Simply Snap, Speak & Send

Tags - Popular | FAQ  

PrevPrev Go to previous topic
NextNext Go to next topic
Last Post 06/24/2010 11:49 AM by  Ray Hall
Participation in Loss/Deductibles
 12 Replies
Sort:
You are not authorized to post a reply.
Author Messages
TScott
Guest
Guest
Posts:3


--
06/06/2010 9:44 PM
    I offset a deductible in Galveston on a couple of occasions where the additional structure loss exceeded policy limits.  Here's a few questions:
     
    1.  Could the participation in loss loophole apply to ACV item such as fencing in offsetting deductibles?
    2.  Tree removal, computers, firearms, boats, etc.  Could those losses offset deductibles?
     
    Also, what's the legalities of invoicing to receive depreciation for work not performed?  Unless I'm mistaken, the policy is for RCV and does not mention having the work actually performed.  Either the policyholder is participating in the loss for the same amount, or RCV should be paid, but it's the same either way.  Would a statement to the effect saying the insured requests release of depreciation for work not performed on said items be appropriate?  Of course I understand that the said items would be uninsured into the future...
     
    And regarding insurance fraud...  It sure seams there's a very very very big misunderstanding by the homeowners regarding the old double invoicing issue when the all say, "I do not want to pay my deductible."
     
    How do honest companies solve that plague of a problem without starving to death?  The insurance companies are beeing looted by teachers, drs, lawyers, and everybody else on the map.  It seems like the media looks the other way instead of educating their flocks.  When I got my adjuster license, it obviously taught us about the illegalities of rebates.
     
    I appreciate all of your responses, good or bad...
     
     
    0
    Leland
    Advanced Member
    Advanced Member
    Posts:741


    --
    06/07/2010 10:30 AM
    It's called absorbing the deductible. You can absorb the deductible on more than one line of coverage if needed. If any particular loss exceeds that line of coverage, the deductible should be absorbed.

    If you have a $1000.00 deductible and the "other structures" loss exceeds the "other structures" limit by $350.00, AND you also have personal property loss which exceeds the personal property limit by $200.00, you would absorb $350.00 of the deductible by applying it to the "other structures; absorb $200.00 by applying it to the personal property, and apply the remaining $450.00 of the deductible to the dwelling loss.

    It is customary to apply the deductible to the dwelling loss. However when it can be absorbed on one or more other lines of coverage, it should be.

    The rest of your question is not clear to me.

    Are you asking whether it is OK for a contractor to submit an estimate for something the insured does not intend to repair?

    It depends.

    If the contractor submits an estimate that is intentionally inflated in order to help the insured get more money that is fraud. If the contractor is more expensive than other contractors but is submitting that price because he really would like to get paid that amount of money than it generally would not be fraud, just out of line price-wise.

    If the insured is submitting false documents to obtain the "recoverable depreciation" that could be fraud. Many times carriers pay the "recoverable depreciation" up front in a catastrophe situation. There is no reason to lie about the work being done. The insured is not required to complete the work to recover depreciation because the carrier waives that normal requirement.

    I think another part of your question is about the contractor not collecting the deductible, and the legality of that.

    This is always a big gray area. If the contractor says, "look, I will submit this estimate to the insurance company, and if they approve it you don't have to pay your deductible" that could be fraud but the amount of money is small enough I don't know that the carrier would really care.

    What some contractors do is have the insured agree to change orders for any deviation from the repair estimate. And since there are almost always deviations (insured had wallpaper, deserves wallpaper money, but is not replacing it) the contractor can use those credits to pay the deductible. (Contractor says "Mr. Homeowner, you owe me $1000 for the deductible but since I credited you $1000 for the wallpaper you don't want it is a wash and you don't need to pay that")

    0
    jlouden
    Guest
    Guest
    Posts:31


    --
    06/07/2010 11:57 AM
    Leland, it's bad practice to say "absorb the deductible".
    0
    Leland
    Advanced Member
    Advanced Member
    Posts:741


    --
    06/07/2010 2:45 PM
    Why do you say that?

    Big Red taught me to say "absorb the deductible". How were you taught to describe it?

    If you have a better way I will use it.
    0
    Leland
    Advanced Member
    Advanced Member
    Posts:741


    --
    06/07/2010 5:45 PM
    Please see this Florida court case below which discusses how deductibles should be applied to the total "covered loss" and not the uncovered loss or policy limit.

    Please note on page 15 the judge quotes wording from a respected insurance reference book (Property Loss Adjusting 106-12 (James J. Markham ed., 2d ed. Ins. Inst.
    of Am. 1995).

    This book the judge considers as a reference for his decision uses the term "absorb" in relation to the deductible.

    Perhaps you were taught not to use the term "absorb" because that is sometimes the way contractors talk when they waive the collection of the deductible, something that is considered naughty or even fraudulent.

    However the term "absorb" is the correct term used by insurance carriers and judges and insurance textbooks.

    I would like to know why you say I shouldn't use that term.

