When the wildfires happened in the Los Angeles area, we heard one big question posed from both insurance adjusters and policyholders alike: is California a “valued policy” law state?
The answer is no – California is not a valued policy law state. California does, however, have a valued policy law for valued policies. Our good friend Chip Merlin recently posted a very informative blog analyzing this – check that out here.
In a valued policy, the dwelling limit of liability is agreed to by both the carrier and the policyholder so that, in the event of a “total loss,” the policyholder need not prove the value of the property to recover. Instead, the insurer just cuts a check for the full amount of the limit of liability as outlined on the declarations page of the policy.
If you’re in a valued policy state and your property burns down – and it’s deemed a ‘total loss’ by the insurance carrier – they will, per the law, pay you the building limit of liability of your policy. So, if you have $500K under Coverage A in your policy, that’s the amount the insurance company will pay you upon deeming the structure a total loss (note: this does not apply to personal property).
SMW’s home state, Massachusetts, is not a valued policy state. But watch out: we nonetheless have encountered Mass.-based policyholders who have this language in their policy. That’s why you must always RTFP!
Many of the insurance policies that we see contain extended replacement cost or guaranteed replacement cost endorsements. If you purchase one of these endorsements, the insurance company will still pay you the $500K for total loss coverage, but you can collect above that (up to what you purchased additionally) if you can prove damages beyond the base limit. Extended replacement is usually 25% or 50% more, while guaranteed replacement coverage has no ceiling and will be the amount that’s fair and reasonable to rebuild.
Here is an example of typical Valued Policy Loss language:
SECTION I — Our Payment Methods Coverage A — Dwelling Total Loss Payment Method A total loss occurs when the dwelling is damaged beyond reasonable repair. When a total loss occurs, your loss will be equal to the Amount of Insurance shown on the Declarations Page. Partial Loss Payment Method When a partial loss occurs, the amount we pay for loss to the dwelling will be the lowest of:
- The difference between the actual cash value of the dwelling immediately before the loss and its actual cash value immediately after the loss;
- The actual cash value of the damaged part of the dwelling at the time of the loss.
- The amount required to repair or replace the dwelling.
- The Amount of Insurance shown on the Declarations Page for the dwelling. We may make a cash settlement or repair or replace the property with property of like kind and quality.
Although California is not a valued policy state, some insurers like USAA have been paying the full building policy limits for a total loss fire – even though the state does not have a law requiring insurers to do that. Chip applauded them in his post, and we share his view. Based on our work in California, we hope other insurers do the right thing and pay the building policy limits for total loss claims.
