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inside man
45 Posts |
 Posted - 12/16/2002 : 10:09:01
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An insured has a claim for food spoilage and has the endorsement that provides up to $500 of coverage due to power failure.
Insured submits a claim for $750 for food spoilage and $1000 in dwelling damage.
Insured has a $250 deductible.
Does the the food spoilage claim above the policy limit absorb the deductible?
A similar scenerio is when the insured exceeds the $500 limit for tree debris removal (assuming there is damage to covered property)
My understanding was that since these were additional coverages that the deductible could be absorbed in these cases?
Your thoughts.... |
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CCarr
Canada
1200 Posts |
Posted - 12/16/2002 : 10:58:41
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What is the reluctance to not using a real name, even in your profile behind your user name; what is an "insideman"?
Anyway, the concept is simple. Personally I shun the term "absorbed" and discourage its use.
Determine the loss, then apply a deductible, then apply any limit. That is the order of loss calculation.
Therefore, is the covered food loss is $750, then applying the deductible the net is $500. There is no "absorption" of the deductible in the scenario you provided.
Where that term is correctly used, if used, is for example where labor allowances are allowed for the insured that are sufficient to 'absorb' the deductible. |
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william s cook
53 Posts |
Posted - 12/17/2002 : 08:25:36
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Some policy language applies a deductible to the covered claim and not the loss. Review of that section of a policy should determine if an insured will suffer paying portions of the loss where limits may apply to the loss and the deductible may apply to the claim. Certainly some of my past interpretations were subject to modification after being better informed by some of the insurance gurus in the claims arena. Accordingly we await a better interpretation from the big boys.
William S Cook
Public Adjuster
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Newt
USA
657 Posts |
Posted - 12/17/2002 : 12:29:18
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Using the double entry to figure what to pay is easy to explain for me.
1.
Loss
1000.00 under A
750.00 under ref. food
-250.00 deductable
Total 1500.00
2.
Payable:
1000.00 under A
500.00 (limit)
Total 1500.00
Take the less of 1 or 2 and pay= 1500.00
Had the limit not been exceeded the pay would have still been the same, because you take the less of the two.
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CCarr
Canada
1200 Posts |
Posted - 12/17/2002 : 13:22:42
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Newt, you have thrown a curve at me! What is, ".... using the 'double entry' to figure .... because you take the less of the two."? I'm sorry, I'm lost with that. But it did make me think of something else, and after I illustrate an example; I'll ask the question.
Following along the same lines of the examples in this thread, same limit etc.;
Sect A loss $1000
Fridge food loss $1000
Ded $250
Pay?
The way I've done it is Sect A $1000 + Food (1000 - 250 ded = 750, apply limit = $500)
Pay = $1500.
Some people would do it - Sect A ($1000 - $250 ded = $750) + food limit $500
Pay = $1250.
See the question coming?
Another example,
Sect A loss $1000
Fridge food loss $700
Ded $250
Pay?
I would do it the same as I would have done the 1st example;
$1000 + ($700 - $250 ded = $450)
Pay = $1450
Some people would do it - Sect A ($1000 - $250 ded = $750) + food limit $500
Pay = $1250
See the differences?
Finally, the easiest example;
Sect A loss $1000
Fridge food loss $500
Ded $250
Pay?
Here, regardless of where the deductible is taken, both 'approaches' equal a pay of $1250
So if Newt or someone can enlighten me on Newt's comments that I raised in a question that would be fine.
Also, you can see from the first two examples I gave, that my way is different from 'another way', costing the insured $250 and $200 respectively in indemnity. Is there specific policy language or a guiding principal that decrees how / where a deductible should be applied?
'My way', I always considered the correct way, because it was the fair way - to the insured.
While I am in the question mode, Bill I'm unclear or likely confused with your comment, are you suggesting that there are policy wordings with specific language (other than manuscript), or guiding principals, that suggest other than the concept of the order of loss calculation I suggested; i.e. determine the loss, apply the deductible, then apply any limits? |
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inside man
45 Posts |
Posted - 12/17/2002 : 17:54:54
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Perhaps my example was not worded properly.
I found what I was looking for in the later examples that were given when the food loss was greater than the policy limit plus the deductible.
I have since discussed this with others and all concur that the deductible is "absorbed".
Sorry if you dont like that term Clayton, but it is commonly used.
As for my anonymity. Well that just the way I decided to post. Others post here under assumed names so what's the big deal? I asked a valid question and got good responses.
What is an "inside man" ??? hmmmm....that shouldn't be too hard to figure out my meaning there.
Thanks for everyones input. |
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william s cook
53 Posts |
Posted - 12/17/2002 : 18:11:19
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Clayton,
Remember I am here to become more enlightened and I not seeking to challenge the more experienced adjusters to a verbal duel.
My answer to your question would be yes; some policies have differing language. Since this is often an overlooked element of a loss where a subsection limit has been ignored to the detriment of the insured we have a regard for the "Absorbed Deductible". An insured would much prefer your formula for establishing claim payments.
