| 09/20/2010 12:17 PM |
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I'm trying to work through issues with value reporting for owners of apartment complexes.
For contents, they frequently report $0 or a very low figure (say $5,000) for the values for the entire complex.
The office has desks, chairs, computers, etc. There is typically some exercise equipment, common laundry, and maintenance tools/equipment someplace. The units themselves have a set of appliances (refrigerator, dishwasher, range, micowave, and some basic window coverings.
I run into a lot of apartment complexes with a community building serving ~240 units in 10-12 separate buildings.
It's not uncommon for the actual contents values to be +$400K for the complex.
In practice, is the under-reporting of the contents values creating friction during claims?
Are the appliances and window treatments being allowed as part of the building value/limit?
If so, are they being factored into the coinsurance calculation?
Thanks,
John Nixon
John Nixon
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Leland Advanced Member Posts:741  
| 09/21/2010 6:44 PM |
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Not to sound trite, but if the contents (or the building) is underinsured, the adjustment of the claim may go "smoother" if it is a total loss.
If it is underinsured AND a total loss, coinsurance will not apply, and the settlement will be for policy limit. There won't be much to argue about.
If it is only a partial loss, there could be a lot of disagreement.
If the landlord owns a refrigerator in every unit of a 240 unit building, and the landlord's limit for BPP is only $5000, somebody has chosen a very low amount of coverage.
The only thing the adjuster can do is let the chips fall where they may.
One thing that may happen on an RCV policy is to calculate BPP coinsurance two different ways: based on ACV loss and RCV. The settlement can be made at the higher number, if the carrier is OK withthis method. Another thing is the carrier may be OK without doing a real aggressive (high) valuation of the BPP in order to give the benefit of the doubt to the insured and minimize the coinsurance penalty.
For example:
There is a Kenmore 18 cu ft fridge online for $300.00 Not including sales tax, delivery and set up, the 240 fridges alone would have an RCV of $72,000.00.
If there is 90% coinsurance and the fridges are the only BPP then:
$72,000.00 x .90 = 64,800.00 5000/64,800 = .07716
So if there was one total loss refrigerator the insured would receive $23.15 ($300 x .07716)
Now I guess that might cause some friction when the insured is paid $23 for a $300 refrigerator but it is not the adjuster's fault or problem.
Now take that same example and add the drapes worth 100,000 RCV.
Now the coinsurance calculation would be:
$172,000 x .9 = 154,800.00 5000/154,800 = .0323
If the drapes are included the payment on the refrigerator drops to $9.69.
So what might happen is this:
The adjuster calls the carrier and says, "Hey the drapes are valued at $100,000 and they are custom made for the building. Do you want me to included them in the BPP valuation or can we consider them building property. If we consider them BPP the insured gets $23 for his fridge. If we consider them BPP the insured gets $10.00."
I think a lot of carriers make executive decisions to pay the $23.00
They can also cover themselves by mentioning in their payment letter that the coinsurance was based on a preliminary evaluation of the BPP total, and that a re-evaluation may come up different. This may avoid an estoppel issue.
I know of one carrier that does it this way:
a) drapes are building property if they are custom
b) drapes are personal property if they are not custom
c) disregard a) and b) guidelines if it is better for the insured
Another example is the stove- some carriers will consider it building since the gas line is connected to the building. Some carriers will not. Maybe a carrier will override their own guidelines to give a break to the insured.
So there is some leeway in the coinsurance calculation.
You just can't expect the adjuster and the carrier to use a little bit of leeway to get a whole lot better payment for the insured if the coverage was grossly inadequate in the first place. The adjuster, with permission, can use some leeway, but he can't do magic.
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Ray Hall Senior Member Posts:2443
| 09/22/2010 9:44 AM |
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All the property policy.s spell out what is real and what is personal property for the landlord.
Where did this come from?" The co-insurance penalty does not apply in the event of a total loss? Wrong... it applys; but, if the limit is paid if it,s its grossly underinsured. (and the insured is a co-insuror)
Co-insurarance clause,s speak for it's self. The penalty for non compliance of the RCC clause has NOTHING to do with a co-insurance clause.Some people who post here need more basic property insurance training.
This is a very common mistake by less informed property adjusters. Commercial property losses do not have "a co-insurance penalty". ..... the insured becomes a co-insuror IF these two seperate and inpendant provision or not met. |
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Ray HallSenior Member Posts:2443
| 09/22/2010 10:18 AM |
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This topic is talked about each day on this site. Ask the examiner? That question should not come up that often. the common answer is my carrier does this or does that. Which state allows carriers too pay losses that are not covered, because it,s the easy way out. If we have 90% of all property losses worked by qualified adjusters 90% of all these "what ifs will go away".
If you are a professional adjuster is it not your duty to obey the law (contract law included) and report violations to the state insurance department. I am sure I have compaints filed by contractors in many states I have worked. No concern to me in 45 years. |
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LelandAdvanced Member Posts:741
| 09/22/2010 10:42 AM |
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Ray, sorry you are incorrect.
I have never seen a commercial policy define whether a stove is building property or personal. It is NOT defined in every case; it does need investigation and analysis. Another example is some policies pay for cooking fixtures under building property. What is "cooking"? Does it require heat or flame (like a stove?) or can we include a large industrial potato peeler as a "cooking" fixture? This is a legitimate policy interpretation question, and again, I can guarantee you that "cooking" is not defined in the policy.
And you are also wrong about co-insurance Ray. Sorry, I can show you the math.
