Loss to a "mow down"
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Loss to a "mow down" - 7/30/2006 9:31:48 AM
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CATdawg
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Trader wrote in another thread ("Legal/Ethical questions about deductibles", post #41), http://www.catadjuster.org/forum/fb.asp?m=22775&key
"A modest old house in neighborhood that is "hot" with sales of "mow downs" to build 6-7 thousand sf two story dwellings. The average sale price is $419,000.00 A contract is in place to purchase this house for $425,000.00. Before closing the house insured for $250,000.00 HO-3 has a total loss from a tornado and the cost to remove the debris is $15,000.00. While the insured and the adjuster are discussing the loss the realtor walks up to the two and tells the owner her buyer backed out of the contract, because of the loss, but she has a cash buyer who will pay $300,000.00 as is. What should the adjuster report to his carrier. You are the adjuster."
Racko replied,
"Does "hot" neighborhood mean valuable land? Your scenario, Trader, could take several twists. Was this a modest existing dwelling on a large parcel, or a large older dwelling on a postage stamp? We don't know how the insured value was arrived at either. One would need to perform an appraisal of the structure & the land, then go forth"
CATdawg replied,
"The insurance company should pay the loss up to policy limit, less deductible. An additional 5% (12.5K) above policy limit is available for debris removal (Section 1-Property Coverages, E. Additional Coverages, 1. Debris Removal, a.(1)), for a total of 262.5K (250K x 105%), less deductible. Additionally, the co-insurance clause (Section 1-Conditions, C. Loss Settlement, 2.a.) allows RC up to 312.5K, (250K x 125%, or 250K = 80% of 312.5K), less deductible.
Whether or not the insured makes a profit on a future sale is irrelevant to my job as the adjuster. My concerns should be that the loss (Section 1-Definitions, B. 8.b. and B. 9.) occurred during the policy term (Declarations) and that the loss is the result of a covered peril (Section 1- Perils Insured Against, A. 1.)."
< Message edited by CATdawg -- 7/30/2006 9:47:32 AM >
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Lee Norwood
"Many a time have skillful workmen tried to contrive a wheel that shall turn of itself..." -Archimedes
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RE: Loss to a "mow down" - 7/30/2006 9:55:36 AM
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aporco
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And your point is?
The only thing I would add to this rather vague thread is that the RC valuation does not include land or foundations (for some reason insurance companies don't believe a foundation can be damaged) and that the market value of the property has no bearing on the RC valuation.
Now that I've tossed in my $0.02, was there a particular vein you hoping to hit?
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RE: Loss to a "mow down" - 7/30/2006 9:57:20 AM
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katadj
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If , in fact, the risk was insured to value, (usually 80% of the RCV) and the loss exceeds the cost of reconstruction of same, in like kind and quality, then the carrier owes the policy limits, plus 5% of the Coverage "A" for debris removal and, in some cases, absorbs the deductible.
BTW , are we talking about an agreed value state?
Why not take the money, and sell the land? Then rebuild someplace else. That way you get your home back and make beau coups bucks from the land?
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"Excellence often first appears as error. It is only in retrospect that wisdom emerges from ignorance and success from failure." Abraham Lincoln
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RE: Loss to a "mow down" - 7/30/2006 10:08:38 AM
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CATdawg
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Aporco, Trader posted a scenario and I started a new thread because we were "off-topic" in the other thread.
The point of posting a scenario is to elicit discussion. Thank you for your contribution regarding the land, the foundation, and the market value. What part of the thread do you find vague- the scenario or the responses? Why? You wrote, "was there a particular vein you hoping to hit?". I would submit that that is as vague as anything else in this thread so far, due to your use of metaphor.
< Message edited by CATdawg -- 7/30/2006 10:18:52 AM >
_____________________________
Lee Norwood
"Many a time have skillful workmen tried to contrive a wheel that shall turn of itself..." -Archimedes
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RE: Loss to a "mow down" - 7/30/2006 10:51:22 AM
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aporco
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CATdawg,
It's early Sunday morning, I haven't had my second cup of coffee, so everything is still a little fuzzy.
I just didn't see a real clear question. Most threads begin with someone asking a question or requesting specific information. One thing about any open discussion is that, unless there is a moderator, it will wander off track. I'm not saying that this bad. Often times the tangent topic is more valuable and enlightening than the original thread.
