The Insurance Contract
Insurance policies operate under the Principal of Indemnity: after a loss occurs, the insured should be restored to his/her approximate financial condition before the loss, no better, no worse and with no profit or betterment from the loss. (Subject to the conditions and limitations of the policy)
In the event of a loss, duties of the insured regarding personal property are typically stated as: “Prepare an inventory of damaged personal property showing the quantity, description, actual cash value and amount of loss. Attach all bills, receipts and related documents that justify the figures in the inventory”.
Loss settlement conditions vary by type of policy in force.
Loss settlement conditions for a typical Actual Cash Value policy include: “Personal property…at actual cash value at the time of loss but not more than the amount required to repair or replace.” Thus, payments for loss settlement for an Actual Cash Value policy are made at the depreciated value of the loss property.
Loss settlement conditions for a typical policy with the replacement cost endorsement include: “We will pay no more than the actual cash value of the damage until actual repair or replacement is complete.” This means that for a personal property claim, once value is determined, initially, you are paid only the actual cash value. After you replace your property and provide the insurance carrier with proof of replacement, they will pay the recoverable depreciation, the difference between the actual cash value and the replacement cost, up to the applicable policy limit.
Scheduled personal property coverage is available for certain high value items that may have limits to coverage under the typical homeowner’s policy.
An agreed value endorsement in a property insurance policy covers the entire stated amount if there is a total loss, regardless of its actual value.
Coverage is governed by the specifics of the policy and endorsements in effect upon the date of the loss.
Insurance Claims Adjusting
Insurance claims adjusters investigate and evaluate claims to provide fair and equitable settlement based on the available coverage specific to the insurance contract and applicable state law and regulations, ultimately proceeding with a settlement offer.
Insurance Claims Process Overview
First Notice of Loss: Insured notifies agent or insurance carrier that a loss has occurred.
Initiate Claim: Carrier identifies policyholder, locates policy and establishes claim file.
Assignment: Claims professional, the adjuster, is assigned to guide policy holder through the process and to adjust the loss.
Initial Contact: Adjuster contacts policyholder to gather initial loss information, review policy coverage and endorsements, explain the claims process and may suggest ways to prevent further damage.
Investigation: Adjuster reviews insured’s previous loss history, verifies that premium payments are current and proceeds to investigate and gather facts about the loss.
Inspection: Adjuster conducts on-site property inspection to gather additional facts about the loss and to document damage to property.
Coverage Determination: Adjuster verifies cause of loss and determines what damages are covered specific to your policies and endorsements.
Subrogation possibility: Adjuster will consider whether a subrogation referral may be warranted in order to recover damages from a responsible party.
Scope of Damages Assessment: Adjuster, often with the participation of various third parties, determines and documents the extent of loss damage.
Proof of Loss: Insured submits proof of loss and other documentation as may be required to substantiate the claim.
Loss Adjustment Activities: Prepare Dwelling/Structural Loss Estimate: Adjuster completes an estimate of the loss and restoration damages.
Valuation of Personal Property: To establish the correct amount of loss, the adjuster completes the following:
Review the property loss worksheet itemization & supporting documentation for contents.
Estimate Replacement Cost based on Like Kind & Quality research of individual items.
Calculate Depreciation and Actual Cash Value.
Settlement Activities to Resolve Claim: Subject to policy limitations and conditions, the adjuster will issue payments to policyholder and/or vendors involved.
Recoverable Depreciation: With a Replacement Cost policy subsequent payments to the policyholder may be required as property is replaced or restored.
Contents Loss Scoping On-site Inspection
In the case of personal property and commercial contents loss, when conditions permit, an on-site physical inspection and inventory is conducted to document the loss items. In developing the inventory, the on-site participant has a number of options on how to capture information about the contents items. Among these are the use of pen & paper, input to computer or handheld device, the use of Excel or a contents software program, and by voice to digital recorder or in any combination thereof.
Regardless of the method(s) employed, a quality scope of loss will capture sufficient distinguishing information about each individual item to allow for an accurate valuation assessment. To the extent possible, item descriptions captured should include type of item, brand name, model number, other qualifying characteristics such as size, style, features and its pre-loss condition.
It is typical practice to group items by loss site location I.e. room name and may include further subgrouping I.e. Dresser, Closet, Cupboard, Medicine Chest.
Typically, the extent of damages should be captured I.e. total loss/non-restorable vs potentially restorable items. Potentially restorable items may be addressed by specialized services that may repair damages or perform soot removal, cleaning and deodorizing. Also undamaged items may be recommended to be removed from the site to prevent inadvertent damage.
Photographs of the various rooms and contents items are taken to further document the contents loss.
If during the inspection items such as cash, jewelry and silverware items, as well as personal documents such as bank papers, tax records, passports, and other similar items containing personal information are discovered they should be brought to the attention of the owner or the owner’s representative so that they be removed to a point of safety to prevent further loss. To qualify loss items, it may prove necessary to interview the owner to ask about receipts or other documentation, to determine the age of items or to establish details of items that are damaged beyond recognition, inaccessible due to site damages or entirely burnt from sight.