Florida's Valued Policy Law: Commercial Buildings Included?

Florida's Valued Policy Law, or Fla. Stat. 627.702, is a statute that determines an insurer's liability in the event of a total loss of a building or structure. The law states that if a building or structure covered by an insurance policy is completely destroyed by a covered peril, the insurer is liable for the full insured amount specified in the policy. This law applies to both residential and commercial properties and aims to streamline the claims process by fixing the measure of damages payable to the insured in the event of total loss. While it does not define total loss, Florida courts have interpreted the law using the \identity test\ and the \restoration test. The applicability of Florida's Valued Policy Law to commercial buildings is clear, providing a framework for resolving insurance claims related to commercial properties in the state.

Florida's Valued Policy Law and its purpose

Florida's Valued Policy Law, or Florida Statute § 627.702, is a law that establishes the liability of an insurer in the event of a total loss of a structure due to a covered peril. The law states that the insurer is liable for the full amount of money that the property was insured for, charged, and paid, as specified in the policy. This law applies to both residential and commercial property insurance policies and is intended to provide a clear and straightforward approach to claim settlements, ensuring that policyholders receive fair compensation in the event of a total loss.

The purpose of Florida's Valued Policy Law is to fix the measure of damages payable to the insured in case of total loss. This means that the insurer is required to pay the insured the amount listed on the face of the policy in the event of a total loss, without the need for additional proof of the actual value of the loss. The law also removes the need for negotiations or litigation to determine the value of the loss, which can be a difficult and time-consuming process.

The Valued Policy Law is particularly relevant in the event of a total property loss, such as a fire or tornado. In such cases, a typical insurance claim process would require a detailed damage assessment and repair estimate to determine the amount owed to the policyholder. However, with a valued policy, the process is simplified by establishing a predetermined value for the property, which, in the case of a total loss, would be paid in full.

It is important to note that Florida's Valued Policy Law does not apply if there is evidence of fraud or criminal fault on the part of the insured. Additionally, the law only applies to total losses and not partial losses, except in the case of fire or lightning claims. In the event of a partial loss due to fire or lightning, the insurer's liability is limited to the actual amount of the loss but cannot exceed the amount of insurance specified in the policy.

Florida's Valued Policy Law is one of the least known and least understood property damage laws in the state. However, it is important for claims professionals handling fire or catastrophic losses in Florida to be aware of this statute when adjusting claims. By understanding the nuances of valued policies, policyholders can make informed choices when selecting insurance coverage and be better prepared for any challenges that may arise in the aftermath of a loss.

The law's application to commercial buildings

Florida's Valued Policy Law (Fla. Stat. 627.702) applies to both residential and commercial buildings. The law states that in the event of the total loss of any building or structure due to a covered peril, the insurer's liability shall be the amount the property was insured for, and for which a premium has been charged and paid. This means that if a commercial building is insured and suffers a total loss from a covered peril, the insurance company is supposed to pay the policy limit listed on the insurance policy's declaration page.

The law was enacted in 1899 and has since undergone several revisions. It is intended to fix the measure of damages payable to the insured in the case of a total loss, removing the need for negotiations or litigation between the insured and the insurer. The law applies to building coverages but does not apply to other structures, personal property claims, additional living expenses, or ordinance and law coverage. It is worth noting that the law does not define the term "total loss," which has led to some disputes over whether a structure has suffered a total loss. Florida courts have created an "identity test" and a "restoration test" to help evaluate whether a total loss has occurred.

The Valued Policy Law also applies to partial losses, but only in the case of fire or lightning claims. In these cases, the insurer's liability is limited to the actual amount of the loss but shall not exceed the amount of insurance specified in the policy.

It is important to note that the Valued Policy Law does not apply if there is evidence of fraud or criminal fault on the part of the insured. Additionally, if the loss is caused by both a covered and excluded loss, the law will only apply if the covered peril would have caused a total loss on its own.

The law's limitations

Florida's Valued Policy Law (Fla. Stat. 627.702) has several limitations. Firstly, it only applies to total losses of a structure, not partial losses. A total loss occurs when a structure sustains damage so severe that it loses its identity and character as a building, even if some parts remain intact and usable. This is known as the "identity test". Alternatively, a total loss can be established through the "restoration test", which deems a structure a total loss if a reasonably prudent owner would not use its remains as a basis for restoring it to its pre-loss condition.

Secondly, the law only applies to losses caused by covered perils or risks. For example, if flooding is excluded as a peril in the insurance policy, the Valued Policy Law would not apply to damage caused by flooding.

Thirdly, the law does not apply in cases of fraud or criminal fault on the part of the insured. If there is evidence of fraud or criminal activity, the insurer is not liable for the total loss amount.

Additionally, the law does not apply when two or more buildings are insured under a single combined limit of insurance, known as "blanket coverage". In this case, the total loss of one structure would not trigger the policy limit.

Lastly, the Valued Policy Law only applies to building coverages and does not extend to other structures, personal property claims, additional living expenses, or ordinance and law coverage.

While the Valued Policy Law provides a clear framework for handling total loss property claims, it is important to note these limitations and exclusions to understand the scope of its application.

The definition of a total loss

Florida's Valued Policy Law does not define what constitutes a "total loss". However, Florida's courts have provided some guidance on the term, and the Florida Supreme Court has adopted the "identity test" to determine whether a structure is a "total loss".

The "identity test" states that a structure is a total loss if the damage is so severe that the building has lost its identity and character as a building, even if a portion of the building's components remain and could be used for some useful purpose. This is a subjective test and can justify disputes between adjusters and insurance companies. The property does not need to be a pile of rubble, but if the damage is so significant that the building is no longer recognisable, the identity test may apply.

The "restoration test" is also subjective to some extent and open to debate, but it is more clearly defined. A structure is a total loss if a reasonably prudent owner would not use the remains of the structure as a basis for restoring the building to its pre-loss condition. This could mean that it costs more to repair the building than to demolish and rebuild, or that some components or structural elements are questionable to include in repairs.

A "constructive total loss" is the most definitive way to apply the Valued Policy Law. A building is a constructive total loss when it is damaged by a covered peril and an ordinance or regulation prevents repair. This often occurs when a building predates new regulations, and once significant repairs are required, the building must be rebuilt to comply with the new regulations. This is common in areas of Florida that require homes to be built at certain elevations due to rising sea levels.

The identity test and restoration test

The Identity Test and the Restoration Test are two tests used by Florida courts to determine whether a structure has suffered a "total loss" under the state's Valued Policy Law (VPL). The VPL applies when a covered structure is destroyed by a covered loss and mandates that the insurer is liable for the policy's limits.

The Identity Test

The Florida Supreme Court has adopted the "identity test" to determine whether a structure is a "total loss". According to the identity test, a structure is a total loss if the damage to it is so significant that it has lost its identity and character as a building, even though a portion of it remains and could be used for some useful purpose. This test is somewhat subjective, and disagreements commonly arise over whether the damage to a structure sufficiently altered its identity to constitute a total loss.

The Restoration Test

The "restoration test" is also somewhat subjective but is more clearly defined. A structure is a total loss if a reasonably prudent owner would not use the remains of the structure after the loss as a basis for restoring the building to its pre-loss condition. This could mean that it costs more to repair the structure than to demolish and rebuild it, or that some components or structural elements are questionable to include in repairs.

Constructive Total Loss

In addition to the Identity and Restoration Tests, there is also the concept of a "constructive total loss". This occurs when a building is damaged so severely that an ordinance or regulation would prohibit its repair, requiring the building to be demolished.

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