Dear Todd, You asked this question a long time ago and the expert answer never got published. Our deepest apologies.
I’m very sorry to hear about your loss. This situation highlights a dispute over insurance coverage allocation, particularly concerning how demolition and rebuilding costs are categorized. Here’s a breakdown of how you can approach this issue:
- Argue the Entire Home Is a “Total Loss” Under Coverage A
Leverage the insurer’s own determination of “total loss”. The insurer’s engineer and the city building department declared the home a “total loss.” A total loss means the property is uninhabitable and requires complete reconstruction, not just repair. This designation should qualify the entire structure for coverage under “Coverage A Dwelling.”
You can argue that all damage (including smoke-damaged and structurally compromised areas) stems directly from the fire and should fall under Coverage A because the partial demolition is necessary to restore the home.
Highlight the issue of functional inseparability. In a home nearly 100 years old, the use of older construction methods results in interconnected systems (such as walls, foundations, and wiring) being compromised, even in the “standing” portions. These sections can become unsafe and uninhabitable due to fire-related structural and smoke damage, rendering the entire structure part of the same insured loss event.
Emphasize the concept of proximate cause. Insurance policies typically cover damage resulting from a covered peril, along with any subsequent loss directly caused by that peril. You can argue that even the “standing” portion must be demolished, as the fire (a covered peril) compromised its structural integrity, making it inseparable from the damaged section.
- Address Misclassification of Code Upgrade Costs
It’s important to challenge the allocation to code improvements. You can argue that the demolition of the non-charred portion isn’t driven by code compliance alone but by fire-related damage and safety concerns. You should point out that rebuilding to code applies to any structure replacement and does not transform regular fire damage into a “code improvement.”
You should also demand a detailed breakdown of “Code vs. Non-Code” costs. Request the insurer provide detailed calculations and documentation justifying why specific portions of demolition or rebuilding are classified as code-related. Be aware, inaccurate allocation may be inflating code-related costs.
- Advocate as Elderly Homeowners
It is crucial to emphasize your vulnerability and the financial hardship this situation is causing. As an elderly couple, you can underscore the urgency of receiving full and fair coverage, highlighting your limited capacity to manage prolonged disputes or out-of-pocket expenses.
Use the law and leverage elder protections. Some states have elder protection laws that require insurers to handle claims fairly and promptly, especially for seniors. You can threaten to report the insurer for unfair practices if there is a pattern of unreasonable claim handling.
- Escalation Options
You can involve a Public Adjuster. A public adjuster can review the policy and claim, advocating for the entire loss to fall under Coverage A. Alternatively, they can invoke the appraisal clause (if available in the policy) to settle disputes over the classification of damage.
You have the right to file a complaint with the State Insurance Department. If the insurer is acting in bad faith by improperly allocating costs, you can file a complaint with the state regulator. The complaint should detail the inconsistencies and provide supporting documentation from the city and insurer’s engineer.
If negotiations stall, you should consult an attorney experienced in insurance disputes. The lawyer can argue breach of contract or bad faith and may help recover additional compensation, such as legal fees or punitive damages.
- Additional Actions
It would be a benefit for you and a good idea to document the impact of smoke damage. Provide evidence of smoke and structural damage to the “standing” portion. This includes photos, air quality reports, or engineer opinions indicating that these areas are unsafe due to the fire, not just age.
To add support to your position you should seek an expert opinion and hire an independent structural engineer or fire damage expert to counter the insurer’s allocation of coverage. A second opinion can help demonstrate the structural inseparability of the home.
In conclusion, I believe it would be most effective to assert that the fire was the proximate cause of all damages, with the subsequent demolition and rebuilding process directly resulting from this singular covered event.
Ensure that you challenge the misclassification of costs and leverage your status as elderly homeowners to request a timely and fair resolution. If necessary, escalate the issue to regulators or pursue legal action to obtain full compensation under Coverage A.
I hope this helps!
