The Florida Supreme Court handed down three decisions settling insurance disputes on July 3, 2013. The cases were very different: One dealt with a reimbursement issue, another with an automatic benefit increase and the last with replacement cost coverage. In our last two posts, we reviewed the first two decisions. Here, we will tackle the third.
When a consumer purchases a homeowners insurance policy, he or she has one important choice to make: actual cash value coverage or replacement value coverage. When an insured suffers a loss, the insurance company will generally calculate the actual cash value benefit in one of three ways:
- Cost to repair damaged property, or cost to replace minus depreciation.
- "Fair market value" of damaged property.
- Under the "broad evidence rule," which takes all relevant evidence of the value of the damaged property into account.
The alternative is replacement value, or replacement cost, coverage. The calculation is just what it sounds like -- the cost of replacing the damaged property with materials or goods of like kind and quality. In some ways, it is the easier of the two options to calculage, because there is no deduction for depreciation.
For one policyholder, though, the calculation wasn't quite as straightforward. This policyholder had a house fire but chose not to repair his home. He had a replacement cost policy.
Even if he chose not to replace anything, the insurer still owed him the benefit. The question for the court was what was included in "replacement costs" -- specifically, whether overhead costs and profit should be included with the costs of materials and labor.
The courts said yes. Overhead and profit are no different, the court said, from other reasonable expenses a policyholder is likely to incur after a loss. The court added that an insurance company cannot deny coverage just because the repair hasn't been made.
Insurance policies are supposed to be written in "plain language," but that does not mean there cannot be disagreements over what a term or coverage provision means. If you find yourself confused about a coverage denial, you should consider consulting with an experienced insurance law attorney.
Source: Flagler Live, "Florida Supreme Court Again Hammers Insurance Industry in Three Rulings," July 4, 2013