Let’s be honest, reading an insurance policy can be incredibly boring. Insurance policies are complex and provide a winding pathway to confusion. Most policyholders are aware of their general limits of liability because they are contained on the declarations page, which is typically the first page of the policy package. However, many policies contain sublimits of liability that reduce the carrier’s obligations when certain perils strike.
A common industry definition for “sublimit” is:
A limitation in an insurance policy on the amount of coverage available to cover a specific type of loss. A sublimit is part of, rather than in addition to, the limit that would otherwise apply to the loss. In other words, it places a maximum on the amount available to pay that type of loss, rather than providing additional coverage for that type of loss.1
Policyholders are often surprised to discover their policy contains a sublimit of liability because it requires a thorough review of the policy. In Florida, a common sublimit is cosmetic and aesthetic damage to floors. The following is an example:
The total limit of liability for Coverages A combined is $10,000 per policy term for cosmetic and aesthetic damages to floors.
1. Cosmetic or aesthetic damage includes, but is not limited to:
c. Dents; or
d. Any other damage to less than 5% of the total floor surface area and does not prevent typical use of the floor.
2. This limit includes the cost of tearing out and replacing any part of the building necessary to repair the damaged flooring.
3. This limit does not increase the Coverage A limit of liability shown on the declarations page.
4. This limit does not apply to cosmetic or aesthetic damage to floors caused by a peril named and described under Section I-Perils Insurance [Insured] Against.
This sublimit reduces carrier’s obligation to pay for damaged floors, unless a named peril causes the damage. This places unexpected stress on weary policyholders who are already going through a difficult time. It is just as important to understand how sublimits apply because carriers often apply them inappropriately. In the above example, if a named peril causes the damage, the sublimit does not apply. Adjusters often misinterpret similar provisions, forcing policyholders to retain representatives to obtain owed benefits.
Overall, insurance policies can be confusing and contain capricious coverages. Be aware of your policy’s sublimits to avoid any unfortunate surprises during a time of need. If you have questions about your policy, you should seek guidance from a trusted insurance professional.