When there's significant damage to your home, or your home can't be rebuilt, Florida's Valued Policy Law may justify payment of your policy's limits
It's no secret. Insurance companies hate paying claims, and it's no different throughout Florida when a home or commercial building is damaged by a sudden and accidental event.
If the damage is so significant that the home may be a total loss, or a federal, state or local building code or regulation requires the property be rebuilt, it's no longer a time to nitpick the amount of the loss.
In the experience of our public adjusters, insurance companies often ignore this law when this type of damage occurs, and it's more important than ever to have someone in your corner looking out for you.
Florida's Valued Policy Law - Fla. Stat. 627.702
What is the Valued Policy Law? Fla. Stat. 627.702 says that "in the event of the total loss of any building, structure, mobile home..or manufactured building...in the absence of fraudulent or criminal fault on the part of the insured or on acting [on their] behalf, the insurer's liability under the policy for such total loss, if caused by a covered peril, shall be in the amount of money for which such property was so insured as specified in the policy and for which a premium has been charged and paid."
What does that mean? Well, it means the if you're in Florida and you have property insurance and the property is a total loss because of a peril covered by the insurance policy, then the insurance company is supposed to pay you the policy limit listed on the insurance policy's declaration page.
Florida's Valued Policy Law dates back to 1899 and in short is a way to fix the price of a total loss so that an insurance company isn't withholding 90% of the insurance proceeds for months and months (or force a homeowner into litigation) to say the property was either overinsured or underinsured.
It's worth noting that the Valued Policy Law does not apply when there's blanket coverage when two or more buildings are insured under a singular combined limit of insurance, but our public adjusters can check your policy for you and verify this.
So what is a total loss?
Florida's Valued Policy Law doesn't specifically define the term "total loss" and that’s part of the reason insurance companies largely ignore it. Luckily, Florida's courts have defined the term and it can either have to do with the types and amount of damage to the home or building, the feasibility of repair, the application of laws, codes, and ordinances to the repairs, or all three.
When evaluating the damages, the courts have created an "identity test" and a "restoration test" to evaluate whether a total loss exists under the VPL. For application of codes and ordinances, the courts have defined total loss under the "constructive total loss" test.
The "Identity Test" to determine a total loss
The "identity test" to determine if a structure is a total loss says that if the damage to the structure is so severe that it has lost its identity and character as a building, even though a portion of the building's components remain and could be utilized for some useful purpose, then the property is a total loss.
This is a debatable test and can justify a dispute between your public adjuster and the insurance company. The property doesn't need to be a pile of rubble, but if the damages are so significant that the building isn't recognizable as the same building, even if parts of it are usable, then the identity test may apply.
When looking at the before and after images of a home damaged by Hurricane Michael to the right, the insurance company tried to argue that because the home was still the same basic shape, it didn’t meet the criteria of the identity test.
Satellite image of a home in Panama City prior to Hurricane Michael in October 2018
The same home via drone after Hurricane Michael had caused damage, knocking down several exterior walls
The "Restoration Test" to determine a total loss
The "restoration test" is also subjective to some extent and is open for debate, but it is more clearly defined that a structure is a total loss if a reasonably prudent owner would not use the remains of the structure after the loss as a basis for restoring the building to its pre-loss condition.
This can mean a couple of different things, and your public adjuster can assist with these evaluations and make these arguments to your insurance company. It could mean that it costs more to repair the home than to demolish and rebuild, or it could mean that some components or structural elements of the property are questionable to include in repairs. This often happens either after a fire, where structural components were exposed to intense heat, or in the aftermath of a hurricane where huge wind forces or flood waters affected the building, but these aren't the only situations.
In addition to the damage pictured to the home above, the missing roof, the knocked down exterior walls, the cracked and leaning remaining exterior walls, and the water and mold in every building material “inside” what used to be the home, the wind also applied so much force to the hot water heater that it broke several copper plumbing lines inside the poured slab which would require significant trenching of the slab to repair.
"Constructive Total Loss"
A "constructive total loss" is the most definitive way to apply the Valued Policy Law. Under the "constructive total loss" test a building is a total loss when it is damaged by a covered peril and an ordinance or regulation prevents repair.
The most common occurrence and application of this test is related to elevation requirements, either locally, or through FEMA's regulations regarding the National Flood Insurance Program.
Many areas of Florida, in response to a rise in sea level, are requiring homes be built at certain elevations. If a building pre-dated this regulation, once significant repairs are required because of a covered loss, the building department may require the home to be rebuilt at a higher elevation. This would be a constructive total loss. This is common in the Florida Keys, but also happens on throughout Florida for beachfront homes or properties on barrier islands, such as Jensen Beach.
More common than a local building requirement is the regulations from FEMA and the NFIP where, in order to be eligible for flood insurance, a home must be a certain amount above the areas Base Flood Elevation. Our public adjusters see these types of claims in the aftermath of hurricanes all the time. If a home sustains "substantial damage" exceeding 50% of the property's appraised value, then the property is required to be brought in compliance with the current regulations as the the base flood elevation.
Substantial Damage Determination from a local building department
In addition to a hurricane, the constructive total loss test may come into play relatively easily for a mobile or manufactured home that is appraised at a relatively low value and might have a significantly lower policy limit.
There's a lot to evaluate to determine whether damage to your home constitutes a total loss justifying the payment of your insurance policy's limits. Our public adjusters have been through these situations many times and can explain the process as it applies to your specific situation, and present information to your insurance company on your behalf. If you think your home may have sustained enough damage to constitute a total loss, call or contact VIP Adjusting's public adjusters today for a free claim review.
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