years about this exact issue that I have read, with all of them ruling that the insured is entitled to the total amount less the deductible on an RC policy and that they may do the work them selves.  If the work does not get done, or is shoddy, the policy can be canceled or non renewed by the carrier. 

 

What if an insured suffered cosmetic loss to a metal roof.  The functionality of the roof is as good as before the storm, but there was actual physical damage.  If the insured has a replacement cost policy(and no cosmetic loss waiver or exclusion), he has suffered two losses.  He has an actual loss and is owed ACV.  The second loss is a potential loss.  Because he has unsightly dings to his roof, he may or may not need to replace his metal roof.  If he decides he can't live with the dings, he can replace the roof and then make a claim for the replacement cost.
 

When he replaces the roof, he has the second loss.  If he doesn't replace the roof he has no replacement cost loss.  His only loss is actual, which is payable based on the remaining life of the roof.

If the insured is paid replacement cost before they replace, they could keep the old roof for another twenty years and maybe collect on it a couple more times before they actually have to replace it. 

This may not be correct theory, but it helps me keep it sorted out.  New for old, but they can't get paid for the new and keep the old...except maybe in Florida.

Randy Cox

I understand what you are saying, and I probably did not make my explanation very clear.  I have experienced various versions of what everyone is saying including my statements about a full RC payout without doing the repairs, as a contractor recieving the payments, as an adjuster dealing with contractors, and as an insured taking a full payout on a large fire loss. There are various factors that affect each scenario, but the primary point I was trying to make is that the replacement cost is supposed to be the true and actual cost to do the repairs, not ACV.  When you write an estimate, you use the actual replacement cost, then pay out the ACV after depreciation if the policy is not RC. In my mind, this means that the RC is the true and actual cost to do the repairs.

Now, if the policy is RC, but for some reason only the ACV is paid to the claimant, then the insured has not been made whole again. If they fail to make the repairs, their property should have decreased in value by the amount of the RC claim. If they decide to sell the house "as-is", it will sell as a fixer upper at the depreciated valu. To keep from losing their equity, they are entitled to the full RC payment. The buyer will normally have to do the renovation in order to obtain new coverage and will most likely get a policy with builder's risk coverage.

If the house fails to sell, the insurance should not renew and likely will be canceled if they find out the repairs were not done. If they file another claim for the same items that were to be repaired before, it is the adjuster's job to know there was a prior claim and see this as possible attempt to defraud the carrier and investigated accordingly. There should not be any way that the insured could collect again. If they were paid for hail dings and did not replace, then the storm tears the metal roofing, the probably the amount of the prior payment should reduce the amount of the new claim.

If the house sells and the buyer is unaware of the prior claims and un repaired damage, it most likely will show up when the insurance inspection is done, assuming it is in a state where such inspections are done.  In Texas the inspector will have a Clue report pulled to find out about prior damage and claims, then is supposed to inspect to ensure the repairs were done.  If not, depending on the damage, the inspector can issue a report denying insurability, requiring the seller to do the repairs first, or else the buyer will have to obtain builder's risk coverage depending on their sales agreement.

I am going to look at my policy again, but I read all policies I obtain on all of my properties, and when needed, on claims I am adjusting.  I don't think I have ever seen a clause that defines the payments as was explained earlier, but I am going to look at a couple of them again.  I know for a fact that I was paid full RC on a large loss fire with no holdbacks for depreciation, after which I sold the building at a price that when added to the insurance payment + deductible equaled the renovated value so I did not lose any of my equity, nor did I make any profit that I had not already earned in the form of equity from buying and renovating the property, based on the appraisal from when I purchased it.  Nowhere in that policy was RC considered to be profit to the owner nor excluded from payment with the requirement that I do the repairs to recover the rc.

Again, there are many different aspects that can affect ACV and RCV, and apparently different wording in different policies.  These are the versions I have had experience with.

This is an insurance history lesson that may clear up the what ifs on replacement cost coverage. During the early 20th century owners of commercial property would not insure property for its full value, because they chose to assume the risk themselves on never having a total loss to the property value, but possibly have a total loss to the amount of coverage purchased. As you can see from this and using your experience in claims the carriers were taking all the loss exposure in a very large % of claims. This is why co-insurance clauses came into the picture. It seems 80% was the percentage that was the normal amount required to the actual value of the property. A reduced premium was given to the policy holder if the designated amout was purchased.

The risk managers could see the advantage and the insurance underwriters saw an increse in premium-income.