William S Cook
Student
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Linda
USA
127 Posts |
Posted - 12/17/2002 : 19:07:54
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The truth of the matter is there is no such thing as "absorbing" the deductible. You can never pay, absorb or forgive a deductible on a loss that requires a deductible by the terms of the contract of indemnification. The excess of policy limits is where the term "absorbing the deductible" has been mistakenly utilized.
Policy language always prevails unless a supervisor directs you otherwise and in which case his name should appear in your log notes regardless of whether he/she likes to see it or not. The specific language of the ISO HO 00 03 05 01 states:
"DEDUCTIBLE: Unless otherwise noted in this policy, the following deductible provision applies:
Subject to the policy limits that apply, we will pay only that part of the total of all loss payable under Section I that exceeds the deductible amount shown in the declarations."
There are some instances where a deductible is not taken, but always specified in the language of the policy, i.e., fire department charges, total loss by fire, etc. This is not applicable to all policies.
I rest my case for knowing which policy appears on the loss notice along with any applicable endorsements and for knowing that specific policy language. The old, "If they want me to know--they'll tell me" just simply isn't professional or ethical. We are paid to know!
I don't follow Newt's "less of the two" logic.
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Edited by - Linda on 12/18/2002 00:03:03 |
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CCarr
Canada
1200 Posts |
Posted - 12/17/2002 : 23:43:12
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'Inside', "absorbing" the deductible, is an 'expression', not a term. I recognize it is commonly used - no big deal. I personally shun it and discourage the expression, because it is not a 'term'. I've enjoyed your posts, and hope you will continue, if your anonymity allows your candor to flow - so be it.
Still waiting for someone to weigh in with my questions posed with examples, in my 13.22 post.
Bill, I sincerely feel bad with your qualifying opening remark of your post, and noted the unnecessary change from your usual titling after your name. My question to you was sincere, I have no wish to 'duel' with anyone let alone you. I have respectfully read and followed all of your posts since I first engaged with CADO participation. Again to my question, is a different concept found only in some of your commercial wordings? Could you give an example, I just haven't seen this difference arise? Your last sentence suggests that my approach to the examples I gave is not the norm. Is that what you are saying? That's why I am looking for whether there is a guiding principal that says how or in what order to apply the deductible. This is the type of thing that is taught at the beginning of a person's entry into claims, I accepted it as it seems logical and fair; and I never heard otherwise or thought otherwise of it until today.
Linda captures the essence of this thread - we are paid to know. |
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Linda
USA
127 Posts |
Posted - 12/18/2002 : 00:20:18
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If we take the language of the ISO HO3 literally, then this entire thread would be a mute point. Someone correct if they see it differently. This is a great discussion and I would like to see more of them.
If you only use the "covered" limits to arrive at the total loss then apply the deductible there would be no excess of limits to consider. I have been instructed to do it both ways on the same assignment. Again, difference of opinion. I agree with Clayton's method of applying to the benefit of the Insured. Using the example of the HO3 it would seem both of us would be in error.
Opinions? |
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olderthendirt
USA
370 Posts |
Posted - 12/18/2002 : 08:19:14
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| There are , usuually on commerical policies, deductibles that are applied after the loss is adjusted. In that case you would applied any limits first, using Newt's example the Section A loss would be $1000. The fridge food loss would be adjusted to the policy limit of $500 and then the deductible applied leaving an owed loss of $1250.00. These deductibles are rare but they exist. |
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Newt
USA
657 Posts |
Posted - 12/18/2002 : 21:15:13
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I got this info from State Farm Training manual. Under the heading of deductables.
The policy deductable can be absorbed in one of two ways:
1.Coverage limit.
2.Special limits of liability ( that is apply the deductable then the special limit.)
They also have demonstrations using a simular answer I gave, this manual has many errors that I have found in simple addition so It doesn't surprise me that I got it wrong. I just read the ISO and I see everyones point,They only pay that which exceeds the deductable in section one. And I further noted some losses the deductable is not applied. That is those items with special limits.
I am glad I threw this on the table, I was taking the Study guide serious. That is what I am in right now getting ready for the tests, I leave tomorrow and be back friday night.
I will still take the tests according to the study guide so right wrong or indifferent, thats what they go by.
I can't tell you people what your input means, especially with my trying to cover all bases at the same time, we are lucky I wont have to do this on the Job. If I get all wrapped up with one source of study , like this manual then I get stupid with every thing else. Mark I got key board problems too, Thats my story and I am sure its got be mis-spelling words. |
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Darryl
USA
36 Posts |
Posted - 12/19/2002 : 10:13:44
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When we teach deductibles we use the terminology that the deductible is the amount that the insured has to participate in the loss. Once he has participated in the loss to the amount of the decuctible then any remaining amount can be applied to the deductible up to the amount of the deductible.
With a deductible of $250 and assume a limit of $500 and a food loss of $1,000 the insured would have already participated in the loss for an amount of $500, therefore no deductible would be taken and you would pay special limit amount of $500.
If there was a $250 deductible and a $500 limit and a food loss of $600 then the insured would have participated in the loss to the extent of $100. We would then apply $150 of the deductible for a total participation in the loss to the insured of $250. This would mean a payment of $350 to the insured.
I hope I didn't muddy the waters.
Darryl |
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Absorbing the Deductible
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