What We Should Know About Our Homeowners Insurance

2/23/2022 (Permalink)

Duties of an Insured in the Event of a Loss

Virtually every insurance policy involving the loss of property contains a provision providing what steps must be taken by a policyholder in the event of a loss. If an insurance claims adjuster determines that the policyholder failed to comply with such conditions, he or she may recommend denial of the claim to the carrier.

Claim Evaluation

The evaluation of an insurance claim involves assessing the damages or the extent of losses surrounding real and personal property, personal injury, or loss of life. The first step in an evaluation of a loss set forth in an insurance claim actually occurs when a carrier sends an adjuster for an on-site inspection, investigation, and estimation of damages. The adjuster should attempt to verify that losses are covered by the policy in question.

In the case of damage or losses to property, an adjuster’s task is much easier if a claimant has not made any repairs other than those essential to preservation of the property, and if claimant remains cooperative and honest throughout the evaluation process. The adjuster will probably want to verify that the policyholder did nothing to worsen the damage sustained by the property. Independent verification of the facts stated in the claim may be accomplished by reviewing any reports that were filed with the police or by conducting interviews with witnesses. Dollar losses are then calculated by taking inventory of the damages claimed. Each specific item of damage or loss is assigned a value, using either an assessment made by a claimant or a determination by an adjuster who employs external sources, such as established indexes of value or the estimates of a repair shop or a professional appraiser.

Repair estimates, receipts, service charges, and repair bills are evaluated to arrive at an estimation of the amounts which will eventually constitute a settlement. All information bearing on the evaluation of a claim presented by a claimant to an adjuster will be considered. Inadequate or irrelevant information may lead to an undervalued claim.

Actual Cash Value

One of the most arduous tasks of an adjuster is a balancing act involving the assignment of a value to items that are the subject of a claim while performing his or her responsibility of reducing a claim to a dollar amount. An ordinary insurance policy covering personal or real property provides that benefits payable for damaged or lost property are the “actual cash value” of such property at the time of loss.

The actual cash value is the price that one might anticipate an article or piece of property to bring if offered for sale in a fair market where there is a willing seller and a willing buyer. A forced sale or a price obtained at a public auction would be excluded as determinative of market value. The term “actual cash value” is defined under the laws of some states, and, in other jurisdictions, customary definitions have come into use because of court definitions.

When a market exists for used goods like the kind in question which may have been stolen or destroyed, the value can be measured against the price it would have brought in the open used market. An adjuster cannot reduce a claim to a dollar amount unless he or she knows what items have been lost or damaged. An adjuster will ask a claimant to prove ownership of an item which is the basis of a claim and may be suspicious if a policyholder asserts that he or she purchased a large amount of items for cash. When there is no public market for a used item, the actual cash value may be determined by taking the acquisition cost of a new item and subtracting an amount reflecting the used component of the item, which is called depreciation. Many carriers employ depreciation tables in evaluating what dollar amount to place on damaged property using the rule of thumb that an item loses value every year over its expected life. Even so, placing a dollar value on used personal property is quite subjective.

Replacement Cost

When old property is involved, the deduction for depreciation might reduce the settled amount to a level below the actual replacement cost. In such a case, a carrier may allow an insured to pay additional premiums for an endorsement that substitutes a replacement cost for an actual cash value. Under replacement cost coverage, settlement is conditioned upon a claimant actually replacing the damaged or lost property. If the claimant elects not to replace the property, the settled amount is limited to actual cash value.

Another exception to an actual cash value policy is a “stated value” policy, in which the insurer and the carrier agree at the time of issuing a policy that the property in question has a specific value. The carrier must then pay the stated value rather than the actual cash value.

Evaluation of Extraordinary Items

Certain items of personal property are not susceptible to replacement value coverage and should be insured separately if coverage is available. There is no rate book that an adjuster can turn to for determining the value of a loss of an extraordinary object, such as an expensive lithograph, a quilt from the Revolutionary War era, or a two-carat diamond inlaid in a customized setting. A reputable certified appraiser should have been consulted before the item in question was insured, but if that was not the case, one will have to be used by an adjuster. Other items which may be included as extraordinary for purposes of coverage include vintage vehicles, antiques, guns, and certain articles of clothing. An appraiser may seek information about whether the item has depreciated in determining the amount of the settlement.

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