Insured has HO3, suffers a major fire. Decides he wants to have his gym equipment removed, cleaned and then returned by an equipment company. Insured submits a proposal to insurer for this work, who issues insured a check under Contents coverage. However, Insured later decides not to have the equipment cleaned, and maybe sell it as is, or just keep it and use it as is. Is it a problem if he keeps these funds....arguably paid to him for covered damages and/or loss to his personal property. Your thoughts?
North Carolina Subscriber
Yes, it is a problem. The insured was paid for the loss so that certain repair services could be performed. The failure to perform those services and keep the money violates the principal of indemnity - the insured is now not just made whole, but is profiting from his loss, especially if he sells the equipment he will have been paid twice. While the policy doesn't directly address it, guidance can be found under the Recovered Property clause as follows:
Recovered Property
If you or we recover any property for which we have made payment under this Policy, you or we will notify the other of the recovery. At your option, the property will be returned to or retained by you or it will become our property. If the recovered property is returned to or retained by you, the loss payment will be adjusted based on the amount you received for the recovered property.
The same principal applies, even though the property wasn't stolen. The insured changed his mind - if he had changed his mind before he accepted the check, the check never would have been issued and the claim would have been closed with no payment. However, by going through with the claim, the insured is obligated to either go through with the proposed repairs of the equipment, or to return the funds.