The title for this blog popped in my head based on a question sent into our firm about property insurance policy adjusting practices and procedures related to Hurricane Irma claims. Here is the question sent in from a resident in one hard hit area of Florida:

Policyholder Question: I received a claim check from the insurance company and they have deducted depreciation for my roof. It is a large number and I have read a few different answers related to my question. If I have a replacement value insurance policy, can they hold depreciation? Do I really need to put $20,000+ out of my pocket until a time in the future when they might release that depreciation to me?

Well the answer like all property insurance policy questions is likely found in this person property policy under a section typically titled “Loss Settlement” or in some other policies such as “How We Pay your Claim”, etc.  Yes, it’s in the fine print and it’s important to read your policy as some have different terms and conditions. Then there are some insurance companies that may have added endorsements that may apply in a good way to your situation.

But as a general practice most “replacement policies” will have a condition added that in fact requires you to replace the item before they will pay you the full “replacement” value (the current market price of new like kind and quality roofing in this case). That of course assumes the item you have that needs replacement is even made now or currently available.

So yes, you have run into the infamous practice of holdback, or depreciation which when applied results with a payment you received that is called the “actual cash value”. The actual cash value is the amount of your loss after depreciation has been taken.

The theory is that insurance companies do not want you to be unjustly enriched by paying the full replacement cost of your loss and then you perhaps only do a patch job and pocket the rest. Or doing nothing and again pocketing the payment. But remember, if you have a mortgage, your mortgage company’s name will be on the check and they will require you to do the work or the check will stay with them until you do.

The reality of this is that it puts additional burden on you to go out-of-pocket to find the funds to pay the replacement cost and then wait for the insurance company to review your file. Likely your file will be in a stack with perhaps thousands of others insured all of whom may be subject to further investigation by an inside desk adjuster to verify the actual cost being claimed is in line with a computer estimate the insurance company based their settlement offer on. Then there is always the issue of the second guessing that can occur when a desk adjuster may not agree with your roofer saying the cost is too high or you upgraded the roof etc.

The bottom line is that the file stays open while these issues are sorted out and you are out of pocket for the money you need to fix your property, not to mention money to cover your hurricane deductibles. Nice, huh? And remember they are holding on to your money!

Finally, as background, back in the 2004 after this policy condition was used on a large scale following 4 hurricanes in 45 days, the outcry was so great that the Florida legislature got involved and said replacement cost means the full replacement cost and for a couple of years this was the law in Florida. Needless to say, after the insurance industry lobby picked themselves off the ground and got reorganized, you now have the result of their lobbying efforts.

In closing, here are a couple of tips; 1. Make sure you read your policy. There are still a few insurance companies that sell policies that will in fact pay you the full replacement cost without withholding depreciation. To use an analogy, insurance companies are like cars -- there are the cheap ones then there is the cream of the crop. 2. See if your loss settlement has any language that says “until you incur the expense,” which means you are legally libel because you signed a contract with a roofer. That incurred expense clause may be enough to convince the insurance company that you are libel to the roofer and not likely to pocket the money. So, if you have incurred an obligation, you are now on the road to replace the item that was damaged or destroyed. A signed contract is a legal obligation. So you may be able to use this as a basis to say you have met the replacement cost requirement. There have been other arguments won based on incurred language, so it’s worth a try.

Lastly, the public needs to get politically active and urge their elected officials to pass legislation to make the insurance companies pay the full replacement cost following a hurricane disaster. That’s of course assuming the policyholder actually bought a replacement cost policy and not a lesser policy which only insures for actual cash value. It is bad public policy for homeowners to be hit with a large hurricane percentage deductible and then on top of that some arbitrary deprecation percentage at a time of extreme finical and mental distress.

The way the insurance companies has it set up now is to hold onto as much as their money as long as possible. The result as you no doubt have seen on TV is that the lawyers are smelling blood and trolling for clients.

If you have questions regarding any property insurance claim related issues please call 800.321.4488 or contact us to submit a question to one of our public adjuster insurance claim experts. We look forward to helping you achieve a fair claim settlement.