In my last post, Understanding the Importance of “Replacement Cost Value” Coverage, I explained that insurers are not permitted to withhold any depreciation under replacement cost value coverage for personal property claims. This post highlights a recent change to Florida Statute § 627.7011, which took effect May 17, 2011, and alters the payment of dwelling claims.

The prior version of Florida Statute § 627.7011 read:

(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.

Effective May 17, 2011, the Legislature amended Florida Statute § 627.7011, detrimentally impacting Florida policyholders’ rights under replacement cost value coverage.

The new statute reads:

(3) In the event of a loss for which a dwelling or personal property is insured on the basis of replacement costs:

(a) For a dwelling, the insurer must initially pay at least the actual cash value of the insured loss, less any applicable deductible. The insurer shall pay any remaining amounts necessary to perform such repairs as work is performed and expenses are incurred. 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.

Under the 2010 statutory scheme, insurance carriers were required to pay the replacement cost without reservation or holdback of any depreciation in value, whether or not the insured replaced or repaired the dwelling. This makes sense because it protects policyholders from the financial strain caused by having to front money to repair damage to their dwellings in a time of great stress and need.

Under the new 2011 statutory scheme, the insurance carrier is only required to tender the actual cash value of the damaged property until work is performed to repair the damage and expenses are incurred. Policyholders may be forced to pay out of pocket upfront to fix damages sustained by their dwelling, despite paying extra premiums for replacement cost value coverage.

The recent changes are troubling because allowing insurance carriers to withhold depreciation will only delay and possibly prevent repairs. It is important for policyholders to know that if their dwelling suffers a total loss from a covered peril, insurance carriers are not permitted to withhold depreciation and must tender the full replacement cost value. Further, Florida Statute § 627.7011 only applies to homeowners’ policies and not commercial policies.

  • Glenn Doerfler

    It also appears to not apply to mobile home policies in addition to commercial policies.

  • Insurance Veteran

    Paying according to the new statute has not proved to be a detriment to rebuilding or repairing in a multitude of other jurisdictions where I’ve handled claims in my 38 year career. Factually in Canada it’s always been thay way and they enjoy a very strong economy.On top of it they have weather related issues and building code requirements far more stringent than Florida. I think this kerfuffle over the new statute is making a mountain out of a molehill. It also ensures repairs are actually carried out which doesn’t seem to be the case now.

  • The new law changes affect the policyholder where it hurts most; their pocketbook. However, this law that took effect on May 17, 2011, only affects policyholders with new policies since that date, right? Unless an announcement was made to each policyholder, the change would not apply until the policy was renewed.

  • Dan Luby

    Senate Bill 1566 has been introduced to modify the payment requirement in the event of a “state of emergency”:

    607 Section 3. Paragraph (a) of subsection (3) of section
    608 627.7011, Florida Statutes, is amended to read:
    609 627.7011 Homeowners’ policies; offer of replacement cost
    610 coverage and law and ordinance coverage.—
    611 (3) In the event of a loss for which a dwelling or personal
    612 property is insured on the basis of replacement costs:
    613 (a) For a dwelling, the insurer must initially pay at least
    614 the actual cash value of the insured loss, less any applicable
    615 deductible. The insurer shall pay any remaining amounts
    616 necessary to perform such repairs as work is performed and
    617 expenses are incurred. If a total loss of a dwelling occurs, or
    618 for claims that are based on events that are the subject of a
    619 declaration of a state of emergency by the Governor, the insurer
    620 shall pay the replacement cost coverage without reservation or
    621 holdback of any depreciation in value, pursuant to s. 627.702.

    http://www.flsenate.gov/Session/Bill/2012/1566

  • Randy Constan

    As an aging homeowner what is most troubling to me is that the insurance companies, at least here in Florida, have jointly decided they will not write anything but full “replacement cost”. The state has no mandate that they must do so, and I’ve paid off my house and have no lien holder, yet still I can not find one company that will write for a lower amount. The trouble is, as I look at retiring on a fixed income a short time away, having to insure for that much is an unfair burden, and legislation should be proposed to force insurance companies to grant such requests. I fully understand I would be in danger of coming up short if I wanted to rebuild. But after a devastating event, what if I just wanted to sell the property to an investor, take my cash, and move elsewhere? At least I would have some prospect for starting a new life. Instead, my only option will be to NOT insure, and sadly that’s what lots of homeowners do. Then we read the tragic stories in the news, of how a family lost everything to a fire or tornado, and having no insurance are pretty much out of luck. Isn’t SOME insurance better than none? Wouldn’t insurance companies benefit from selling such more affordable “partial value” policies? Seems like a win win to me, but you can’t buy it! Even the so called “surplus line” policies insist on at insuring for a ‘cash value”, which is at 80% of replacement cost.