My post on overhead & profit two weeks ago sure seemed to get people’s blood flowing. It has been a while since I have seen eleven different responses. We will definitely address this issue further in hopes of answering some of the many questions posed.
A comment from Maria Lamego caught my attention though. Maria’s question, in part, was:
We have seen a trend where the Adjuster is holding back all of the ordinance and law portion of the claim until cost is incurred. Is there an argument related to what you are discussing in this argument that would relate to the carrier having to pay at least ACV on that portion of the claim? Would it not be the same theory?
As any good attorney will tell you, “it depends.” There are many different policy forms with many different requirements. Homeowner policies, for instance, typically state that they will pay for the amounts a policyholder “incurs” as a result of the enforcement of an ordinance or law. Many commercial insurance policies are different and state that the carrier will not pay “until the property is actually repaired or replaced”.
The big question typically arises over when something is “incurred” thus triggering the obligation to provide payment. Generally, insurance adjusters are taught that a valid contract for the repairs obligates the policyholder to make those payments. As such, that would be when the amounts for compliance with the ordinance or law coverage would be “incurred” and payable.
Some courts have held differently though. In an interesting opinion, Florida’s Fourth District Court of Appeals was faced with the interplay between the appraisal process and ordinance or law coverage in Jossfolk v. United Property & Casualty Insurance Company.1 In resolving a dispute over when it was appropriate to appraise damages covered under the ordinance or law section, the court determined the issue of incurred by stating:
Ceballo supports Jossfolk’s contention that Ordinance and Law is not recoverable until it is incurred and thus could not have been appraised at the time of the original appraisal. Here, at the time of the original appraisal, Jossfolk had not applied for repairs of the roof. Thus, he had not incurred or become liable for any additional expense until the City had required compliance with current ordinances in order to complete repairs. It was at that point, according to Ceballo that Jossfolk incurred additional loss, for which he had the right to an appraisal. [emphasis added]
Based on the Jossfolk decision, the amounts owed for ordinance or law damages are “incurred” at the time that the policyholder applies to the regulating authority for a permit and is told that certain work must be done to comply with the current building codes. This means, in Florida at least, that these damages are payable at that time even though no contract has been signed and the work has not been completed (and may never be if the policyholder decides to forego re-building).
As with everything, different jurisdictions deal with this issue in a variety of ways. Knowing what rules apply in your jurisdiction is the only way to make sure that your client is being correctly paid when these issues arise.
1 Jossfolk v. United Property & Cas. Ins. Co., 110 So.3d 110 (Fla. 4th DCA 2013).