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

    IN THE SECOND DISTRICT COURT OF APPEAL, LAKELAND, FLORIDA
    April 30, 2004
    GENERAL STAR INDEMNITY,
    Appellant,
    WEST FLORIDA VILLAGE INN, INC.,
    d/b/a BEST WESTERN VILLAGE, INC.,
    Appellee.
    Upon consideration of Appellee's motion for rehearing, rehearing en banc,
    clarification, and certification filed February 18, 2004, and Appellant's response dated
    March 5, 2004, it is
    ORDERED that Appellee's motion for clarification is granted and the prior
    opinion filed February 4, 2004, is withdrawn. The attached opinion is substituted
    therefor. In all other respects, Appellee's motion is denied.
    No further motions will be entertained in this appeal.
    I HEREBY CERTIFY THE FOREGOING IS A
    TRUE COPY OF THE ORIGINAL COURT ORDER.
    JAMES R. BIRKHOLD, CLERK
    Honorable James D. Arnold
    Janet L. Brown, Esq.
    Matthew R. Danahy, Esq.
    IN THE DISTRICT COURT OF APPEAL
    OF FLORIDA
    SECOND DISTRICT
    GENERAL STAR INDEMNITY COMPANY, )
    )
    Appellant,
    )
    )
    )
    )
    WEST FLORIDA VILLAGE INN, INC.,
    )
    d/b/a BEST WESTERN VILLAGE, INC.,
    )
    )
    Appellee.
    )
    )
    Opinion filed April 30, 2004.
    Appeal from the Circuit Court for
    Hillsborough County; James D. Arnold,
    Judge.
    Janet L. Brown of Boehm, Brown, Fischer
    & Harwood, P.A., Maitland, for Appellant.
    Matthew R. Danahy of Douglas L. Grose,
    P.A., Tampa, for Appellee.
    WALLACE, Judge.
    This appeal raises two questions concerning the proper interpretation of
    provisions for deductibles in a policy of casualty insurance. First, if a policy provision
    concerning the amount of the applicable deductible is ambiguous, may reference be
    made to the unambiguous provisions of the insured's application for insurance and other
    policy provisions to determine the amount of the deductible? Second, for the purpose of
    determining the extent of the insurer's obligation to pay the insured for loss to covered
    property under the policy of insurance, is the amount of the deductible to be applied to
    noncovered loss as well as covered loss under the policy? We answer the first question
    in the affirmative, answer the second question in the negative, and reverse the final
    judgment in favor of the insured that ruled to the contrary.
    The Facts
    West Florida Village Inn, Inc., doing business as Best Western Village
    Inn (West Florida), renewed a commercial property insurance policy issued by General
    Star Indemnity Co. (General Star) to insure the five-building motel complex West Florida
    operated in Pensacola, Florida. Subject to the terms and conditions of the policy,
    West Florida paid an annual premium of $21,000 in return for an agreement by General
    Star to indemnify West Florida for damage caused by covered causes of loss to an
    aggregate limit of $4,185,600.
    On or about September 28, 1998, Hurricane Georges struck the Florida
    Panhandle with high winds and heavy rain, damaging West Florida's motel. West
    Florida consulted a public adjuster to determine its loss and subsequently submitted a
    claim to General Star to recover $476,522.07 under the policy. General Star rejected
    West Florida's claim, and the dispute was referred to arbitration as provided by the
    policy. The dispute primarily concerned the policy's scope of coverage. In its claim,
    West Florida attributed the cause of loss to "Hurricane George [sic]." Although the
    policy provided payment for direct physical loss to the property, General Star rejected
    -2-
    the claim on the ground that the loss was caused by "wind-driven rain," which General
    Star asserted was an excluded cause of loss under the policy. The arbitration panel
    issued an appraisal award determining the amount of loss payable under the policy--
    less West Florida's portion of arbitration expenses--to be $154,710.25. From the
    appraisal award figure, General Star withheld $83,712 based on its interpretation of a
    policy provision calling for a deductible in that amount applicable to loss caused by
    windstorm and hail. General Star issued payment of $70,998.25 to satisfy West
    Florida's claim arising from Hurricane Georges.
    West Florida filed suit against General Star for breach of the insurance
    contract. The complaint asserted that $5,000 was the deductible applicable to wind-
    storm loss, not $83,712. The windstorm deductible provision appeared on a document
    titled "Multiple Deductible Form," which was referenced on the declarations page and
    included in the policy. West Florida contended that the Multiple Deductible Form was
    ambiguous and must be construed in favor of the insured.
    West Florida's complaint also asserted that regardless of the amount of
    the deductible, General Star incorrectly applied the deductible to the amount of loss.
    According to West Florida, because of ambiguity in the deductible provision of the
    Building and Personal Property Coverage Form, General Star should not have applied
    the deductible to the amount of loss covered under the policy, which was the appraisal
    award of $154,710.25. Instead, the deductible should have been applied to the total
    loss caused by Hurricane Georges, including the covered loss and noncovered loss.
    West Florida alleged the total loss to be $476,522.07 based upon its public adjuster's
    prior determination of the total loss. Applying the deductible to the total loss, West
    -3-
    Florida would have been entitled to the full amount of the covered loss, $154,710.25,
    because the difference between the total loss and the covered loss exceeded the
    amount of the deductible regardless of whether the amount of the deductible was