I guess I was curious as to whether or not you were looking for something specific or just throwing it open for discussion.
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RE: Loss to a "mow down" - 7/30/2006 11:02:18 AM
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CATdawg
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quote:
ORIGINAL: aporco
I just didn't see a real clear question. Most threads begin with someone asking a question or requesting specific information.
I guess I was curious as to whether or not you were looking for something specific or just throwing it open for discussion.
Trader's question was, "What should the adjuster report to his carrier?".
The post that I used to start this thread was from Trader; the motivation(s) for his post would be better answered by him. My motivation in responding to Trader's post was to practice justifying my decisions in a claim-handling scenario and to get feedback regarding my decisions from anyone wishing to participate.
I hope my answers are sufficient. By the way, I love my morning coffee, too!
< Message edited by CATdawg -- 7/30/2006 11:07:58 AM >
_____________________________
Lee Norwood
"Many a time have skillful workmen tried to contrive a wheel that shall turn of itself..." -Archimedes
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RE: Loss to a "mow down" - 7/30/2006 11:27:13 AM
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trader
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I know the answers. I just wanted to stimulate some thinking in ever day adjusting situations.
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RE: Loss to a "mow down" - 7/30/2006 2:03:48 PM
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rickhans
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First, I have a question for Aporco about the comment that foundations are not insured. It has always been my understanding that the foundation is part of the house and fully covered. I have adjusted one or two claims on pier & beam houses where we paid to repair a broken beam caused by a tree (in Florida), and I have done repairs to both slabs and pier and beam houses that were damaged by water leaks or tornados. Where is there anything in the policy that excludes foundations? If a house is totaled, they don't subtract the cost of the foundation then pay off, and the cost to build a foundation is part of the cost to rebuild.
As to the question posed, I agree with CATdawg's answer. If the house is totaled, pay the policy limit. If not totaled, it can get complicated. I think the key, however, is that the claim is based on the cost to rebuild, not what the house is worth. I have been contracting in a "mow down" area for the last 8 years. The avg. price of $416,000 means that the lot value with existing sewer, water, and gas taps averages $416,000 with the building probably having $0 value. However, from time to time, the existing house will be sold or given away, to be moved to another lot. I work mostly in the historic districts now and about once per year someone will pickup a house that qualifies for the historic district and move it to a vacant lot in the hist. dist. after getting a CA. Even when the house is paid for, it goes for much less than "cost to rebuild". However, the insurance coverage can become a problem until that house is sitting on the new foundation. You have to get a builder's risk policy that includes coverage while being moved.
I may be getting off track here, but want to add one more problem to this scenario, that I personally encountered on one of my houses.. I started a restoration and 900 sq. ft. addition to my house on Swiss Ave. (historic. district in Dallas). I took out a construction loan to pay off the 1st mortgage along with funds to do the restoration. The cost to rebuild once the job is completed was $400,000 so I tried to insure it for that amount. I had to get a 6 mo. builders risk because my commercial dwelling policy would not insure it for that much. 6 mos. later the addition is on but interior restoration and finish out still to go, my dwelling policy kicked back in but refused the $400k coverage, wanting to insure it for less than than the mortgage. We argued it and they settled on coverage for the amt. of the mtg. If I had a total loss at that point, I would have been under insured and not met the 80% rule. Has anyone ever adjusted a claim that would have had a similar scenerio. How was it handled? For those not familier with historic district work, the cost to rebuild a house is significantly higher because all of the exterior features, material, and windows have to match orginal. Real wood has to be used everywhere, and all windows have to be wood double hung and have the same style as the original.
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RE: Loss to a "mow down" - 7/30/2006 3:22:47 PM
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trader
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Rick: Remember this the RCC coverage does not come into play IF NO BETTERMENT is involved in the loss. On your house the new addition would not have any betterment, estimate the old apply the betterment, IF ANY (which is the case)and now you have the whole loss amount and apply the formula to the old structure only. As this was the basis of the Face Amount or Mortgage amount. As long as the wing was under construction it is not subject to the formula. A reporting form builders risk, for the completed value is always the safe path.
Read the RCC provisions again please. The foundation does not have to be computed in the compliance provision.
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RE: Loss to a "mow down" - 7/30/2006 5:36:08 PM
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aporco
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Rick,
I didn't say the foundation wasn't covered. What I said is that the foundation is not included in the RC valuation. If the foundation is damaged by a covered peril, the repairs are covered.
