| Q&A of the Week |
Replacement Cost and the Actual Cost to Repair or Replace
I have on my desk today three claims that involve other structures, and all of the homeowners (and agents) have requested that we pay replacement cost for the items that are not buildings.
Question: why we do not owe for replacement costs for:
1. Pool equipment from a fire?
2. Awnings attached to the home destroyed by wind?
3 Pump houses destroyed by a tree that fell onto the pump house building and then required replacement of the tank and all related equipment.
The HO-3 (04-91) notes that the awning, carpet, and the like are ACV payments. However, we pay carpet RCV when completed as part of the dwelling. So, if the language says: we owe ACV for the list of items, and they are replaced, we pay the RCV for carpet and appliances, but we do not for outdoor equipment or pool equipment? I cannot explain this when the policy reads we owe for the cost to replace. We use the terminology: "Structures that are not buildings; at actual cash value at the time of loss but not more than the amount required to repair or replace."
The term "replace" seems to denote we owe replacement cost at the conclusion of the claim and owe ACV unless it is a building settlement for less than $2,500, provided all other provisions have been met and so long as limits have not been exhausted.
Please advise when, if ever, replacement costs are owed for other structures that are not buildings, like awnings, fences, sheds, pool equipment, or water tank equipment. When we use the phrase "to repair or replace at the time of the loss but not more than the amount required to repair or replace," we seem to include replacement cost.
ANSWER:Other structures and carpet attached to the dwelling are two different things; just because the dwelling is covered at RC does not mean that is owed for other structures that are not buildings, especially when the policy clearly states that certain types of property are settled at ACV. You are misreading the policy; ACV is the most that will be paid but not more than the cost to repair or replace; this does not mean replacement cost is the standard payout. For example, an awning worth $500 ACV is destroyed; however, the cost of a new awning of the same type is available for $300; therefore, even though the policy is ACV, the cost of the replacement awning is used since it is a lesser amount. If a new awning is $800, then the ACV of $500 is what is paid out. The policy is simply stating that the lesser value is used, even if the cost to repair or replace is less than ACV. It could be phrased this way:
Settlement is for the lesser of ACV or the cost to repair or replace.
The cost to replace is a factor only when that cost is less than the ACV of the property; in most instances this is not likely.Read More |
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| What's New This Week in FC&S |
Sinkhole Collapse and Mine Subsidence
Loss resulting from mine subsidence and sinkhole collapse are excluded causes of loss on most homeowners forms. Read More |
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| Litigation Watch |
No Duty to Defend Based on Pollution Exclusion
Insurer sought a declaration that it did not owe a duty to defend or indemnify to its insured in an underlying strict liability and negligence action. The case is Evanston Ins. Co. v. Haven South Beach, LLC, No. 15-20573-CIV, 2015 WL 9459979 (S.D. Fla. Dec. 28, 2015).
The insured, Haven, served an alcoholic beverage containing liquid nitrogen to the original claimant, Mrs. Kaufman. Upon drinking the liquid nitrogen infused beverage, Mrs. Kaufman suffered injuries and filed an action for strict liability and negligence against Haven. When she sued, Haven tendered the defense to its insurer, Evanston Insurance Company. Evanston countered, claiming that they did not have a duty to defend because the allegations in the complaint did not establish coverage. Read More
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| Fraud of the Week |
Vehicle Fraud – New Jersey
AMOUNT: Unknown
A couple along with their son conspired with employees at a car dealership in order to falsify documents qualifying them to purchase a $139,000 Bentley. Read More
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