Property Claims: Practice Questions & Explanations

Coinsurance formula: Payment = Loss × (Amount Carried ÷ Amount Required). Required coverage = $150,000 × 80% = $120,000. Actual coverage carried = $90,000. Ratio = 90,000 ÷ 120,000 = 0.75. Maximum payment = $150,000 × 0.75 = $112,500. Note this is LESS than the policy limit ($90,000)... wait — actually $112,500 exceeds the policy limit of $90,000 — the insurer would pay the LESSER of the coinsurance calculation ($112,500) and the policy limit ($90,000). So payment = $90,000 (policy limit). The coinsurance calculation shows the maximum the insurer is required to pay without penalty — but the policy limit always caps the payout. The insured is also their own co-insurer for the uncovered portion.

Documentation and proof of loss: The insurer has the right to require reasonable proof of loss — the insured must demonstrate that the claimed items existed and establish their value.

Investigation approach: Request police report (contemporaneous listing of reported stolen items); credit card/bank statements showing purchases; retailer purchase history; photos/videos (social media, cloud backups); homeowner app inventory records; witness statements; independent pricing research for claimed items; ADJUSTER'S ROLE: Work COLLABORATIVELY with the insured to substantiate the claim — not adversarially; help identify available documentation sources; apply reasonable valuation methods when perfect documentation doesn't exist.

Caution: Fraud is a consideration but not the default assumption; many legitimate claims lack documentation; adjuster must document their valuation methodology clearly for any payment or denial.

Valuation methods: REPLACEMENT COST VALUE (RCV): Cost to replace with NEW property of like kind and quality today — no depreciation deduction; most homeowners policies cover dwelling at RCV; higher premium but no 'out of pocket gap' for depreciation; ACTUAL CASH VALUE (ACV): RCV minus depreciation — the current market value; for a 10-year-old roof that costs $20,000 to replace with 50% depreciation: ACV = $10,000.

Practical impact: On a $15,000 roof claim with 50% depreciation: ACV policy pays $7,500; RCV policy pays $15,000 (minus deductible in both cases).

Recoverable depreciation: Some RCV policies pay ACV initially then pay 'recoverable depreciation' after repairs are completed — incentivises repair rather than pocketing the difference.

Adjuster role: Calculate depreciation based on age, condition, and useful life tables; document the valuation method used; communicate clearly with insured about which valuation applies.

Insurance fraud response:

Policy provision: All property policies contain a fraud/concealment provision — if the insured willfully conceals material facts, misrepresents, or commits fraud, the insurer can void the entire claim and potentially the policy itself.

Insurer options: Deny the entire claim (not just the inflated portion) — most policies void the entire claim for any fraud, not just the fraudulent portion; Rescind the policy; Seek civil recovery of any amounts already paid; Report to state insurance fraud bureau AND law enforcement.

Adjuster responsibility: Document all fraud indicators; consult with Special Investigations Unit (SIU); do not make coverage payments while fraud investigation is pending; preserve all evidence.

Practical note: Overstating claims by even modest amounts (adding a few extra items) can void the entire claim — the 'void for fraud' provision is powerful and courts generally uphold it for clear fraud.

SUDDEN AND ACCIDENTAL vs GRADUAL DAMAGE: Most property policies cover water damage from sudden, unexpected events (burst pipe, appliance failure) but EXCLUDE: Gradual leaks over time; seepage; rot and decay from ongoing moisture; continuous or repeated seepage over weeks or months;

Policy language: Look for exclusions including 'continuous or repeated seepage or leakage,' 'gradual deterioration,' 'faulty maintenance,' and 'wear and tear'.

Adjuster investigation: Determine timeline of damage: was this a sudden pipe burst or a slow leak over months? Water staining patterns, mould growth, and structural deterioration all indicate duration.

Homeowner knowledge: Even if the homeowner didn't know, gradual damage is typically excluded — the exclusion applies based on the nature of the damage, not the insured's awareness.

Mould extension: Mould resulting from an excluded gradual leak is also typically excluded or subject to sublimit; document thoroughly.

Consequential losses: Also called indirect losses or consequential damage. Examples: Food spoilage from covered refrigerator breakdown (sub-limit typically $500); Additional Living Expenses (ALE) after a covered loss makes home uninhabitable — hotel, meals, storage costs while home is repaired; Loss of use of rental property — lost rental income; Business income loss following commercial property damage.

Coverage: Homeowners policies often include ALE as a separate coverage (typically 20-30% of dwelling limit); Food spoilage may be a sub-limit; Commercial policies include business income and extra expense coverages.

Adjuster role: Identify all consequential losses when a direct loss is covered; document ALE thoroughly (reasonable and necessary expenses above normal living costs); ALE stops when: home is repaired; insured finds comparable housing; or ALE limit is exhausted.