Valued Policy and Application of Deductible

May 9, 2016

We are hoping you can solve an internal disagreement about the deductible application on a DP 00 01 12 02 form. We have a total fire loss in Tennessee and cannot find any statutory language that specifically references application of a deductible. Since the statute is silent on the issue, it appears that the deductible should be taken from the limit per the policy language. We have found one case in Arkansas that specifically says the deductible cannot be applied to the limit, but nothing in Tennessee. Should the deductible be applied at all? To the limit? To the damages?

Tennessee Subscriber

The policy clearly states that the deductible applies to the policy limit and that what is paid is the total of all loss that exceeds the deductible. It is straightforward language so there probably are not any cases. The valued policy language (T. C. A. § 56-7-802) states that the company is not liable beyond the actual value of the property at the time of loss; applying a deductible would not counteract the statute. The intent of valued policy laws is to protect the insureds from arguments after a loss that the property was over insured, in an attempt by the insurer to pay less than the face amount for which the insured paid premium. Unless the carrier is trying to apply a monstrous deductible, the deductible should be applied as normal.