Homeowners should keep in mind that insurance companies are in business to make a profit. Paying claims reduces profit, which means there is a built-in conflict between a homeowner’s view of insurance and the view of the insurance company. That difference can result in conflict between the homeowner’s claim and the company’s willingness to pay.
A homeowner damaged by Irma needs to do many things quickly. Virtually all property insurance policies require a homeowner to take immediate steps to prevent other damage after a casualty loss. The homeowner needs to get damaged roofs tarped, windows boarded and other emergency repairs completed immediately, even before the insurance company sends money.Insurance policies also require prompt reporting of a covered loss to the insurer. Most policies also require the insured to provide protection from theft, description and inventory of damaged property and submit a signed, sworn proof of loss statement. The insurer can also require the homeowner to submit to an examination under oath, failure of which can be basis for the insurer to deny a claim in its entirety.
After a loss is the time when most homeowners try to read their policies and determine what coverage they have purchased. That means the homeowner must not only read the policy, but also riders and amendments, which change terms of the policy and exclude certain perils. In addition to coverage for structures, most policies include coverage for personal property (with certain exclusions) within the limit set by the policy. Most also include coverage for loss of use and living expenses for another residence when the home is inhabitable or even part of the home is not fit for habitation. Most policies will limit loss of use payment to the minimum time needed to repair and most policies cap loss of use payments to a 12-month period. It is not unusual for a homeowner to find the insurance policy excludes coverage for screen enclosures.
Wading through 50 pages of insurance policy and riders is more than most people can handle with complete understanding. Many rely upon the insurance carrier to tell them what is covered and what will be paid. That is when the conflict between the insurance carrier’s profit motive and duty to its insured can be most problematic.
One of the most important parts of insurance policy review is to determine the insurer’s liability for payment. A standard homeowner’s policy generally gives the insurer an option to pay the actual cash value or the cost to repair. Actual cash value is the depreciated preloss value. That leaves the homeowner with a gap between replacement cost and the insurance coverage.
For an additional premium, the homeowner can get replacement cost coverage. Until recently, Florida insurers could either pay actual cash value or the insured’s out of pocket expense, but not pay replacement cost until the insured actually incurred the expense of replacement. If the insured did not replace within time provided by the policy, the insurer would not pay at all.
In 2013, the Florida Supreme Court decided the case of Trinidad v. Florida Peninsula Insurance Company. The court ruled that insurers are not allowed to hold back any portion of the replacement cost payment contingent on repairs actually being made. And, good news for homeowners, it also confirmed that overhead and profit of a general contractor (which had frequently been denied payment by insurers) was to be included in the replacement cost when it would be reasonably likely the homeowner would need a general contractor for the repairs.
All of this may seem pretty straight forward, but the devil is in the details. Insurers may work from a standardized pricing matrix and only agree to pay what the insurer deems reasonable cost for repair. When material prices soar due to shortages after a hurricane and even labor becomes more expensive, the homeowner should be paid actual cost rather than what might have been available prior to the casualty loss. In other cases, the insured and the insurer may differ as to what damage was caused by the hurricane and appropriate method of repair.
Virtually all homeowner insurance policies have appraisal provisions, which the insurance company hopes will avoid expensive litigation. An appraisal provision generally states that if the insured and insurer disagree on the amount of loss, either may demand appraisal. After demand, each will select an appraiser and two appraisers select an umpire. Under most policies, each party pays their own appraiser and split the cost of the umpire.
If the appraisers do not agree on the amount of loss, each submits a report to the umpire and the umpire is to agree with one of the appraisers. Appraisal is only to determine amount of loss, and not to determine other issues such as coverage. Even though it sounds like the appraisal process should end the dispute, many policies include language that gives the insurer right to continue denying a claim after appraisal.
Although the appraisal process seems simple, selection of an appraiser and agreement on an umpire are critical aspects. Most policies contain little guidance as to qualifications, which leaves choice of an appraiser an open field. Since the umpire can ultimately decide the case, it is imperative that the homeowner make sure the umpire is neutral and someone who has no ties to the insurer.
Court action is still a possibility. If the parties do not elect an appraisal, suit can proceed immediately. By statute, either party can make a motion to the court for an order confirming the award which effectively becomes a judgment. If the homeowner has to pursue judgment to enforce the appraisal or any other aspect of the insurance contract, Florida statute provides that the homeowner also recovers attorney fees and costs as part of the action, including the attorney fees and costs of the appraisal process.
Because of the conflict between an insurance company’s profit motive and the insured’s claim for payment, relying upon an insurance company to take care of everything is generally a bad choice. A homeowner pursuing a post-Irma insurance claim is well advised to retain a competent and experienced professional for assistance.
William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.