Commercial Coverage Conundrums — Property Appraisals and Theft Coverage Problems

CPCU Society

PUBLISHED ON: December 9, 2011

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Problem: Fire damaged a building and its contents. The building is occupied as a knick-knack store operated by the insureds. The insured submits claims for total loss of $750,000 on building and $320,000 on contents. The carrier offers $550,000 on the building claim, asserting that the rear of the building is salvageable. This accounts for $100,000 of the difference. Differences in unit costs and labor allowances account for the other $100,000 difference.

On the contents, the carrier offers a replacement cost of $208,000 settlement subject to a 50 percent depreciation holdback. (The insurer doubts that the elderly insureds will replace a lifetime accumulation of knick-knacks). The insureds demand appraisal, which the carrier rejects claiming that the issues are coverage issues. The insureds delay re-building, stating that they do not have funds pending outcome of appraisal.