In recent years, Florida has fortunately avoided major disasters. However, when major disasters strike, or even when smaller scale disasters devastate one or two homes, policy holders are wise to investigate whether the damage to their home would constitute a total loss. This designation can have incredibly drastic effects as insurance companies are required by law to tender policy limits for a building which is a total loss. In Florida, this statutory requirement is called the Valued Policy Law.1
Long ago, Florida adopted the “identity test” to determine whether a building is an actual total loss. This test determines whether the building, “has lost its identity and specific character as a building, and becomes so far disintegrated, it cannot be possibly designated as a building, although some part of it may remain standing. It matters not that some debris remains which may be useful or valuable for some purposes.”2
This means that the building does not have to be completely turned to dust in order to be an actual total loss. Florida also recognizes a “constructive” total loss.
A constructive total loss occurs when a building, although still standing, is damaged to the extent that ordinances or regulations in effect at the time of the damage actually prohibit or prevent the building’s repair, such that the building has to be demolished.3
In other words, anytime the local building official requires demolition of the building, even if a substantial portion of it is still standing, the building is a constructive total loss.
As stated above, this designation is important because Florida Statute §627.702 states,
[T]he insurer’s liability under the policy for such total loss, if caused by a covered peril, shall be in the amount of money for which such property was so insured as specified in the policy and for which a premium has been charged and paid.
Therefore, a constructive total loss means the policy holder gets the benefit of the full policy limits.
2 Lafayette Fire Ins. Co. v. Camnitz, 111 Fla. 556, 560-561, 149 So. 653, 654-655 (Fla.1933).
3 Greer v. Owners Ins. Co., 434 F. Supp. 2d. 1267, 1279 (N.D. Fla. 2006); see also Citizens Property Ins. Corp. v. Hamilton, 43 So. 3d 746 (Fla. Dist. Ct. App. 1st Dist. 2010).