The two blogs I wrote over the weekend, Compensation cost policies were originally illegal out of concern for fraud and arson and Should depreciation be taken on partial losses that only require repair? address older policies written before the industry made replacement cost policies widely available. Studying an insurance topic from a historical point of view is important. Those who are trying to come to a more in-depth understanding of property insurance legislation can not just read the insurance cases and then start reciting that case law without trying to find the applicable insurance that is being interpreted. The historical context of the insurance forms, the comments and laws of the insurance industry must be taken into account. Jurisprudence is only part of a complete legal understanding.
The property insurances written in the 1920s were different from the 1950s. The case law must be slightly different because the terms of the agreement and the statutes and the purpose of the policies were different. This is something we should all remember when we read cases today.
I also try to emphasize reading material that reflects the reasons for changes in the policy as well as comments from today’s practitioners. Many just guess and project their own logic and state the reasons why the policy terms were changed. These are often repeated until the real truth is simply forgotten. Without trying to find secondary sources, much of the logic and reasoning for switching insurance contracts is just speculation. I also find myself guilty of not questioning the source as much as any other student. It is simply easier and faster not to question the source.
At a time when the newer replacement cost policy was introduced to the market, a 1958 University of California in Los Angeles Law Review article, Comment: Insurance Valuation and Adjustment of Home Fire Losses: California Law v. Southern California Practice provides an interesting insight into the debates about taking amortization of partial losses and the adjustment methods of the time in California. The author noted that the compensation principal had expanded to a concern about the “use value” of the damaged property from the insured’s point of view:
“When he buys fire insurance, the insured expects that as long as he pays premiums, he will be covered to the full value of his insurance in the event of loss. If his house is destroyed, he expects to receive the cash required to replace his home with another of the same kind, which puts him in the same position he was in before the fire.The insurance company strives for the same goal, that is, to give the insured enough money to be able to return to his previous position However, difficulties arise when trying to determine what each party means by the insured’s “previous position”. From this point of view, it is only logical that depreciation and other factors should be taken into account, in order to prevent the insured improves its situation as a result of the occurrence of the insured event. But from the insured’s point of view, his previous position represents a certain use value for him, ie that the building was used as a residence. He strives to have that value restored to himself – an achievement that can not be achieved with less than the cash equivalent of a complete replacement of the home. 2He cannot move into the cash equivalent of a depreciated home, nor can he build a replacement home of the same type with the depreciated cash value of his old home. “
Of particular interest to me was the author’s research which included interviews with real estate insurers and insurance industry officials:
“When analyzing local insurance practices was very dependent on personal interviews with insurance company officials and practicing adjusters. References to this will appear as INTERVIEWS.”
The article is much more informative because of the interviews and comments. When it comes to partial loss and depreciation, the article’s trust in actual practitioners and their adaptation habits made me think of an article written jointly by a lawyer, John Wood and his public adjustment father, Don Wood. Their 2013 article published by the New York State Bar Association, Insurance recovery after Hurricane Sandy: Correction of the incorrect depreciation of intangible assets under real estate insurance noted the practice that Don Wood learned as he learned to practice adjusting property insurance:
“Repairs of property in situations of partial loss are never written off. I learned this principle as part of my extensive training as an insurance adjuster, and it is also case law in several jurisdictions, including Florida (Am. Reliance Ins. Co. v. Perez, 689 So. 2d 290 (Fla. 3d DCA) 1997)); New York (Eshan Realty Corp. v. Stuyvesant Insurance Co. of New York, 202 NYS2d 899, aff’d, 12 AD2d 818, 210 NYS2d 256 (1961), aff’d, 11 NY2d 707 (1962)); and Kansas (Thomas v. Am. Family Mut. Ins. Co., 233 Kan. 775 (1983)). But over time, depreciation has evolved into a practice where some assessors arbitrarily depreciate structures or compositions that are totally damaged, and apply depreciation if only some are repaired. “
This was my experience too. I learned in the early 1980s that all partial losses where repairs were the measure were not subject to depreciation. As mentioned in the last two days, there is a legal authority for it. But the actual wording of modern politics has changed. The modern legal opinions that discuss valuation rarely analyze the differences between older and newer formulations. Honestly, I think many policyholders’ lawyers today do not know that cases with “actual cash value” that began in the 1930s had a tendency to demand payment without deduction for depreciation if the partial losses resulted in repairs. Older property insurance adjusters are probably aware of this problem.
Another thing is clear from this post – you are not an expert in real estate insurance law just because you have read a lot of non-life insurance cases.
“A small body of determined spirits fired by an unquenchable belief in its mission can change the course of history.”