Sometimes, if not most of the time, a covered peril will only cause partial damage to a structure. For example, let’s pretend an insured inadvertently drops an object on his tile floor and the object cracks a single tile. For the sake of argument, let’s assume that the policyholder has continuous tile throughout the house, and that due to the age and style of construction, a matching tile is no longer available on the market.
The usual coverage question in this type of situation is whether the insurance carrier satisfies its replacement cost obligation by replacing the one tile, or does it have an obligation to replace the entire floor to achieve uniformity. “Matching” coverage disputes are highly contentious and controversial. Most insurance carriers will likely insist that they do not have an obligation to replace the undamaged property in a partial loss or that replacement can be achieved by harvesting a tile from an inconspicuous location at the property. However, policyholders are promised “new for old” benefits when they purchase the pricier replacement cost provision and most would shudder at the thought having to look at their patchy homes or businesses if the replacement is not uniform in appearance or quality.
The bottom line is that “patchy” properties lose value. Most replacement cost provisions should provide for full replacement of the undamaged property in those cases considering the valuation impact of a partial repair.
Luckily in Florida, the Legislature addressed this concern.
§ 626.9744. Claim settlement practices relating to property insurance
Unless otherwise provided by the policy, when a homeowner’s insurance policy provides for the adjustment and settlement of first-party losses based on repair or replacement cost, the following requirements apply:
(1) When a loss requires repair or replacement of an item or part, any physical damage incurred in making such repair or replacement which is covered and not otherwise excluded by the policy shall be included in the loss to the extent of any applicable limits. The insured may not be required to pay for betterment required by ordinance or code except for the applicable deductible, unless specifically excluded or limited by the policy.
(2) When a loss requires replacement of items and the replaced items do not match in quality, color, or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.
(3) This section shall not be construed to make the insurer a warrantor of the repairs made pursuant to this section.
(4) Nothing in this section shall be construed to authorize or preclude enforcement of policy provisions relating to settlement disputes.
For Florida policyholders, if the policy calls for replacement cost and the loss occurred after October 1, 2005, it is important to know that Florida Statute § 627.7011 prevents an insurer from attempting to depreciate the undamaged portion of the structure that needs to be replaced due to matching:
(3) In the event of a loss for which a dwelling or personal property is insured on the basis of replacement costs, the insurer shall pay the replacement cost without reservation or holdback of any depreciation in value, whether or not the insured replaces or repairs the dwelling or property.
According to the above, there is no reason why a policyholder should accept less than full replacement of his tile floor and not be afraid of moving appliances or furniture around their homes to avoid showing a harvested or patchy tile repair. According to the clear language of the law, there is also no reason why an insurance carrier should depreciate the value of the undamaged portion when considering the cost of repair or replacement.