After a big storm happens you roll up on the loss and discover a destroyed garage. It doesn't appear to be attached to the dwelling. The dwelling coverage is $300,000 so the garage is covered for only $30,000.00 based on your initial assesment.

The insured walks up and explains that the garage actually was attached.

The night before the storm he was talking to the neighbor, who is the contractor who remodeled the garage. The contractor told him with all the custom stereo equipment, built in plasma TV, wet bar, etc. that the garage wasn't properly insured as a detached structure and he better do something about it quick. The replacement cost of the garage is probably $60,000.00. The insured called his agent, who told him the contractor was right, the garage needed to be attached to be covered for more than $30,000.00  The insured and the contractor decided to take about 20 boards and overlap them onto the two roofs and nail them in. Then they took a photo, which the insured shows you. When the storm hit it all blew away, although some of the boards in the photo can still be seen. They even painted the boards to match the color of the roof shingles.

What would you do?

P.S. If you think this should be referred to SIU then YOU are the SIU, and need to answer that way.

I'm not SIU, and will give the insured points for creativity but also have a penalty flag ready to toss out!  Assuming this is an HO-3, I'd consider the following:

A. Coverage A--Dwelling

1. We cover:

A. The dwelling on the “residence premises” shown in the Declarations, including structures attached to the dwelling; …

B. Coverage B--Other Structures

1.We cover other structures on the “residence premises” set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line, or similar connection.

Then, I'd want to consider if there was "clear space" or if there was other evidence of actual connection (ie. slab) other than fencing, electrical, plumbing, etc. I'd probably also pull up the local county assessor's website and look at the most recent photo they took when they raised the taxes (that's pretty common annually around here, don't know about everywhere else).  If the insured was brazen enough to admit it to my face, it might lead one to look at other policy conditions such as Intentional Loss. Does the overt act of creating this "attachment" when loss is eminent constitute an intentional act?  An intentional act is generally thought of as pertaining to the "cause of loss"...but to intentionally create additional coverage by false means could bring the SIU hat off the rack.  Interviews with neighbors (every street has a few noses pressed to the windows all the time), photos from the "eye-in-the sky", property tax records showing # of bldgs on the premises, etc.  I'd imagine the agent, if captive, would also be pretty quick to admit any knowledge of such shenanigans lest he/she be subject to E&O for failure to insure the property to value much less be an accessory after the fact.     

The insured did not try to hid anything, he taked to his agent and took steps to create a situation where is garage was attached before the loss. If he had done that one year before the event would there be any questions?  Does the policy contain any clauses that prevent the insured from making a change to his structure before a storm arrives? I think the Insured gets the payout, but would report the facts to the company, it's their call..  Did the agent have binding authority?  All the insured did was make sure the property was in complience with the coverage he discused with his agent.  I am curious why anyone would reguard this a shenagin. Creative yes, legal yes, although he may have broken a local building code.

This is one to refer to the carrier for review. Most states have court rulings on this very thing. Some states have gone so far as to state what constitutes a covered walkway or what is an attachment between the garage and house. Call the carrier and suggest an ROR be sent out asap if they do not already know the answer to this scenerio.

Many years ago in Texas, all you needed was a 2x4 from the garage to a house and it was considered attatched. As far as I remember this is not the case any longer for the exact reason you bring up.

Sounds to me the insured was unaware of the coverage issue when building the garage.  Once hearing about the issue he made an attempt to make it part of the dwelling BEFORE the storm hit. Basicly a temporary fix untill he could figure out a way to make it part of the dwelling.

If that picture was taken before the storm had hit, I would do everything i could to cover him under Coverage A,  and send in the estimate as it being part of coverage A.  If somone stops you, they stop you.

Covering somone who made an effort before damage was caused to make a garage a part of the building is hardly a moral choice of which to cover the insured or not IMO.  And also.. unless there are specific guidlines on what actually makes a garage "attatched", he may just be in the right by putting nails into both the garage and dwelling.

Edit: in other words, cover the loss under coverage A. include a lognote of why you believe the garage is attatched to the dwelling.  Let your file reviewer decide for himself.  when your talking about $30,000 difference in coverage your chancing a lawsuit.

Again, in my opinion.

What I can't figure out is why the agent didn't just bind some additional coverage for the detached garage.  People often have detached garages that exceed the 10% and I know some carriers allow (actually require) they be insured for their RCV.   If you attach a $60K garage to the house without raising coverage A, you would likely now be insured for less than 80% for the whole thing.  What if the house blew away too and the carrier wanted to enforce the insurance to value?

I would definitely send out a reservation of rights letter. Did the insured inform his agent of the modification or did he simply inquire about coverage? The policy states that any material change in the risk should be brought to the attention of the carrier and if you ask me this qualifies. Also what is the value of the combined structures? Will $300,000.00 be sufficient to rebuild? What about bringing the combined structures in compliance to codes (increased costs) Does the insued still satisfy the 80% requirement for RCV?