Let me spell it out again:
IF YOU HAVE A TOTAL LOSS OF PERSONAL PROPERTY OVER THE PERSONAL PROPERTY LIMIT AND THE PERSONAL PROPERTY IS UNDERINSURED THERE IS NO CO_INSURANCE PENALTY.
Let me give you an example:
PP is insured for $30,000. The value of the PP is $50,000. Coinsurance is 80%. All 50k of the PP is destroyed in a fire.
At 80% the insurance required is $40,000.
Dividing 30 by 40 yields 75% - this is the percentage compensable. (If you prefer you can calculate the reciprocal, which is a 25% penalty. Either method gets you to the same answer.)
Now take the $50,000 loss and multiply by the percentage compensable: 50k x .75 = 37,500.
Since the limit is $30,000, the loss can be paid at the limit. (with any deductible up to $7,500 absorbed).
NO MATTER HOW MANY DIFFERENT EXAMPLES YOU TRY ANY TIME YOU HAVE A TOTAL LOSS ABOVE A POLICY LIMIT NO COINSURANCE WILL APPLY. THAT IS A MATHEMATICAL RULE.
Ray, I am surprised you would disagree with me on that.
As far as the word "penalty", some policies use that word. Some don't.
In my opinion, the most correct word to use is the one in the policy. Sometimes I calculate a penalty, sometimes I calculate a percentage compensable, it depends on how the policy is written. The answer is the same- paying 75% of a loss is the same as taking a 25% penalty.
(In my opinion using the policy's method and wording is professional. Using the word "building" when the policy says "structure" is wrong, etc.)
And Ray, another thing you are wrong about is RCV vs. ACV.
Every insurance carrier that is fair to their insureds has the option to settle a claim at ACV on an RCV policy if it results in a better payment to the insured.
Many times smart file examiners have asked me to calculate co-insurance both ways to see what would pay more. The difference is usually small, but it is GOOD FAITH.
Please don't tell me I need more training.
Ray- you seem like a nice guy. I have zero doubt that you know some things I don't. But you way off base in telling me I'm wrong. |
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| 09/22/2010 11:28 AM |
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Thank you for the replies, but I think I may have made the queston too complex.
Given that under-reporting of contents exposures for apartments is common and material - either $0 or some very low figure,
are insured's actually experiencing adverse impact on their claims (partial exclusions/sublimits/coinsurance) as a result?
John Nixon
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Ray HallSenior Member Posts:2443
| 09/22/2010 12:13 PM |
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Well we let some one else tell you. When you make a statement like.....Its a math calculation... and math does not tell untruths..... Lets use your example a co-insuranceclause is in the contract. if the insured is an co-insuror on a loss... is that not a penalty ? You need more experience in writing and reading contracts. |
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Ray HallSenior Member Posts:2443
| 09/22/2010 12:57 PM |
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This is on the first page pf the DP-3 a very common policy writtion by ISO and common to all states.
Coverage A (Dwelling)
We Cover:
maintenance equipment, fllor coverings,window shades, refrigerators and stoves that you own as a landlord, located on the described location. This is the insuring agreement in the TX. standard.
Now this is the language in the TX. standard policy that was the policy that I read thousand of times in the last 50 years. look at all the changes. This is in Section 1 on the 2nd page under Building; Insurance on a building shall include...........and the following property belonging to the insured as building landlord but not as tenant or occupant:maintenance equiptment and supplies, floor coverings, window shades, and furnishings of corridors and stairs, and refrigerators and stoves.
Notice any real changes in 50 years, not in the contracts... just the people who can not learn . Standard ISO contracts do not allow co-insurance on residentual property, real or personal. I am not talking about non-admitted or London type. |
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LelandAdvanced Member Posts:741
| 09/22/2010 4:47 PM |
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I said:
"I have never seen a commercial policy define whether a stove is building property or personal."
DP3 is residential.
Maybe there are commercial policies that have a definition of "stove".
But that was not my point.
One variable in coinsurance is going to be the value of ALL of the BPP or ALL of the building.
Insurance companies use discretion all the time to decide what to lump in with those calculations.
If leaving the drapes and the stoves out of a BPP coinsurance calculation means a better settlement to the insured, there are a lot of insurance companies that would do that, or at least consider it. Especially if there is no policy language to define those items and if there no court cases either in that state.
Smart, experienced adjusters can have legitimate disagreements on what is building and what is personal. It can be subjective.
What if you have a built in machine with accessories? If the building coverage was exhausted could the accessories be paid as BPP?
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My statement on coinsurance is correct.
If you have a total loss on a line of coverage that is underinsured, there is no co-insurance applied.
Prove me wrong:
give me an example where co-insurance would apply on a total loss.
For example:
value of BPP $45,000.00
all $45,000 destroyed (total loss)
insurance in force: 44,000.00 (underinsured)
coinsurance:80%
value of BPP $50,000.00
all $50,000 destroyed (total loss)
insurance in force: 25,000.00 (underinsured)
coinsurance:100%
value of BPP $100,000.00
all $100,000 destroyed (total loss)
insurance in force: 10,000.00 (underinsured)
coinsurance:90%
Give me a set of numbers: amount of the total loss, amount of insurance, coinsurance percentage. The value of the BPP must be greater than the coverage because the BPP is underinsured. The total value of the BPP must equal the amount of the loss because it is a total loss. (change my examples around)
THERE IS NO SCENARIO THAT YOU CAN COME UP WITH WHERE AN UNDERINSURED TOTAL LOSS IS SUBJECT TO COINSURANCE.
It can't be done.
IT IS A MATHEMATICAL RULE.
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