    $83,712 or $5,000. Contending that the policy terms were ambiguous and must be
    construed in its favor, West Florida sued to recover $83,712 that it claimed to be due
    under the policy.
    Following procedural maneuvering not relevant here, the parties submitted
    the matter to voluntary trial resolution in Hillsborough County pursuant to section
    44.104, Florida Statutes (2001). Following a bench trial, the trial resolution judge found
    "patent ambiguity" in both the Multiple Deductible Form and in the deductible provision
    of the Building and Personal Property Coverage Form. Construing these provisions in
    favor of the insured, the trial resolution judge determined the amount of the deductible
    to be $5,000 and further found that this amount was absorbed by West Florida's total
    loss in excess of its covered loss. The trial resolution judge determined that the amount
    of loss not covered by the policy exceeded $90,000; thus a deductible of either $5,000
    or $83,712 applied to the total loss resulted in General Star's liability for the full amount
    of the covered loss, $154,710.25. The trial resolution judge's final decision awarded
    West Florida $83,712 as the balance due under the policy. The circuit court entered
    final judgment enforcing the trial resolution judge's decision.
    -4-
    The Law
    Our review calls for interpretation of the Multiple Deductible Form1 and
    the deductible provision of the Building and Personal Property Coverage Form.2 The
    standard of review is de novo. See Biltmore Constr. Co. v. Owners Ins. Co., 842 So.
    2d 947, 949 (Fla. 2d DCA), review dismissed, 846 So. 2d 1148 (Fla. 2003); Auto-
    Owners Ins. Co. v. Marvin Dev. Co., 805 So. 2d 888, 891 (Fla. 2d DCA 2001). The
    facts determined in the voluntary trial resolution proceeding are not subject to appeal.
    See § 44.104(11).
    General principles of Florida insurance law guide our resolution of this
    appeal. Like other contracts, contracts of insurance should receive a construction that
    is reasonable, practical, sensible, and just. Weldon v. All Am. Life Ins. Co., 605 So. 2d
    911, 915 (Fla. 2d DCA 1992). Terms used in a policy should be read in light of the skill
    and experience of ordinary people. Lindheimer v. St. Paul Fire & Marine Ins. Co., 643
    So. 2d 636, 638 (Fla. 3d DCA 1994). Insurance policies will not be construed to reach
    an absurd result. Deni Assocs. of Fla., Inc. v. State Farm Fire & Cas. Ins. Co., 711 So.
    2d 1135, 1140 (Fla. 1998).
    We are mindful that policy provisions excluding or limiting the insurer's
    liability are construed more strictly than coverage provisions. Purrelli v. State Farm Fire
    & Cas. Co., 698 So. 2d 618, 620 (Fla. 2d DCA 1997). Such limiting provisions must be
    construed in favor of the insured if they are ambiguous or reasonably susceptible to
    more than one meaning. Deni, 711 So. 2d at 1138. However, the rule of liberal
    1
    A copy of this form as it appeared in the record is included with this opinion
    as an appendix.
    2
    Insurance Service Office form number CP 00 10 06 95.
    -5-
    construction in favor of the insured applies only when a genuine inconsistency,
    uncertainty, or ambiguity in meaning remains after resort to the ordinary rules of
    construction. Id. In construing an insurance policy, courts should read the policy as
    a whole, endeavoring to give every provision its full meaning and operative effect.
    Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000). Indeed, a single
    policy provision should not be considered in isolation, but rather, the contract shall be
    construed according to the entirety of its terms as set forth in the policy and as amplified
    by the policy application, endorsements, or riders. Swire Pac. Holdings, Inc. v. Zurich
    Ins. Co., 845 So. 2d 161, 166 (Fla. 2003) (citing § 627.419(1), Fla. Stat. (2002)); The
    Praetorians v. Fisher, 89 So. 2d 329, 333 (Fla. 1956). The lack of a definition of an
    operative term does not, by itself, create ambiguity. State Farm Fire & Cas. Co. v.
    CTC Dev. Corp., 720 So. 2d 1072, 1076 (Fla. 1998); Great Am. Ins. Cos. v. Souza,
    855 So. 2d 187 (Fla. 4th DCA 2003). Further, ambiguity does not exist merely because
    an insurance contract is complex and requires analysis to interpret it. Swire Pac.
    Holdings, 845 So. 2d at 165; Koenigsberg v. Intercontinental Ins. Co., 571 So. 2d 578,
    579 (Fla. 4th DCA 1990) (construing a deductible provision); Am. Motorists Ins. Co. v.
    Farrey's Wholesale Hardware Co., 507 So. 2d 642, 645 (Fla. 3d DCA 1987); Travelers
    Ins. Co. v. C.J. Gayfer's & Co., 366 So. 2d 1199, 1201 (Fla. 1st DCA 1979). Where no
    ambiguity exists, the policy shall be construed according to the plain language of the
    policy as bargained for by the parties. Anderson, 756 So. 2d at 33.
    -6-
    The Multiple Deductible Form
    The Multiple Deductible Form lists two covered causes of loss, "Special"
    and "Windstorm and Hail,"3 and two deductible amounts, $5,000 and $83,712. West
    Florida contends that the spatial arrangement of the phrase "All Covered Causes of
    Loss except as listed below" in relation to the other items created confusion, suggesting
    that $5,000 was the deductible applicable to loss caused by windstorm and,
    presumably, $83,712 was the deductible applicable to all other causes of loss except
    windstorm.
    Standing alone, the Multiple Deductible Form is not a model of clarity.
    However, the form's ambiguity is readily resolved when read together with other parts of
    the contract. First, a quick reference to the policy application resolves any doubt that
