The following is an insurance claim question we answered for a policyholder through the United Policyholders Ask an Expert Forum.

Q. We are survivors of Hurricane Maria. Our property sustained severe damages from the wind and rain. The insurance company´s adjuster reports damages amounting to $36,000. But they are only offering $10,000 arguing that we failed to reassess the property in recent years. As a result, when they apply the per square foot construction cost mandated by the local insurance industry regulator, our property comes out as severely underinsured. We had purchased the property for $125,000 nearly 20 years ago and its value nowadays is below that amount owing to the economic recession.  (Of the $125,000 we paid, the appraisal back then estimated the structure value at $40,000 and the land at $100,000) We are filing a second appeal and are wondering if this is an industry practice.  Any suggestions?

A. Thank you for your question. Not having read your policy, I’m unable to address specific policy language, but perhaps the following will help. It appears your adjuster has applied a penalty due to your failure to insure to value. Value for property insurance purposes is the cost of labor and material to replace the insured property to its pre-loss condition.

Property policies have terms called CO-INSURANCE, or in the case of Caribbean policies the AVERAGE CLAUSE. Both utilize a formula that woks as follows: INSURANCE CARRIED (your policy limit) over INSURANCE REQUIRED (what someone unilaterally determined to be construction cost) X THE LOSS equals the payment you will receive before the deductible. The insurance required can be different percentage amounts but usually in a homeowner’s policy it is 80%.

You cannot change the insurance carried number but the bottom number, insurance required may be debated. As an example you need to find out if the cost of labor and material some insurance regulator used was based on pre-loss cost or post loss cost. Following wide spread damage from a Cat loss it is not unusual to see huge spikes in labor and material cost. If post loss cost were used this needs to be adjusted back to pre-loss construction cost. Also some insurance regulator in my view is not qualified to provide construction costs as they are not in the construction business and besides there is always a great deal of subjectivity that often applies when referencing  books and manuals about construction cost.

If you were paid the actual cash value (ACV) of your loss then perhaps the INSURANCE REQUIRED NUMBER can be negotiated since depreciation is in the eyes of the beholder. If insurance required can be reduced down it may result in more dollars in your pocket

Remember most settlements involving property insurance are negotiable. It never hurts to ask, but do a little homework to see how they arrived at construction cost that were used in their formula. Hope that is of some help to steer you in the right direction.