Many Missourians have experienced devastating losses as a result of the storms that have ravaged the southern portion of the state in recent weeks. Thousands of people will be filing insurance claims and we want to help make sure those claims are handled properly by explaining a few situations that could happen with your insurance claims. Here are just a few things to take into consideration:
1. Many insurance companies use a property damage estimating software program called Xactimate. Prices in the program are updated on a quarterly basis. When a large storm strikes it is not uncommon for labor and materials prices in the area of the storm to increase, sometimes rapidly. As a result the prices in the Xactimate program may be outdated at the time of the storm because of the sudden increase in prices. Check with your insurer who uses this or similar programs to determine if they have updated their prices to reflect the increase in the prices immediately following the storm. If not, ask that they do so; otherwise your repair estimate may not accurately reflect the exact cost of repairs.
2. Standard homeowner policies provide that you are entitled to the full replacement cost for the repairs to your home. However, the insurer is only required to pay you the actual cash value of your repairs until you replace or repair your property, and then when that is done you can collect the difference between the replacement cost and the actual cash value. This difference is called the hold back. The hold back is determined by subtracting depreciation from the replacement cost estimate for your repairs. Therefore, if your repairs are estimated at $10,000 for replacement cost value, and the insurer determines that $1,000 depreciation should be subtracted from the replacement cost repair estimate, the insurer will then pay you initially only $9,000 (less your deductible). The $9,000 payment is called the actual cash value payment. Depreciation is determined by considering several factors, such as the wear and tear, age and obsolescence of the item being repaired or replaced. Insurers use a variety of schedules to determine what should be depreciated and for how much. Ask your insurance adjuster how they arrived at the depreciation rate for each item depreciated and what the depreciation rate is based upon to make sure that the appropriate depreciation rate is being applied. Make sure the adjuster is aware of the age of items to be repaired or replaced so that the proper depreciation rate can be applied. For example, the expected age of interior paint may be ten years. If you painted the inside of your house only two years ago, then the depreciation rate that should be applied to the paint job should only be 20%. If the insurer charges a higher rate you should question their depreciation reduction. Also, several items should not be subject to depreciation, such as pure labor items (i.e., remove and replace light fixture to paint room, etc.) or other items (i.e., profit, overhead, and sales tax, etc.) because these items are not subject to wear, tear and obsolescence. Read the insurer's estimate carefully to make sure that such items are not being depreciated.
3. For large losses (anything over $10,000) always get your own estimate from a local licensed general contractor who will commit to doing the work for the amount of his estimate. It is preferable that your contractor prepare an estimate on the same kind of estimating program that the insurer uses so that the two estimates can be easily compared. If there are differences between the insurer's estimate and your contractor's estimate have your contractor meet with the insurer's representative at the house to discuss the differences and have the insurer's representative explain why there are differences. Regardless, once the insurer determines what the repairs are, the insurer must pay you that amount, even though there may still be a disagreement between you and the insurer over any additional amounts that can be owed.
4. If there is a dispute between you and the insurer over the amount of the repairs consider taking advantage of the appraisal provision in the policy which is there to resolve disputes over the amount of the loss. In appraisal, you select a qualified appraiser that you pay, the insurer selects their own appraiser, which they pay, and the two appraisers select an umpire, and you and the insurance company share the cost of the umpire. The appraisal panel then determines the amount of the loss which the insurer must pay. Appraisal has some advantages, in that it can be quicker and less expensive than litigation where there is a dispute over the amount of the loss. Nonetheless, you should be careful in selecting your appraiser, and you should consider getting advice from qualified and experienced attorney on your selection as well as to how best proceed with the appraisal.