    the $83,712 deductible applies to "Windstorm and Hail" damage. See Mathews v.
    Ranger Ins. Co., 281 So. 2d 345, 348 (Fla. 1973) ("The application thus becomes a
    part of the agreement between the parties and the policy together with the application
    form the contract of insurance."); Zenith Ins. Co. v. Commercial Forming Corp., 850 So.
    2d 568, 570 (Fla. 2d DCA 2003). The renewal application, signed by West Florida's
    president and nearly identical to the original application for the previous policy year,
    bears the phrase "2% wind deductible" once and the phrase "2% wind ded" four times
    in describing the various coverages for the individual motel buildings. The property
    was insured to a limit of $4,185,600 of its value. Two percent of $4,185,600 is exactly
    3
    We note that section 627.701, Florida Statutes (1997), which places certain
    restrictions upon deductible provisions specific to hurricane damage subject to enforce-
    ment by the Department of Insurance, does not apply to the contract of insurance in this
    case. General Star is an excess lines carrier based in Connecticut and is not subject to
    regulation by the Florida Department of Insurance.
    -7-
    $83,712. Thus, when the Multiple Deductible Form and the application are read
    together, it becomes clear that the "2% wind deductible" and the "Windstorm and Hail"
    deductible both refer to the same amount--$83,712. By contrast, $5,000 is far less than
    two percent of the insured value of the property and cannot reasonably be confused
    with the higher amount.
    This conclusion is further made plain because the Multiple Deductible
    Form clearly links "$5,000" to "Special" covered causes of loss, not loss arising from
    wind damage. In the policy, the Causes of Loss - Special Form4 defines a "Special"
    covered cause of loss: "When Special is shown in Declarations, Covered Causes of
    Loss means RISK OF DIRECT PHYSICAL LOSS." The form then lists numerous
    exclusions to and limitations on the direct physical loss that is otherwise covered.
    Thus "Special" covered causes of loss encompass a broad category of all causes of
    direct physical loss subject to certain exclusions and limitations. The declarations page
    reveals that all five of the motel buildings are insured for "Special" covered causes of
    loss. Therefore, the insured is informed that if a building suffers direct physical loss,
    coverage will be provided if the damage was caused by a covered cause of loss, and
    this coverage will be subject to the deductible for "Special" covered causes of loss. The
    Multiple Deductible Form clearly identifies $5,000 as the amount of the deductible for
    "Special" covered causes of loss. The higher deductible for wind damage appears as
    an exception to the "Special" deductible for all other causes of loss. Thus, when the
    application and other parts of the policy are read together with the Multiple Deductible
    Form, the contract for insurance is clear that the deductible for windstorm damage is
    4
    Insurance Service Office form number CP 10 30 06 95.
    -8-
    $83,712. An insurance policy, though it may be complex, is not ambiguous merely
    because it requires analysis to interpret it. See Koenigsberg, 571 So. 2d at 579.
    We note that this is not a case in which the terms of the application conflict
    with the provisions of the policy. See Padgett v. Horace-Mann Ins. Co., 704 So. 2d 627,
    629-30 (Fla. 1st DCA 1997) (citing the general rule that where terms conflict, the terms
    of the policy prevail over the terms of the application except if reliance on the terms of
    the application would result in greater indemnity). Rather, all of the terms of the con-
    tract of insurance, including those of the application, convey one meaning when read
    together. See Mathews, 281 So. 2d at 349. Although the phrase "All Covered Causes
    of Loss except as listed below" in the Multiple Deductible Form may not have been as
    artfully drafted and placed as it could have been, the mere fact that a policy provision
    could have been worded differently does not create an ambiguity when the policy in its
    entirety is clear. See Swire Pac. Holdings, 845 So. 2d at 166.
    The Deductible Provision
    The deductible provision at issue in this appeal appears in the policy
    within the Building and Personal Property Coverage Form, which provides, in pertinent
    D. DEDUCTIBLE
    We will not pay for loss or damage in any one occurrence until
    the amount of loss or damage exceeds the Deductible shown
    in the Declarations. We will then pay the amount of loss or
    damage in excess of the Deductible, up to the applicable Limit
    of Insurance, after any deduction required by the Coinsurance
    condition or the Agreed Value Optional Coverage.
    -9-
    The form continues with two examples of the deductible provision in operation.5 West
    5
    The form continues as follows:
    When the occurrence involves loss to more than one item of
    Covered Property and more than one Limit of Insurance
    applies, the Deductible will reduce the total amount of loss
    payable if loss to at least one item is less than the sum of (1)
    the Limit of Insurance applicable to that item plus (2) the
    Deductible.
    Example No. 1:
    (This example assumes there is no coinsurance penalty.)
    Deductible:
    $250
    Limit of Insurance - Bldg. 1:
    Limit of Insurance - Bldg. 2:
    Loss to Bldg. 1:
    Loss to Bldg. 2:
    The amount of loss to Bldg. 1 ($60,100) is less than the sum
    ($60,250) of the Limit of Insurance applicable to Bldg. 1 plus
    the Deductible.
    The Deductible will be subtracted from the amount of loss in
    calculating the loss payable for Bldg. 1:
    $60,100
    -
