Valued Policy Laws (VPLs) are relatively easy to define as those that require payment of policy limits in the event of a “total loss” caused by a covered peril, even though the insurance carrier could rebuild the property for less. To therefore speak in terms of a VPL, the loss in question must be deemed total.
Florida’s first VPL was enacted in 1899. The Legislature never defined the term “total loss” and to date, it has been left up to the courts to interpret these elusive words. One can imagine the defense attorneys of the time arguing that if a fire left at least one wall standing, it was to be considered a partial loss and not a total loss for VPL purposes. The Florida Supreme Court has since adopted the “identity test” where a structure is considered a total loss if the building has lost its identity and specific character and it has become so far disintegrated that it cannot be possibly designated as a building, although some part of it may remain standing or be valuable for some purpose. Lafayette Fire Ins. Co., v. Camnitz, 111 Fla. 556 (Fla. 1933). Other courts have narrowed the test to require a total loss of the building, but not necessarily the absolute extinction of all its materials, or even that no part of it is left standing. See, Greer v. Owners, 434 F.Supp.2d 1267 (N.D. Fla. 2006). In a nutshell, we’ll know when we see it.
A building may also be deemed a total loss, for VPL purposes, if it is rendered a “constructive total loss.” A constructive total loss occurs when a building, although still standing, is damaged to the extent that ordinances or regulations actually prohibit or prevent the building’s repair. Netherlands Ins. Co. v. Fowler, 181 So.2d 692 (Fla. 2d DCA 1966). In practice, a constructive total loss finding will greatly depend on opinions from local authorities on the extent of the damage and reparability of the structure.
Today’s VPL requires the total loss be caused by a covered peril for which a premium has been charged and paid. This means that if the total loss was caused by both covered and excluded perils, the VPL will not apply, and the insurer will only be required pay the percentage of the damages attributed to covered perils.
The statute, however, provides that if the covered perils alone could have caused the total loss in a multiple causation scenario, then the VPL will apply and the carrier may not apportion the loss. See, Fla. Stat. §627.702(1)(b). Unfortunately, these modern nuances frequently force both sides to retain experts in a VPL scenario to prove or dispute the total loss and to find that the covered peril could have caused the loss in its entirety, even in the presence of a concurrent and excluded force.
Much has changed since 1899 and some may say that today’s VPL is akin to Mary Shelly’s monster, only endearing once fully understood. Tune in next week where I will examine more valuation issues in property insurance claims.