My presentation at NAPIA’s Annual Meeting was titled, "The Legal, Ethical, and Practical Adjustment Issues from Windstorm Claims to Walls, Windows and Roofs." I asked three others, New York attorney Jonathan Wilkofsky, New York public adjuster Ron Papa, and Maryland public adjuster Randy Goodman, to participate as an expert panel on these adjustment issues. I have found that this type of presentation keeps the audience involved with dialogue, questions and differing views and emphasis. It was a high level nuts and bolts analysis of adjustment issues that occur regularly in windstorm claims.
We discussed the practice of taking depreciation in partial loss situations for structural damage that is to be repaired. I recently posted in, "Do Not Take Depreciation to Determine Actual Cash Value of Partial Loss to Real Real Property in Texas," that some Texas case law indicates depreciation should not be taken on partial losses. Wilkofsky was adamant that depreciation should not be taken and explained that long standing New York precedent prevents it.
Indeed, in Lazaroff v. Northwestern National Insurance Company, 121 N.Y.S. 2d 122 (N.Y.S. Court 1952), the New York Court, citing previous opinions, held:
"The Court is of the opinion that the defendant’s obligation is to reimburse the plaintiff for the cost of repairs with materials of like kind and quality damaged without deduction for depreciation."
It seems straightforward. So, why do the vast majority of New York insurers deduct for depreciation of structural damages destined for repair?
Papa suggested that, from a practical standpoint, it is simply easier to resolve differences with the insurer through blanket payments rather fight on these individual items. He noted that most insurance company field adjusters are taught to take depreciation despite the contrary law.
Papa and Wilkofsky explained that a New York Pattern Jury Instruction reveals that depreciation is not an issue when a structure is to be repaired, contrary to the practice of most insurance adjusters:
"Under the policy language, the cost of (repair, replacement) that you may consider is the cost of (repair, replacement) with material like kind and quality within a reasonable time after such loss. In that calculation, you are concerned only with the cost of restoring the building to its condition prior to the fire, and depreciation plays no part."
I suggest that policyholders and insurers carefully check the law in their jurisdiction and determine whether depreciation should be held back on partial losses where repair is contemplated. While many insurance companies routinely take the deduction and make money playing the float, it does not mean it is a legal or good faith practice.