    250
    $59,850 Loss Payable - Bldg. 1
    The Deductible applies once per occurrence and therefore is
    not subtracted in determining the amount of loss payable for
    Bldg. 2. Loss payable for Bldg. 2 is the Limit of Insurance of
    $80,000.
    Total amount of loss payable: $59,850 + 80,000 =
    $139,850.
    - 10 -
    Florida contends that there is an ambiguity in this passage because it refers only to the
    "amount of loss" and not the "amount of covered loss." In other words, the deductible
    is to be applied to the total amount of covered and noncovered loss. In this case, the
    covered loss caused by Hurricane Georges was determined by the arbitrators to be
    $154,710.25. The trial resolution judge determined that additional noncovered loss
    caused by Hurricane Georges exceeded $90,000. Thus the total of covered and non-
    covered loss was at least $244,710.25, which represented the "amount of loss" to which
    the deductible was to be applied. According to West Florida, even if the deductible
    were $83,712, West Florida would still receive the full coverage amount of $154,710.25
    Example No. 2:
    (This example, too, assumes there is no coinsurance
    penalty.)
    The Deductible and Limits of Insurance are the same as those
    in Example No. 1.
    Loss to Bldg. 1:
    Loss to Bldg 2:
    Loss Payable - Bldg. 1:
    Loss Payable - Bldg. 2:
    Total amount of loss payable:
    West Florida cited these examples in support of its argument to the trial resolution
    judge. However, these examples of the deductible provision in operation illustrate the
    problem of applying the deductible when the amount of loss caused by an insured
    cause of loss exceeds the limits of insurance. These examples are not relevant to
    West Florida's claim because the amount of its insurable loss--that is, the amount of
    loss determined by the appraisers--was far below the limits of insurance.
    - 11 -
    after the deductible is applied to the total "amount of loss" of at least $244,710.25.
    West Florida contends that because the word "loss" is nowhere defined in the policy
    as limited to covered loss, the phrase "amount of loss" in the deductible provision is
    reasonably susceptible to a construction in which the deductible should be applied to
    noncovered loss, notwithstanding other policy provisions, such as the Building and
    Personal Property Coverage Form's "loss payment" provision that expressly refers to
    "covered loss or damage."
    Contrary to West Florida's contention, the lack of a definition for "amount
    of loss or damage" does not in and of itself create ambiguity, nor should a single pro-
    vision be read in isolation. Throughout the policy, "loss" is discussed in the context of
    coverage; nowhere does the policy suggest that General Star would indemnify West
    Florida for loss that was not covered by the policy. The initial coverage provision of
    the Building and Personal Property Coverage Form provides that General Star "will pay
    for direct physical loss of or damage to Covered Property at the premises described in
    the Declarations caused by or resulting from any Covered Cause of Loss." Another
    provision titled "Covered Causes of Loss" references and incorporates the Causes of
    Loss - Special Form, which provides general coverage for direct causes of physical loss
    subject to certain exclusions and limitations, as described above. Directly preceding
    the deductible provision is a section titled "Limits of Insurance," which indicates that
    the most General Star would pay for "loss or damage" is the amount of coverage
    available as shown in the declarations. Following the deductible provision is the "loss
    payment" provision that contemplates payment for "covered loss or damage." To
    - 12 -
    construe "amount of loss" as including noncovered loss in this context is contrary to a
    common sense reading of the policy.6
    The notion that a deductible could be applied to loss that is not covered by
    the policy is fundamentally unreasonable. One need not look for a policy definition of
    "amount of loss" when the plain meaning of the word "deductible" provides ample
    guidance. A "deductible" is "a clause in an insurance policy that relieves the insurer of
    responsibility for an initial specified loss of the kind insured against." Merriam-Webster's
    Collegiate Dictionary 471 (deluxe ed. 1998). A deductible loses its meaning entirely if it
    is to apply to loss that is not covered by the policy.
    "Generally, the functional purpose of a deductible, which is frequently
    referred to as self-insurance, is to alter the point at which an insurance company's
    obligation to pay will ripen." Int'l Bankers Ins. Co. v. Arnone, 552 So. 2d 908, 911 (Fla.
    1989). As self-insurance, a deductible requires the insured to share in the risk of loss,
    and worthy social goals are promoted. The insured is given a monetary incentive to
    6
    West Florida's argument that the coinsurance provision of the policy supports
    its position is misplaced. The purpose of coinsurance is to increase the risk to the
    insured when the insured purchases far less coverage than the full value of the
    property. See generally Couch on Insurance 3d § 220:3-24 (West Group 1999). When
    a coinsurance provision applies, the insurer does not pay the full amount of loss.
    Instead, the amount otherwise payable under the policy is reduced in proportion to the
    extent to which the property is underinsured. Thus the "full amount of loss" in this
    context necessarily involves a combination of covered loss and loss that is not covered
    because the insured purchased less coverage than he or she should have. Through
