What is the best way to launch this article? I do not know if I should say that I'm itching for a fight or if it's better to say that insurance companies misunderstand coverage forms and I try to stop them. I'm letting you decide.
Here is the situation, the insured suffered loss to an insured building (or home) eight months ago (240 days) but did not discover the damage until yesterday (we say it is hail damage to the roof). The coverage is written on a compensation cost basis and the insured plans to repair or rebuild. Does the carrier owe compensation costs or actual cash value?
Whether coverage is written on a homeowner or a commercial property policy, the answer is the same. The carrier is liable compensation cost if certain conditions are met.
"Wait a minute, Boggs," some might say. “The policy limits the insurance company's payment to the actual cash value due to the 1
Commercial Real Estate Policy:
3. Reimbursement cost
c. You can claim a loss or damage covered by this insurance on an actual cash value basis instead of on a compensation cost basis. If you choose to have a loss or damage settled on an actual cash value basis, you can still claim the extra coverage that this optional coverage provides if you notify us of your intention to do so within 180 days after the loss or damage .
SECTION I – TERMS
D. Loss Settlement
e. You can disregard the provisions on the settlement of compensation costs and claim under this policy for losses to buildings on an actual cash value basis. You may then claim additional liability in accordance with the provisions of this condition D. Settlement of losses, provided that you notify us within 180 days of the date of loss, of your intention to repair or replace the damaged building.
“You see, Boggs, the damage must be discovered within 180 days of the loss in order to receive compensation costs. This loss is longer than the 180 days, which means that the carrier only owes ACV.
Where does politics state that?
Unassigned ISO policies specifically state that coverage is provided on a replacement cost basis provided certain conditions are met. These conditions are:
- The insured has fulfilled the coin insurance condition (in commercial property policy) or the insurance value (in the homeowner's policy);
- The building / structure is repaired or replaced; and
- Repair or replacement must be done as soon as possible (a CPP provision).
NOTHING requires that the loss be discovered within 180 days for compensation costs to be applied. In fact, both policies specifically state that if the above conditions are met, compensation costs are paid.
The commercial real estate policy states that when the replacement cost alternative is chosen, the replacement cost replaces the actual cash value in the valuation regulations. Using compensation costs instead of the actual cash value, CPP now reads:
We will determine the value of covered property in the event of loss or damage as follows:
a. In the case of compensation cost from the time of loss or damage …
In the same way, the homeowner's policy states:
a. If the insurance amount in this insurance for the damaged building at the time of the loss is 80% or more of the building's full compensation cost immediately before the loss, we will pay the cost of repairing or replacing, without deduction for depreciation …
Note the usual elements in both forms, if the conditions are met and the coverage is written on a compensation cost basis at the time of the loss – the carrier is liable for compensation costs.
"You completely ignore the 180-day limit in both forms, Boggs." No I am not; it does not apply to the situation. The only question is, did the insured meet the conditions and had compensation costs at the time of the loss? If the answer is yes, the carrier is liable for compensation costs.
But I feel you do not believe me yet. Let's take a look at the 180 day provision and see how it is applied. Go back and look at both provisions and pay attention to WHO make the choice of ACV versus reimbursement costs. Do you see it yet?
Both forms state that " You " (the insured) can disregard or claim on an ACV basis instead of compensation costs. It does not say that the operator has this option. However, if "You" makes this choice, the current wording says that they have 180 days from the date of the loss to opt for reimbursement costs. This is also under review by ISO and will probably change to 180 days from the date the insured learns about the loss. (Hold on to this change.)
Nothing in any form allows the carrier to make this decision. It does not say "We can disregard …" If the insured wants compensation costs and has met all other provisions, they are liable compensation costs – even if the loss is discovered more than 180 days after the event.
Compensation costs are payable when all conditions are met because only "You" can trigger the 180-day provision.If "You" does not choose ACV instead of compensation costs, there is no wording in any of these unannounced ISO forms that does.
So was it itching for a fight or just trying to prevent operators from misinterpreting the forms of coverage?
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