How Should Matching Parts of a Damaged Building Be Valued? Florida Valuation Issues, Part 9
(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the ninth in a series she is writing on valued policy laws).
Sometimes, if not most of the time, a covered peril will only cause partial damage to a structure. For example, let’s pretend an insured inadvertently drops an object on his tile floor and the object cracks a single tile. For the sake of argument, let’s assume that the policyholder has continuous tile throughout the house, and that due to the age and style of construction, a matching tile is no longer available on the market.
The usual coverage question in this type of situation is whether the insurance carrier satisfies its replacement cost obligation by replacing the one tile, or does it have an obligation to replace the entire floor to achieve uniformity. “Matching” coverage disputes are highly contentious and controversial. Most insurance carriers will likely insist that they do not have an obligation to replace the undamaged property in a partial loss or that replacement can be achieved by harvesting a tile from an inconspicuous location at the property. However, policyholders are promised “new for old” benefits when they purchase the pricier replacement cost provision and most would shudder at the thought having to look at their patchy homes or businesses if the replacement is not uniform in appearance or quality.
The bottom line is that “patchy” properties lose value. Most replacement cost provisions should provide for full replacement of the undamaged property in those cases considering the valuation impact of a partial repair.
Luckily in Florida, the Legislature addressed this concern.
§ 626.9744. Claim settlement practices relating to property insurance
Unless otherwise provided by the policy, when a homeowner's insurance policy provides for the adjustment and settlement of first-party losses based on repair or replacement cost, the following requirements apply:
(1) When a loss requires repair or replacement of an item or part, any physical damage incurred in making such repair or replacement which is covered and not otherwise excluded by the policy shall be included in the loss to the extent of any applicable limits. The insured may not be required to pay for betterment required by ordinance or code except for the applicable deductible, unless specifically excluded or limited by the policy.
(2) When a loss requires replacement of items and the replaced items do not match in quality, color, or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.
(3) This section shall not be construed to make the insurer a warrantor of the repairs made pursuant to this section.
(4) Nothing in this section shall be construed to authorize or preclude enforcement of policy provisions relating to settlement disputes.
For Florida policyholders, if the policy calls for replacement cost and the loss occurred after October 1, 2005, it is important to know that Florida Statute § 627.7011 prevents an insurer from attempting to depreciate the undamaged portion of the structure that needs to be replaced due to matching:
(3) In the event of a loss for which a dwelling or personal property is insured on the basis of replacement costs, the insurer shall pay the replacement cost without reservation or holdback of any depreciation in value, whether or not the insured replaces or repairs the dwelling or property.
According to the above, there is no reason why a policyholder should accept less than full replacement of his tile floor and not be afraid of moving appliances or furniture around their homes to avoid showing a harvested or patchy tile repair. According to the clear language of the law, there is also no reason why an insurance carrier should depreciate the value of the undamaged portion when considering the cost of repair or replacement.
Excerpt from above:
"...The bottom line is that “patchy” properties lose value. Most replacement cost provisions should provide for full replacement of the undamaged property in those cases considering the valuation impact of a partial repair..."
Why should "patchy" properties lose value when their premium checks were cashed and utilized by insurance companies the same way as "posh & snobbish" premium checks are?
Frankly, I know why...just throwing this "food for thought" out there for others to ponder.
SHIRLEY HEFLIN
The senate bill #1486 which was quoted in this blog was signed by the govenor on July 1, 2005. Under Florida law the law goes into effect upon the govenor's signature. In fact in an article entitled " A Primer For Handling Homeowner's Insurance Claims In Florida" written by attorney Richard Benrubi, for the Florida's Disaster Legal Assistance Manual, the following quote is presented:
"Therefore, if your claim arises after July 1, 2005, the effective date of the amended statute, an insured is entitled to full replacement cost coverage upon the loss of property".
I believe Mr. Benrubi must be refering to the date the law would typically go into effect upon signing by the govenor. The actual wording of the SB 1486 states that "Prior to issuing a homeowner's insurance policy on or after Oct. 1, 2005, or prior to the first renewal of a homeowner's insurance policy on or after Oct. 1, 2005, the insuror must offer each of the following:...".
The amended section I am refering to is FS 627.7011 concerning the replacement cost and witheld depreciation. I would think that that the actual bill was signed into effect on the July 1, 2005 date, but policys would have to be changed to reflect the new changes prior to the Oct. 1, 2005 date. In other words the effective date of the amendment to the statute would preceed the date the insurance policies were required to reflect the change. This is a somewhat common occurence when a statute is ammended, but time is allowed for all parties involved to change documents which are renewed annually.
Please clarify this as it is a very important point in a case I am involved in.
Thank You
Michelle, Keep in mind, the frequency and amount of the expected payouts have to be contemplated in the premium charged. If the citizens of Florida want whole house tile replacement for a single chipped tile, then by all means they should have it for an appropriate premium. I am not certain the current pricing has caught up with that expectation though.
What is your interpretation of the following? § 626.9744(2): "... In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors."
I enjoy reading your blogs. Keep up the good work.
Dear Dennis,
It is very common for lawmakers to bifurcate the effectiveness of an Act. In the case of 627.7011, the Florida Legislature stated that
Chapter Law 2005-111:
Section 14. Effective October 1, 2005, section 627.7011, Florida Statutes,is amended to read:
627.7011 Homeowners’ policies; offer of replacement cost coverage and law and ordinance coverage.—
Section 30. Except as otherwise expressly provided in this act, this act shall take effect upon becoming a law. Approved by the Governor June 1, 2005.
This means that although the Bill was signed by the Governor on a prior date, the effectiveness of Section 14 of Chapter Law 2005-111 was suspended until October 1, 2005.
I hope this clarifies the issue. Thank you for your post.
Michelle Claverol
Dear Mitch,
At one point in my career, I was a Federal Law Clerk and I spent my days interpreting statutes and issuing rulings on behalf of the Court. Nowadays, my role is to advocate for reasonable interpretations of the law, so I cannot give you an interpration, per se.
Although not a single opinion has been published by a court on § 626.9744(2), the language of this statute is unambiguous. It is clear that uniformity is an important factor to consider and like with many other answers in questions of law, this is an issue that should be considered on a case-by-case basis.
Thank you for your comment.
Michelle Claverol
Does the "or" in the phrase allow the Insurer to satisfy one of the the standards of "quality, color, or size" and be in compliance with the statue?
My asphalt driveway was damaged by a truck that caught afire when it was driven onto my property uninvited, The insurer of the truck's owner is insisting on only paying to patch! I am demanding that they give me back uniformity to my driveway by covering the patch with a thin layer of asphalt and they are still refusing to pay for it. How can this be fair? To me any patchy property is devalued.