    coinsurance, the principle of indemnity is upheld by requiring the insured to assume his
    or her fair share of the risk of loss after the loss occurs. In the policy at hand, after the
    coinsurance amount is calculated and subtracted from the "full amount of loss," the
    appropriate deductible is applied to the remaining amount payable under the policy.
    The coinsurance provision of the policy is not applicable to West Florida's claim, as
    there is no indication that its property was insured for an amount below the coinsurance
    percentage as stated in the declarations.
    - 13 -
    fulfill his or her duty to protect and to adequately maintain his or her property as well
    as a monetary disincentive to file relatively trivial claims, thereby contributing to the
    reduction of administrative costs and overall costs of insurance. Conversely, applying
    the deductible to noncovered loss does not serve the goals of having the insured share
    in the risk. Indeed, it threatens to render the deductible a nullity.
    The practical effect of such a construction of this standard-form deductible
    provision would indeed produce troubling, if not absurd, results. For example, when
    processing claims, the insurer would be required to adjust loss that was not covered
    under the policy. Suppose a homeowner's policy--containing an identical deductible
    provision as the policy at issue here--covered loss from theft of personal property
    but excluded jewelry. In the event of a loss including furniture, sporting equipment,
    and jewelry, for example, it would be necessary to obtain an expensive gemological
    appraisal or otherwise evaluate the noncovered jewelry in order to adjust the loss. The
    cost of such an appraisal or valuation would have to be borne by either the insurer or
    the insured, thereby increasing administrative costs unnecessarily. Under the construc-
    tion urged by West Florida, the amount payable for a given type of loss would depend
    on factors outside the contemplation of the contract of insurance. This would make it
    difficult, if not impossible, for insurers to set predictable rates in order to maintain
    solvency and stability in the insurance industry.
    West Florida does not cite any decisional authority in support of its
    deductibility theory.7 To the contrary, one court, considering a comparable casualty
    7
    West Florida has provided this court with excerpts from two editions of a
    standard insurance claims adjusting text. Property Loss Adjusting 2.16-.19, 3.46-.47
    (Donna J. Popow ed., 3d ed. Am. Inst. for Chartered Prop. Cas. Underwriters/Ins. Inst.
    - 14 -
    policy, has addressed the application of the deductible in the manner suggested by
    West Florida and rejected it outright. In Shoreline Towers Condominium Owners
    Ass'n v. Zurich American Insurance Co., 196 F. Supp. 2d 1210, 1216 (S.D. Ala. 2002),
    the court said of the insured's theory of applying the deductible to loss arising from
    Hurricane Opal, "[the insured's] contention that the deductible should be applied to
    the loss caused by both covered and excluded causes of loss is contrary to the plain
    language of the insurance contract and results in a tortured interpretation of the Policy."8
    Similarly, in West Florida's case, we find that applying the deductible exclusively to the
    amount of covered loss is consistent with the only reasonable interpretation of the
    contract of insurance read in its entirety. An interpretation to the contrary would be
    tortured and would lead to absurd results.
    of Am. 2003); Property Loss Adjusting 106-12 (James J. Markham ed., 2d ed. Ins. Inst.
    of Am. 1995). These materials describe how a deductible may be "absorbed" by the
    total amount of loss when the entire loss is caused by a covered cause of loss and
    recovery is limited only by the limits of insurance. The examples provided by these
    materials are similar to the examples provided in the deductible provision of the Building
    and Personal Property Coverage Form. These materials do not support the theory
    advanced by West Florida because policy limits are not implicated in this case. Rather,
    a matter resolved by the arbitrators was whether some of the loss claimed by West
    Florida was caused by an excluded cause of loss, namely, "wind-driven rain." The
    arbitration award reflects the conclusion that some of the damage caused by Hurricane
    Georges was not covered by the policy because that damage was attributable to an
    excluded cause of loss. The materials submitted by West Florida do not support the
    theory that a deductible should be applied against loss caused by an excluded cause of
    loss under the policy. Our rejection of West Florida's theory does not bear upon the
    normal insurance claims adjusting practice of absorbing a deductible when the total
    amount of loss caused by a covered cause of loss exceeds the limits of insurance for
    that type of loss.
    8
    We are aware that the precise wording of the deductible provision in Shoreline
    Towers differs from the provision at issue here and that the court's analysis of the policy
    was dicta in light of its finding that the statute of limitations had run on the insured's
    causes of action. 196 F. Supp. 2d at 1216. Nevertheless, we find the reasoning of the
    court to be persuasive as it was premised upon a determination that the policy was
    clear and unambiguous when read in its entirety.
    - 15 -
    For the reasons set forth in this opinion, we reverse the final judgment
    awarding $83,712 to West Florida and remand for entry of final judgment in General
    Star's favor.
    Reversed and remanded.
    CASANUEVA and SALCINES, JJ., concur.

