Filed Under:Agent Broker, Coverage Issues

Time is of the essence: Repairing, replacing damaged property

Coverage Q&A

Property damage adjustments may be impacted by how much time has transpired between the damage, the claim and the repairs. (Photo: iStock)
Property damage adjustments may be impacted by how much time has transpired between the damage, the claim and the repairs. (Photo: iStock)

Question: The ISO Dwelling 3 policy provides replacement cost benefits. Please provide your interpretation of the application of benefits as it relates to the time to recover RCD. Shouldn't the 180 days apply? Does the policy condition listed on page 7, no. 5, section 5 beginning with "You may disregard..." remove the 180 day stipulation?

— Louisiana Subscriber

Answer: I’m looking at the standard ISO language from the DP 00 03 12 02 and 07 14 edition dates, the language concerning replacement cost is the same. Each policy states that the insured may disregard replacement cost settlement and opt for actual cash value. The insured has 180 days after the loss to notify (emphasis added) the carrier of their intent to repair or replace the damaged building. The repairs don’t have to take place in that 180 days, the insured just has to notify the carrier of his intent to do so. If the insured does not notify the carrier of his intent to repair the property and he later does so, he cannot collect the difference even though the property was repaired.

For instance, suppose the property is damaged in January. In May, the insured informs the carrier that he is going to repair the damage in August. Once repaired, the insured can then go back to the carrier for the difference between actual cash value and replacement cost. However, if the property is damaged in January and the insured doesn’t say anything to the carrier and repairs the property in August, and then goes back to the carrier, that is beyond 180 days and there is no coverage for the difference between actual cash value and replacement cost.

See also: A look at replacement cost

Question: The insured has a Special Form Homeowners Policy (ISO form), with replacement cost coverage on the contents. The file went to appraisal. With regard to 180 days to make claim for replacement cost, does the insured have 180 days after appraisal is completed? When would the 180 days expire?

— Pennsylvania Subscriber

Answer: The policy clearly states that the insured has 180 days from the date of the loss, not the date of the appraisal. Regardless as to the outcome of the appraisal, the insured should be able to figure out if he wants replacement cost within 180 days from the loss. We found no cases where the fact that the insured requested an appraisal extended the requirement of 180 days from the date of loss to request replacement cost.


Question: A multi-unit apartment building owned by one of our insureds was damaged by fire. Six apartments received varying degrees of damage. The owner carried coverage for rental value and extra expense with a period of indemnity extension on the rental value coverage. The loss of rents claim was paid. However, the insurance company denied payment for loss of rents after repairs were completed, even though some apartments had not been immediately reoccupied.

I believe the loss of rents coverage should continue until the apartments are again rented, assuming the insured acts with due diligence to attract tenants. What is your opinion?

— Illinois Subscriber

Answer: The period of indemnity extension should provide coverage for the extended loss. The endorsement provides coverage for up to an additional 180 days after repairs are completed—as stated on the endorsement that was provided — for the actual loss sustained by the insured that arises out of the business interruption. This provides time for the insured to regain tenants after repairs are done. Keep in mind, however, that the insured must prove the loss and also make reasonable attempts to rent the apartments as soon as possible.

Question: We are an Illinois public adjusting firm and have a loss with State Farm, which took place in March of 2009. The loss is still being adjusted with their first offer of approximately $270,000 tendered in July of 2009. In September of 2010, they submitted another offer of approximately $326,000 plus code changes of about $40,000. All pricing is based on the original date of loss in March of 2009. We feel we are entitled to 2010 prices. Is there any precedent for this?

— Illinois Subscriber

Answer: The problem is that prices are apt to go either up or down, and not always up. With the decline in the housing market contractors are dying for work; chances are they’ll take less now than they would have a few years ago. The only fair way to handle this is to pay the claim as of the time of the loss; that’s when the event occurred, and that’s what should be due. I was unable to find any legal precedents for this type of situation.

Analysis brought to you by the experts at FC&S Online, the unquestioned authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit www.nationalunderwriter.com/FCS.

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