Many of you are aware of the devastating fires that severely damaged central Texas during the past few months. In Bastrop County alone, the fires consumed 34,000 acres and 1,600 homes, according to an investigation released by the Texas Forest Service. If you are one of the thousands who has suffered fire damage, you may be wondering what to expect with your insurance claim. Over the course of the next few weeks, I will be writing exclusively about how Texas law deals with fire losses. Today, I will focus on total losses.
Section 862.053 of the Texas Insurance Code states the following regarding total losses:
§ 862.053. FIRE INSURANCE: TOTAL LOSS OF REAL PROPERTY.
(a) A fire insurance policy, in case of a total loss by fire of property insured, shall be held and considered to be a liquidated demand against the company for the full amount of such policy. This subsection does not apply to personal property.
b) An insurance company shall incorporate verbatim the provisions of Subsection (a) in each fire insurance policy issued as coverage on real property in this state.
(c) The commissioner shall require compliance with this section.
In plain English, Section 862.053 states that if an insured property suffers a total loss as a result of fire, the value of the loss will be the full amount of the policy. However, this does not apply to the contents inside the property.
In Hochheim Prarie Farm Mutual Insurance Association v. Burnett, the insurance carrier appealed a jury verdict in favor of the insureds arguing, among other things, that the evidence was insufficient to support the jury’s finding that the house was a total loss. In this case, the appellate court out of Fort Worth interpreted the precursor to Texas Insurance Code Section 862.053, Article 6.13 of the Texas Insurance Code. Article 6.13 contained very similar language to Section 862.053. In Hochheim, the appellate court laid out the test for determining total losses. “The test for whether a structure is a total loss is whether a reasonably prudent owner, uninsured, desiring a structure like the one in question before the fire, would use the remnants of the structure to rebuild.”
In Hochheim, the record showed that “1) the remaining portions of the house were leaning and barely standing; 2) the roof was burned in two and would have to be replaced; 3) the rafters, interior wall coverings, sheetrock and ceilings would have to be replaced; 4) the only salvageable remnants were the aluminum windows and steel siding; and 5) the house was a ‘shell.’” Additionally, the appellate court noted that “[t]he mere fact that some of the charred structure might have been used in the new construction does not make the loss partial.” The appellate court concluded that “there was sufficient evidence to support the jury’s finding that the house was a total loss.”
In Bennett v. Imperial Insurance Company, the appellate court out of Dallas gave some additional guidance with respect to total fire losses. The appellate court in Bennett determined that “if a total loss [is] found by probative evidence to exist, the face amount of the policy becomes a liquidated amount and no further proof of damage need be made.” Additionally, the appellate court in Bennett noted that “[u]nder the statute, it is immaterial whether the face amount of the policy exceeds the actual value of the building.”
Hochheim and Bennett make clear that if your home or business suffers a total loss as a result of fire, your property insurance company should pay you your policy limits, or something very close to your policy limits, for the structure. If they don’t, you should contact experienced policyholder counsel.