    0
    jlouden
    Guest
    Guest
    Posts:31


    --
    06/07/2010 8:36 PM
    Posted By Leland on 07 Jun 2010 02:45 PM
    Why do you say that?

    Big Red taught me to say "absorb the deductible". How were you taught to describe it?

    If you have a better way I will use it.


    "apply deductible to total damages, even if the damages exceed the policy limit"
     
    I used to say "absorb" and I was corrected by some legal hounds.  It connotates that the deductible is being waived when you say absorb.  If you just apply it to damages, its more consistent and doesn't give the false impression that deductibles are able to be subjective.
     
    $0.02
    0
    TScott
    Guest
    Guest
    Posts:3


    --
    06/07/2010 10:56 PM
    Leland,
     
    So if a computer geek lost a $5,000.00 computer, and coverage limit was $2,000.00, or a policy holder has $5,000.00 in tree removal expenses, but insurance only paid $500.00, would the extra out-of-pocket expense offset the deductible -- as the insured is participating in the loss?
     
    I too worked for Red for one storm so I'm uncertain how to apply the "participation" clause in differing scenario's.
     
    Also, to keep everything short, do the residential policies state that the work has to be done in order to receive recoverable depreciation?  IMO, if policy is for RCV, then that's what should be paid at one point or another unless the policy dictates that the work has to be underway/completed or something of the sort.
     
    Thanks for your time and attention.
     
    Regards,
    Tom
    0
    Leland
    Advanced Member
    Advanced Member
    Posts:741


    --
    06/08/2010 12:12 AM
    Thank you Mr. Louden, your answer is appreciated, although I would say it would be more accurate to say:

    "apply deductible to total COVERED damages, even if the damages exceed the policy limit"

    As the judge explained in the case above, it doesn't make sense to apply the deductible to uncovered damages, just the part that is covered by the policy.

    So if the insured had a dwelling limit of $100,000.00, dwelling damages of $162,000.00, and a goldfish collection worth $30,000.00, the deductible would be applied to the $162,000.00, not $192,000.00 ($162,000.00 + 30,000.00). And of course the goldfish would not appear on the statement of loss but the $162,000.00 would.

    I am still comfortable saying absorb, but since the word "absorb" doesn't appear in the policy I can see the reasoning for using a complete sentence like you suggest, although I think it is a bit wordy.

    To answer Mr. Scott, I would show the SOL like this:

    Item: Personal property

    total loss personal computer (ACV) $5000.00

    less deductible (250.00)

    net personal property 4750.00

    paid at personal property limit 2000.00 *


    * deductible absorbed

    But keep in mind there are people on this website with decades more experience than I have, and people have experience in different states working for different carriers; this is just my opinion

    Does the work have to be completed to "recover depreciation"?

    Yes. Also the amount of RCV has to be spent. Consider the following SOL:

    Item: dwelling

    Repairs to indoor bowling alley per ACME builders $40,098.12

    less recoverable depreciation per adjusters spreadsheet $1002.74

    repairs at ACV 39,095.38

    If the insured hired ACME and convinced them to let him do $98.12 of the work, and reduce their bill by the same amount, the insured would be able to prove expenditure of only $40,000.00 and would NOT be entitled to recover the full $1002.74.

    The key factor is that recoverable depreciation requires repairs and incurring of the expense (according to the policy or endorsement).

    FOR CATASTROPHES THESE RULES ARE GENERALLY WAIVED FOR THE CONVENIENCE OF THE CARRIER. Or maybe there's some legal reason it gets waived, I don't know for sure why.

    For daily claims the carrier might ask the adjuster to reinspect the loss to see that the damage has been repaired AND collect proof that the expense was incurred (receipts, cancelled checks).

    If the recoverable depreciation is substantial it might be fair (GOOD FAITH) to piece it out to the insured (pay for building # 1 when building #1 is finished, then pay later on #2 when it is finished) etc etc, or pay for the recoverable depreciation on the paint only when the paint is done and paid for, then pay for the carpet when that is done, etc etc.

    There was another court case I posted that dealt with this issue- if the insured has done some part of the work and incurred the expense for that part, try to pay that portion of the depreciation, just my opinion.

    0
    TScott
    Guest
    Guest
    Posts:3


    --
    06/08/2010 12:56 AM
    Hey I just read the appeals information posted...

    I understand the "absurd" implications when a property is underinsured, regarding deductibles, but the appeals court touched on the loss/participation issue as being relivant, not in the case it was handling, but did not shed light on how it would be applied.

    So, minus being grossly underinsured, how would one evaluate or determine the co-insurance obligation in a claim where loss exceeds coverage in parts of the contract?

    Correct me if I'm wrong, but if tree removal is limited to $500.00, a $5,000.00 bill for tree removal would not exceed the limits of Coverage A, then the full amount of the deductible/co-pay isn't offset.
    0
    TScott
    Guest
    Guest
    Posts:3


    --
    06/08/2010 1:30 AM
    Leland:

    1. Fencing is covered for ACV and deductible is not offset? From the language of the appeals decision, RCV payment is not in the contract, so RCV is not a covered loss
    2. Tree removal limits are $500.00, or whatever it costs to drop the tree off of the house, but would the extra expense in hauling the debris away be absorbed or is that typically an uninsured loss?
    3. From your answer to my inquiry about the computer, the appeals court seemed to address a problem of being underinsured, in weighing whether or not co-insurance can be offset, but did not provide any "reasonable guidance or intrepitation." It was clear, though, that being underinsured would create solvency issues for the underwriter if a door is left wide open to offset deductibles... "An interpretation to the contrary would be tortured and would lead to absurd results... for insurers to set predictable rates in order to maintain solvency and stability in the insurance industry."
    0
    jlouden
    Guest
    Guest
    Posts:31


    --
    06/08/2010 10:02 AM
    Agreed, Leland.