Now co-insurance was not written on dwellings and household goods then or now and mny dwellings had  5, 10, 20 or 50 thousand $ coverage when I started working fire and extended coverage losses back in 1957 with no deductible for fire and $50 for windstorm only. Many people did not insure their household goods( any thing normal to a residence) Some would insure for a few thousand.

I think it was about 1948-49 the carriers started thinking about broader coverage for dwellings and came up with the inland marine term "risk of loss" form for dwellings and dwelling contents. In Texas the form was the 148. It was called the PLF:physical loss form on dwellings only. This expanded the basic fire, lightning and EC (wind storm, hurricane & Hail, explosion, riot, civil commotion, smoke,aircraft, and land vehicles. This was the begining of the package policys that came into existance in 1959 HOMEOWNERS. The super duper personal property policy was the inland marine policy, PPF; Personal Propery Floater which was all risk of loss for personal property and only purchased by the wealthy.

Go back to 1949 with the PLF form and it was only on the dwelling and it required the property owner to "insure" the dwelling to 80% of its replacement cost. {not its valuelike the commercial polcies.

With this history lesson on the HOMEOWNERS Policy, there is this covenant ,"for an additional premium(Homeowners Package Policy) we we give you new for old material/labor on losses to dwellings IF YOU COMPLY with 80% of RC and only when you actually spend (indemnity) the funds on the repair cost.

Posted By rickhans on 27 Oct 2009 02:43 AM

...I know for a fact that I was paid full RC on a large loss fire with no holdbacks for depreciation...

This kind of thing can vary from one Ins Co to the next.  Some will pay full RC up front if there is a signed contract to do the work. 

And I have seen instances that I would describe as sort of "lazy" where the adjuster did not do their own estimate, settled the claim based on a contractor estimate (which would not describe depreciation on the line items).  Rather than try to break out the trades and depreciate by age and condition, the adjuster can make a decision along the lines of "oh well, there is a contractor involved and the work is going to get done and we are settling based on a contractor estimate so we will pay it RCV up front"

I have seen that on prior claims to the loss I am inspecting, where the work was not done yet they were paid full RC. 

No sense trying to figure out why, just fix the one sitting on your desk and move on.

I am on vacation in Oregon and am getting bored so I am revisiting some of these threads and a new question comes to mind.  When a "preferred contractor" is dispatched to a claim, the contractor is acting in place of a field adjuster and does the entire job that the field adjuster would do except for policy intrepretation.  How is depreciation then determined on an acv claim? Since contractors never put depreciation into their estimate, and the staff adjuster in charge of the claim does not go to the site to see first hand the age and condition of the various building materials, how does he accurately determine depreciation.  Photos can be deceiving, and if the loss is a fire, prior condition can be difficult, if not impossible to determine and it is not the contractor's job to try and determine such.

Posted By rickhans on 23 Nov 2009 01:55 PM

...  When a "preferred contractor" is dispatched to a claim,  ... How is depreciation then determined on an acv claim? 

This scenario pretty much assumes one of the LARGE carriers (or a smaller one "pooling" resources such as the Crawford Contractor Connection) and the vast majority of these claims are owner occupied homeowner policies.  Most of those policies are full replacement cost.

Per the post just above yours, it is fairly common to pay the entire claim without hold-back if a signed contract is presented (this can vary and is not a firm rule across all carriers or regions).  If a preferred contractor arrangement is in place, the logistics are different than simply sending a check to the homeowner.  The carrier has some assurance that the work is actually going to be completed, and often the contractor is paid directly or at least named on the check.

Even with a tenant occupied policy or non-endorsed homeowner, the items other than carpet and appliances, awnings & antennae will get full RCV upon completion of repair.  The staff adjuster who coordinates with the preferred contractor and Insured could establish depreciation on those few items that are non-recoverable ACV items.

I work for a general contractor that is a preferred contractor with CSAA, USAA,  Contractor Connection, Innovation and others. Typically the ACV is paid at the end or close to the end of the job for the large fires . On a smaller loss RCV is paid up front .

It has been many years since I was a staff adjuster, but I wrote a check and sent it out on the day I reviewed the paperwork. I never held back RCC if the work was underway with a contractor that I had an agreement with. The contractor had enough problems with the mortgagee in getting funds. Things may be changed, but I doubt it. This is a problem with the vendors, who do not pay ever two weeks. I don,t think the carrier is holding up the service bill. I THINK IT IS THE VENDOR.