A Replacement Cost Amendment in the Right Direction-A Little Love on Valentine's Day
Replacement cost, actual cash value, and total loss valuation payment definitions, procedures and issues are currently being debated before the Florida legislature. In Draconian Property Insurance Bill Filed in Florida Senate, I explained that the pending legislation was against policyholder interests. Our firm has other posts on this debate:
A more moderate replacement cost valuation law was recently offered by Senator Garrett Richter. It passed committee and states the following:
(a) For a dwelling, the insurer must initially pay at least the actual cash value of the insured loss, less any applicable deductible. To receive payment from an insurer for replacement costs, the policyholder must enter into a contract for the performance of building and structural repairs, unless the requirement for a contract is waived by the insurer. The insurer shall pay any remaining amounts necessary to perform such repairs as work is performed and expenses are incurred. The insurer or any contractor or subcontractor may not require the policyholder to advance payment for such repairs or expenses, with the exception of incidental expenses to mitigate further damage. If a total loss of a dwelling occurs, the insurer shall pay the replacement cost coverage without reservation or holdback of any depreciation in value, pursuant to s. 627.702. 18.
(b) For personal property, the insurer may limit the initial payment to the actual cash value of the personal property to be replaced. An insurer may require an insured to provide receipts for the purchase of the property financed by the initial payment and use such receipts to make the next payment requested by the insured for the replacement of insured property, and continue this process until the insured remits all receipts up to the policy limits for replacement costs. The insurer must provide clear notice of this process in the insurance contract. The insurer may not require the policyholder to advance payment for the replaced property the insurer shall pay. . . .
The language could be improved, but it is far more fair than what was previously in SB 408. I have no idea who wrote this amendment, but I am happy to see Senator Richter offer it and that it has replaced the offensive language in the original legislation. It will mean a lot to policyholders and is much better public policy since the other language invited delayed and denied claims by insurance companies.
The next scheduled meeting on this legislation is Tuesday February 22, 2011. The agenda starts with SB 408.
I truly believe that most elected politicians want to do the right thing for their constituency when they are educated about what is "right." Maybe Florida's elected officials are starting to understand but are afraid to show their love for policyholders with the insurance lobby watching and rewarding pro-insurance industry interests.
This thought leads to today's appropriate Valentine's Day song for Senator Richter and others that want to do the right thing:
It's encouraging that they're taking another look at this highly anti-consumer language. Hopefully they will just repeal the 2005 language and this new language regarding RCV, ACV will be unnecessary. Or - they need to take out the "entering into a contract" requirement.
The legislators need to consider the possibility that with today's economic environment, with the depreciation and deductible, many policyholders may not have the financial wherewithal to enter into a contract and may have to do the work themselves. The way this legislation is written, they would not be entitled to receive the benefits they paid for unless they entered into a contract with a contractor.
Oh yeah.. and the legislation also states:
"any contractor or subcontractor may not require the policyholder to advance payment for such repairs or expenses"..
So you have to hire a contractor, but by law, the contractor cannot ask you for an advance? In what world does any contractor begin work without an advance.. at a minimum 10% of the job?
Looks like there's still a lot of work to be done to make this right... They could make this go away by simply repealing the 2005 language that required carriers to make payments without holdbacks.. BUT they should remember the intent of the legislature when that language was passed.
People were hurting and it wasn't because of the economy - it was because Florida had been slammed by multiple hurricanes and multiple deductibles along with depreciation hold backs in 2004 and 2005. Some people were just not getting paid for their damages.
We have been lucky enough to be missed by the hurricanes since then. If they're worried about the economic tailspin the industry is in - they should take a look at the reinsurance issues and management company issues where premiums are being siphened away in an aggressive and unregulated manner. Instead of breaking the backs of the average home or business owner in Florida - they should look first at their own management issues (including failure to properly assess risk).
The message that needs to be sent to Florida's insurers? Physician heal thyself.
Nancy,
You said a lot. I agree with many of your points. The language needs to be written even better, but I believe it is far better than before.
I thought the Beatles would have been more provoking than the boring insurance language.