There is an old adage in the claims business: Whoever controls the scope controls the claim. What exactly does that mean?
When you suffer a loss typically an adjuster, or anymore a “preferred vendor contractor,” will come out to the property and inspect the claim for damages. An adjuster is capable of determining what a covered element is and what is an excluded element and will scope the loss appropriately. Generally speaking a contractor will scope all damages regardless of coverage. The “scope” refers to what elements of the claim are covered. It is important when an adjuster comes to inspect the property that all damages be presented for consideration. Even if you believe them to be minor and/or inconsequential it is important that the claim file reflect documentation presented by the insured. Insist that the adjuster secure appropriate photo documentation and/or address all of your potential concerns during the inspection.
Remember: The insurance claim damage scope determines value.
One element that often comes up during resolution of an insurance claim is matching and/or a line of sight issue. Traditionally line of sight and/or matching issues have been resolved under a “reasonably uniform appearance” theory. That means that carriers will break contiguous flooring at doorway thresholds and/or stop painting at various areas. This is in part facilitated by matching technologies with respect to paint and this is in part adhered to by the insurance carrier’s internal claims policy. Some states such as California specifically address this in Department of Insurance guidelines. For example, the California regulations read as follows:
Section 2695.9. Additional Standards Applicable to First Party Residential and Commercial Property Insurance Policies
(a) When a residential or commercial property insurance policy provides for the adjustment and settlement of first party losses based on replacement cost, the following standards apply:
(2) When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall replace all items in the damaged area so as to conform to a reasonably uniform appearance.
Unit costs are typically arrived at by a third-party vendor such as Xactimate. We will have another post on Xactimate and our impression of that estimating software in the near future.
For now, this conversation is simply addressing that the insurance claim damage scope determines value. The goal when presenting a claim, should you wish to ensure fair and equitable claim value, is to increase the scope as much as possible. That is, if there is damage to flooring in a living room and that flooring is continuous into a hallway extend the flooring request throughout the area to include the hallway. If the flooring is continuous into various bedrooms, again extend the request to include those bedrooms. Most carriers will stop at thresholds and/or doorways. Part of the rationale behind this is the basic insuring agreement. For the purpose of this conversation a typical homeowner’s policy reads in relevant part as follows:
We insure against risk of direct loss to property described in Coverages A and B only if that loss is a physical loss to property.
You will note that the insuring agreement affords coverage for physical damage only. This taken at face value would be an absurd resolution of a claim. This would theoretically allow for patching of carpeting and/or painting of only damaged areas. This would be acceptable to no one. Recently there has been a move by several carriers to now include an endorsement with the insurance policy that refers to “functional replacement cost.”
They define functional replacement cost as follows:
“Functional replacement cost” means the amount which it would cost to repair or replace the damaged building with less costly common construction materials and methods which are functionally equivalent….
That is absurd! Nobody agreed to that when they signed up! The carriers are well aware that the insurance claim damage scope determines value. Do you think they are doing this for your benefit?
What they are effectively doing is removing the determination of coverage form a “reasonably uniform appearance” to a policy issue and making it a contract issue. They are attempting to ensure the insurance claim damage scope determines value. Then then limit the scope to “functional damage.” An insurance claim can typically be divided into three elements.
- One element is the basic grant of coverage. That is, is this a covered cause of loss?
- The second element is the scope of damage.
- The third element is the valuation of the scope of damage.
Those three things combined ultimately determine the overall value of the claim. By limiting the scope of coverage available to an insured via contract carriers are significantly reducing the overall value of the claim by contract in lieu of by a reasonable person approach, i.e. reasonably uniform appearance. We would anticipate that ultimately this endorsement will receive several challenges in the court system and ultimately will not withstand the challenges it faces.
In the interim, this is one additional way where insurance companies are attempting to place a “whammy” on the consumer with respect to valuation of the claim and to control claim costs, i.e. what you bargained for when you originally purchased the insurance policy.
Again, it is very important when the loss is originally reported to the carrier and/or any of their representatives that you remember that the insurance claim damage scope determines value.
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Thanks as always for reading,
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