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Handling Valued Policy Law Property Damage Claims

Brian E. Chojnowski and Nicole Lauren Wulwick | April 19, 2021

Hurricanes and other large catastrophic events often bring more claims under Florida’s Valued Policy Law. As we approach the 2021 hurricane season, it is important to revisit the basics of Florida’s Valued Policy Law to ensure it is correctly and fairly applied. This first in a series of three articles will cover the basics of Florida’s Valued Policy Law.


What is Florida’s Valued Policy Law?


Florida is one of twenty states with a Valued Policy Law. Section 627.702, Fla. Stat., provides that when any building or structure sustains a total loss as a result of covered peril, the liability for said loss shall be the amount of money for which the property was insured. The provision of the Valued Policy Law concerning partial losses still only applies to fire or lightning claims.

Florida’s Valued Policy Law is only intended to fix the measure of damages payable to the insured in case of total loss to property. The insured does not have to prove the value of the structure in the event of a total loss and an insurance company cannot dispute the amount of a total loss by claiming the structure was less valuable than the dwelling limit. The Valued Policy Law applies to building coverages, but does not apply to other structures, personal property claims, additional living expenses, or ordinance and law coverage. Florida’s Valued Policy Law is not intended to expand coverage or to deprive insurers of any defenses available to it via the policy of insurance.


What if the cause of loss is excluded under the insurance policy?


If the property is a total loss solely as a result of an excluded cause, Florida’s Valued Policy Law does not apply.


What if the loss is caused by both a covered and excluded loss under the insurance policy?


If the property is partially destroyed by a covered peril and partially by a non-covered peril, Florida’s Valued Policy Law will only apply if the covered peril in and of itself would have caused a total loss.

Brian and Nicole handle many of these mixed loss hurricane property damage claims. In many recent claims, loss to property was caused by wind (a covered peril) and flood or storm surge (non-covered perils). Under these circumstances, it is important to consider whether the covered peril of wind could have potentially caused the property to be rendered a total loss, or even a constructive total loss.


Total Loss versus Constructive Total Loss


Florida courts have interpreted Valued Policy Law to help define a “total loss.” The Florida Supreme Court has adopted the “identity test” to determine whether a structure is a “total loss.” According to the identity test, a structure is a total loss if the damage to it is so significant that it has lost its identity and character as a building, even though a portion of it remains and could be used for some useful purpose. This test is somewhat subjective and disagreements commonly arise over whether the damage to a structure sufficiently altered its identity so as to constitute a total loss.

A constructive total loss to property occurs when the building, although it is still standing, is damaged to the extent that ordinances or regulations in effect prohibit or prevent the building's repair, such that the building has to be demolished. When the cost to repair the structure exceeds 50% of the structure’s value (which does not include the value of the land or improvements other than the structure), the owner must bring the property into compliance with the current building code as enforced by the local building department. If the ordinance or law merely makes it more expensive to repair or rebuild the property, then it would not be a situation that would trigger Florida’s Valued Policy Law.

When the property is located in an area designated by FEMA as a flood risk, the local floodplain management guidelines may require the rebuilt structure be raised a certain level above the base flood elevation estimated for that area. This often requires demolition of the property, which constitutes a total loss. When such a claim arises, it is important to research the local floodplain requirements to determine how the value of the structure is determined, the base flood elevation for the particular property, as well as how the floodplain requirements are enforced by the local government.

In our next article, we’ll discuss valued policy law claims with regard to properties located in FEMA flood zones.

Brian and Nicole have successfully defended Valued Policy Law claims for several Florida insurers. If you have any questions about the information in this article or this body of law in general, please contact us: info@kubickidraper.com.
 




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