Remember the old GRC (Guaranteed Replacement Cost) HO policies that disappeared in the mid-90's? Those disappeared as a result of the 1991 Oakland Fire Storm. Under ordinary conditions a foundation is probably not going to be totally destroyed, unless it bakes in 2000+ degree fire for several hours. Insurers found themselves paying 2, 3, even 4 times the policy limit because the foundations were shot. The foundations alone cost as much as or more than the policy limit in many cases because these were pretty much all hillside homes requiring highly engineered foundations. The GRC has since been replaced with the Extended Replacement Cost policies which limits the additional coverage to 25% of the policy limit. The old GRC was unlimited. In California there is no coinsurance clause in HO policies so that was never an issue. In fact, most policy limits were sufficient to rebuild the structure above the foundation. It was the foundations that got the insurers.
If anyone is curious about my point, it is on the top of my head. (That's a joke.)
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RE: Loss to a "mow down" - 7/30/2006 5:58:59 PM
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racko
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quote:
ORIGINAL: trader
I know the answers. I just wanted to stimulate some thinking in ever day adjusting situations.
Guess I agree with Aporco, and still don't know what the question was... my initial post was to try and pry the question out. Hasn't happened, or has it?
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RE: Loss to a "mow down" - 7/31/2006 3:04:43 AM
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rickhans
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I see what you are saying and learned something new. I have never seen nor heard of GRC nor Extended Replacement cost, but then I have never seen a policy west of Texas. Is that something unique for California or are there other states that allow ERC where a foundation problem such as you described could extend the limit of the policy?
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RE: Loss to a "mow down" - 7/31/2006 3:26:18 PM
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trader
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I have an old Allstate Home Replacement Guarantee polcy(AP 3) that is many years old. The underwriting questions were required as well as the RC had to be insured 100%. It may not be in use today but it was the DeluxePlus HO about 10 years ago. Several states now call it the"inflation guard" and limit it to 25% of the face amount.
Can you folks see that I do not have enough work to do ?
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RE: Loss to a "mow down" - 7/31/2006 5:59:33 PM
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racko
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quote:
ORIGINAL: rickhans
I see what you are saying and learned something new. I have never seen nor heard of GRC nor Extended Replacement cost, but then I have never seen a policy west of Texas. Is that something unique for California or are there other states that allow ERC where a foundation problem such as you described could extend the limit of the policy?
OK, I am completely lost here.......are there hidden posts? From where this started to where it's at, I'm still looking for the original question!
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RE: Loss to a "mow down" - 7/31/2006 11:19:17 PM
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aporco
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racko,
The original question was to stimulate discussion -- it has certainly done that. I don't know if we still on thread, but as I said these things will always wander off thread.
rick,
The GRC may have been unique to CA, the policies disappeared in the mid-90's and I didn't get into IA work until 1998. The ERC is available in most states that I am aware of, it may be called something different such as trader pointed out.
Now if the intended question was: what should be reported to the carrier? The carrier is looking for the cost to rebuild the structure with like kind and quality. This is the figure that will be used to determine coinsurance compliance. Don't be confused by Market Value. The Market Value of a structure may less than it's insurable value. An old house in poor condition may be worth less than the cost to rebuild it, the "mow down" house mentioned in another recent post is a prime example.
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RE: Loss to a "mow down" - 8/1/2006 2:45:26 AM
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racko
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Nope, tried it daytime/nitetime...sober & not so sober......still haven't figured out what the question was or how all them other responses came about. Must be the heat getting to me! Cletus, give me some clues!
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RE: Loss to a "mow down" - 8/1/2006 12:03:27 PM
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trader
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This was a hypo to try to get some original thoughts, based on knowledge of the pro adjuster. Also aquired by investiagation .
The question in the last paragraph was: What should the adjuster report(written captioned report) report to the carrier? You are the adjuster.
(clue, some of this information is not to be considered by the adjuster in this loss; but should be in the report)
< Message edited by trader -- 8/1/2006 12:25:12 PM >
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RE: Loss to a "mow down" - 8/1/2006 12:13:59 PM
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trader
Posts: 1200
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It seems in recent years the requirements for "Full form reporting" is coming back into catastrophe losses, just like regular losses. I see $50 K on some and $100K on others. With wind drive/wave suits in MS. other seacoast states will follow "suit".
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