Those handling fire losses and dealing with Florida’s Valued Policy Law may not have come across a provision in the statute dealing with the insurance carrier’s option to rebuild. It seems counter-intuitive that a statute meant to address the measure of damages in total losses would provide a provision giving insurance carriers the right to rebuild the property. But, Florida’s VPL statute1 does have such a provision:
(7) Nothing herein shall be construed as prohibiting an insurer from repairing or replacing damaged property at its own expense and without contribution on the part of the insured except, as provided in subsection (6), when an insured has elected to purchase stated value coverage. Such repair or replacement of damaged property shall be in lieu of any liability created by subsection (1); and any insurer so repairing or replacing shall have no liability pursuant to subsection (1), provided such insurer returns to the named insured a portion of the premium, for all policy terms during which the policy limits were the same as those in effect on the date on which the loss occurred, equal to that portion of the premium paid for limits of insurance on the structure in excess of the cost of replacement.
The right to rebuild must be listed in the insurance policy for an insurance carrier to exercise it under Florida’s VPL. Most homeowner’s insurance policies do contain provisions giving the carrier a right to rebuild or repair.
There is a requirement that the insurance carrier exercising its right to rebuild under the VPL return a portion of the premium for all years of the policy over and above the amount that it costs the insurer to rebuild. For instance, if the policy limit on a residence has been $500,000 during the past three years and there is a total loss and the insurer decides to exercise its right to rebuild and does rebuild the property for $450,000, it would have to return the portion of the premium on the $50,000 difference during the three years that it was charged.
One of the aims of Florida’s VPL is to prohibit insurance companies from writing excessive insurance coverage on a property to collect an excessive premium, and this part of the VPL dealing with return of a portion of the premium appears to be aimed at that concept.
Of course there are a lot of questions and concerns that can arise if an insurance carrier decides to rebuild a property that is a total loss under Florida’s VPL. There can be questions about whether the property can be rebuilt; whether the rebuilding is sufficient to restore it to the pre-loss condition – and many more. Always consult experienced representation if you ever have any questions about these situations.
1 F.S. 627.702.