In my last post, Understanding the Importance of “Replacement Cost Value” Coverage, I explained that insurers are not permitted to withhold any depreciation under replacement cost value coverage for personal property claims. This post highlights a recent change to Florida Statute § 627.7011, which took effect May 17, 2011, and alters the payment of dwelling claims.
The prior version of Florida Statute § 627.7011 read:
(3) In the event of a loss for which a dwelling or personal property is insured on the basis of replacement costs, the insurer shall pay the replacement cost without reservation or holdback of any depreciation in value, whether or not the insured replaces or repairs the dwelling or property.
Effective May 17, 2011, the Legislature amended Florida Statute § 627.7011, detrimentally impacting Florida policyholders’ rights under replacement cost value coverage.
The new statute reads:
(3) In the event of a loss for which a dwelling or personal property is insured on the basis of replacement costs:
(a) For a dwelling, the insurer must initially pay at least the actual cash value of the insured loss, less any applicable deductible. The insurer shall pay any remaining amounts necessary to perform such repairs as work is performed and expenses are incurred. If a total loss of a dwelling occurs, the insurer shall pay the replacement cost coverage without reservation or holdback of any depreciation in value, pursuant to s. 627.702.
Under the 2010 statutory scheme, insurance carriers were required to pay the replacement cost without reservation or holdback of any depreciation in value, whether or not the insured replaced or repaired the dwelling. This makes sense because it protects policyholders from the financial strain caused by having to front money to repair damage to their dwellings in a time of great stress and need.
Under the new 2011 statutory scheme, the insurance carrier is only required to tender the actual cash value of the damaged property until work is performed to repair the damage and expenses are incurred. Policyholders may be forced to pay out of pocket upfront to fix damages sustained by their dwelling, despite paying extra premiums for replacement cost value coverage.
The recent changes are troubling because allowing insurance carriers to withhold depreciation will only delay and possibly prevent repairs. It is important for policyholders to know that if their dwelling suffers a total loss from a covered peril, insurance carriers are not permitted to withhold depreciation and must tender the full replacement cost value. Further, Florida Statute § 627.7011 only applies to homeowners’ policies and not commercial policies.