I wanted to clarify my post from last week, Navigating Florida’s Valued Policy Law—The Effect Of Co-Insurance. In last week’s post, I stated “[T]he existence of a co-insurance clause can prevent full recovery in the event of total loss or a partial loss by fire or lightning.” Since the post last week, I have had several discussions with Stephen Sarasohn, who is a very experienced adjuster.
He pointed out that regardless of what Florida’s Valued Policy Law (“VPL”) says, should you sustain a "total" or "constructive total" loss, a co-insurance penalty will not reduce the recovery of the policy limit under Florida’s VPL. He is right, and I wanted to clarify my post from last week so that there is no confusion on this.
Florida’s VPL does contain sub-section (4) which says:
(4) The amount of any loss referred to in subsection (1) or subsection (2) shall be subject to any co-insurance clause contained in the policy pursuant to §627.701.
However, this is one of those statutes containing a provision that does not make common sense. Realistically, if there is an 80% co-insurance penalty, and the property’s replacement cost is $1 million, but is only insured for $600,000, and the property sustains a "constructive total" loss in that the code enforcement officials order it to be demolished because of damage by a covered peril, the measure of damages is still replacement of the property. In this example, even after any co-insurance penalty, the policyholder would still recover the face of the policy ($600,000). The outcome should still be the same even if a property sustains a “constructive total” loss because code officials order it demolished because it is over fifty percent damaged due to the covered peril. The measure of damage is still replacement of the property, necessitating payment of the policy limit, even after any co-insurance issue.
The statute says the amount of a “total” loss (including “constructive” total losses) is subject to any co-insurance clause, however when you walk through the analysis you find that the inclusion of that provision within the statute is perplexing. A co-insurance penalty could apply to reduce “partial” losses caused by fire or lightning that are within Florida’s VPL, but not to reduce “total” or “constructive total” losses under Florida’s VPL.
So in my post last week, it was inaccurate to include the statement that a co-insurance clause can prevent full recovery in the event of a total loss under Florida’s VPL. I trust that this will clarify this topic for the readers that care to follow it and digest its subject matter. I also write this as a grateful acknowledgement to Stephen to thank him again for the discussions we had related to this topic.