    Also, TScott, I advise you to reference a standard HO 00 03 and read "Section I - Conditions " under loss settlement. It's too wordy for me to go through because there are too many nuances.
    0
    Ray Hall
    Senior Member
    Senior Member
    Posts:2443


    --
    06/19/2010 11:42 AM
    An adjusting job is a full time time and requires several years to learn if you are trained by an insurance carrier. The carriers who hire new trainees require a bachelors degree. The starting wage is around $28,000 per year. many people with construction, home inspectors, real estate think it is a good job to do on a part time basis, OR the person who wants to get a license thinks it will help them help the mentioned vocation to "get it wholesale"
     
    None of this is the real world of any business. You may try, but who would use a person with all of the above 4 license's. THE EXCEPTION is in a time of short time temp employees known as catastrophe adjusters  are used is in a very major hurricane such as Andrew 1992, Katrina 2005, IKE 2008 and a possible cat. 3 hurricane that his a major gulf or Atlantic coat this hurricane season. It would help the legal liability aspect of the third party "vendors" if they sent people who really are not 100% qualified, but have a license in their home state or a reciprocal state for a non-resident license.
     
    If a license is easy to obtain and you have a need to get a license or want to have an all lines adjusters license the state of TX. will take your bi-annul fee of $60.00 and you can renew it ever two years with proof that you have 32 hours of CE ever year. All this can be purchased on line for a very nomimal amount. Tx. has several dozen schools of license schools that teach how to pass the test . This screens out thousands of people from tying up the phones of the 3rd party vendors by a few words. "Send us your resume when you get your license". This very large pool of people with a license, somewhat insulates the 3rd party vendor for legal liability by the very contract they must sign that states they are a third party vendor and not an employee and "They are qualified to do the expected work"
     
    Insurance claims professionals is an honorable profession and thousands exist in the US. Several thousand join each year as staff trainees and several thousand  leave the company ranks each years by retirement and other reasons.
     
    This is the dirty little secret that is not well known, but in the first 24 -72 hours of a major storms thousands of claims are reported and must be responded to by a person. The adds on TV gives the public the impression they have people on standby, you are the warm body new people, work on your phone skills and people skills and if you last 2 weeks, 2 months or the duration you got the chance you have been waiting for, BUT, when it is over, it is over, until the next one. All good business men prepare for this. It,s the world of vendors temp. employment agents of licensed people in a time of need.
    0
    Ray Hall
    Senior Member
    Senior Member
    Posts:2443


    --
    06/24/2010 11:49 AM
    Mr. T Scott. You have made an incorrect post. Lets just talk about a Homeowners or any dwelling policy. These policies can not have a co-insurance penalty as co-insurance can not be written on dwellings or the contents. The DWELLING can be subject to the RCC provisions IF the face amount is not 80% OF RC . Not the value of the house. I have not seen one case like this in over 30 years. The big carriers do not require the adjuster to even commit on compliance.
     
    The deductible always comes off the total amount off the covered loss. You could have 2 carriers insure a house for 50% of the RC and a thousand $ Ded. for windstorm and each carrier would pay 50% and take a $500.00 ded off their check. I have never seen this but one or two times in 45 years, But it can happen.
     
    Now absorb the Ded. Work up the ACV loss. Subtract any property that has a $ limit, but show the whole loss, and the Ded per loss may be absorbed if the shortfall amount is greater than the Ded. As the Florida case says this is not the case on Commercial Losses. Follow the Florida case, and I think this will be all 50 states law as well.
     
    **** In 1965 the broad form HO policy in Louisiana had a disappearing Ded. If you had a small loss you had your regular Ded of $250.00, but if you had a loss of say $10,000 the Ded may disappear lets see = $10,000.00 less Ded. =payment $9,750.00 x 112%= $10,920.00 poof gone, amount paid $10,000. Now see how it works on a smaller loss of $1,000.00 less Ded=$750.00x 112%=$840.00 payment.
     
    The % deductibles today are used like a coinsurance clause, but not enough credit is given in my opine. Lets go back to a large ded. with the disappearing ded.Step up CHUBB, NATIONWIDE, LONDON, any carrier, but no carrier wants states with hurricanes
     
    0
    You are not authorized to post a reply.


    These Forums are dedicated to discussion of Claims Adjusting.

    For the benefit of the community and to protect the integrity of the ecosystem, please observe the following posting guidelines: 
    • No Advertising. 
    • No vendor trolling / poaching. If someone posts about a vendor issue, allow the vendor or others to respond. Any post that looks like trolling / poaching will be removed.
    • No Flaming or Trolling.
    • No Profanity, Racism, or Prejudice.
    • Terms of Use Apply

      Site Moderators have the final word on approving / removing a thread or post or comment.