How does replacement/rebuild value relate to partial loss claims? Jennifer Obrien asked 2 years ago
How does replacement/rebuild value relate to partial loss claims?

We bought our dream home about a year ago. It is waterfront so the land is worth much more than the home, about 60/40 land. We initially set the rebuild/replacement value at about 65% of the purchase price. The carrier sent an appraiser out and 6 months later decided the “real” value would be about 80% of the purchase price, and the rebuild cost per sq ft would be $500 when the State avg is $285. Concurrently, we had our first claim- which was a leak that prior owners failed to disclose and the insurance company is subrogating. We were promised that the premium would not increase, but a month later the replacement cost increased another 10% and our total premium 20% at renewal.

2 days after renewal a pipe bursts. Looking at the claim estimate, many of the line item costs either decreased or stayed the same from the prior claim- when the insurance company is insisting the rebuild costs increased 10%.

In an even odder coincidence, my co-owner had a claim for water damage in 2018 on a very average home. The same line items as this claim are only about 15% lower- when inflation for the period is over 30% on building supplies and labor.

If we are getting charged premiums based on top-echelon materials and professionals, how do I ensure that is the category/grade/etc. being chosen in the claims software by the adjuster?

1 Answers
Answer for How does replacement/rebuild value relate to partial loss claims? United Policyholders Staff answered 2 years ago
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Hi Jennifer,

We consulted with a representative from the Consumer Affairs Division at the Connecticut Insurance Department and he offers the following advice.

The rebuild/replacement cost should not be based on the purchase price as this price includes the cost of land and other geographical influences. The same home, not on the water, would be purchased for a lower purchase price. The company should have counseled you on these factors at the time the replacement cost was determined. If you chose a lower amount after being counseled, that is your prerogative of course.

We assume the company did an inspection of the home, and the inspection revealed the replacement cost. But six months later seems odd as the company is supposed to do the inspection and make any changes within the 1st 60 days of the policy period. It doesn’t appear that the premium increased for the claim but for the inflation guard on renewal. However, if the company filed their loss surcharge program with the Insurance Department, the insurer has the ability to surcharge for a loss on renewal caused by these circumstances.

It is possible that the inflation impacts you describe in the estimate were not on the materials that needed to be replaced, but this might be a legitimate concern that would need a response from your insurer.

You certainly have a right to request information to understand how the company has determined the replacement cost value of your home. Since the majority of companies if not all will have criteria as part of their underwriting guidelines that requires a home be insured for 100% of its replacement cost it is important the replacement cost value is based on accurate data such as the square footage among other factors.

The key element regarding any claim is the contract. The contract sets forth provisions describing not only what a covered loss is and what is not but also the settlement provisions by which payments would be made for covered items. You want to be sure to have the adequate amount of coverage, so you are properly compensated in the event of a covered loss. Failure to comply with the above, may result in a covered loss not being fully compensated for due to the co-insurance penalty.

If you have a specific dispute, to properly investigate this matter, you need to file a complaint with the CT Insurance Department. You can do so electronically at http://www.ct.gov/cid.