Monday, February 18, 2008

Valued Policy

One reason insurers are dropping wind and hale coverage is to avoid inadvertently being held liable for losses from other specifically excluded perils.

This all stems for a statute called the "Valued Policy" statute.

The Mierzwa decision
The Court held that the Florida Valued Policy statute required the insurer to pay the full value of the building as long as any covered peril contributed to the total loss; the covered peril did not need to be the sole cause of the total loss.

The Mierzwa decision was subsequently overruled by an amendment to the Florida Valued Policy law. However, the statutory amendment will not preclude insureds in Louisiana and Mississippi from arguing that a similar interpretation should be applied to the Valued Policy statutes in those states.

Apparently one court has done just that.

It seems the Insurance Companies have several alternatives. They can stop writing policies. They can eliminate wind coverage. They could require flood insurance as a condition of writing new policies.

Most it seem have opted for eliminating wind coverage, although many stopped writing policies altogether.

The state should probably change the law and go to a proportional coverage. Of course that won't eliminate the problem of houses completely destroyed where no evidence of the cause exists.


db said...

I agree, re: proportional coverage. When I read your description of how it works, I thought "What? Why not try to figure out a percentage or something?" Insurance companies frankly can't be expected to reimburse the whole cost when multiple factors destroy a house and the owner has paid for protection against only one of those factors. Right or wrong, it's not sustainable in a business sense.

mominem said...

Its not my description. That was a quote from an article by a local lawyer. The article is linked to the title of the quote. See it for a fuller explanation.

Scott said...

This actually explains something that had been bugging me when my rate increased this past year. I spent a lot of time talking to both my insurer and Donelon's office about how the rate increase was calculated. Both mentioned different rates were calculated for homeowner's insurance based on some flood map data. This did not make sense at all to me since flood is not a covered peril. I could never get an answer from either party about this.

From the insurer I wanted to know the rationale behind considering anything related to flood in a homeowner's policy actuarial calculcation since they don't covered flood. From the state, i wanted to know how/why they allowed such considerations in the rate increase request.

This goes a long way to explain why. And, as you point out, proportional coverage is better and presumably would help reduce rates since today the companies would have to consider this in their calculations without proportional coverage.

It doesn't explain much about some of the other statements that were made to me about company profitability since insurers weren't really hurt by Katrina (flood being paid out by the Feds) and made record profits the last few years. But it does help explain why they can include flood considerations in their rating system under current law.

Thanks for posting this.

Puddinhead said...

Interesting. So we have information that insurers were taking into consideration flood map data when calculating homeowner's rates, which sounds an awful lot like an acknowledgement of the existance of Louisiana's "valued policy" provisions...which have been scrapped by the Legislature post-Katrina. Not only an acknowledgement of the existance of the law, but what could almost be considered evidence that the insurers have been building their liability under this Louisiana law into their business plans for quite some time by increasing homeowner's premiums for those in more flood-prone areas even though ostensibly flood damage was to be covered solely by NFIP.

mominem said...

To the best of my knowledge the Valued Policy Statute RS 22:695, has not been amended since 1995.

Puddinhead said...

Hmmm...I seem to remember Steve Scalise in particular talking on the radio about how "they'd" (I assume the Republican Caucus and those like-minded conservative Democrats) "taken care of the problem" in the 2006 legislative session such that there would no longer be any ambiguity in Louisiana law regarding insurance and flood coverage. He said that since they'd made it clear with whatever legislative action they'd taken that from that point on no homeowner's policy would have any liability for any type of flood damage whatsoever that now the major insurers would be ready to write for Louisiana policyholders at least as freely as they had before Katrina...and probably would be taking on even more customers than then now that there was no Valued Policy ambiguity to deal with. Maybe I dreamed it all...I've dreamed quite a few bizarre things since August 2005. LOL

mominem said...

I'm all for removing ambiguity.

I only checked the legislative website which has the Louisiana Revised Statutes and can't find anything in that part which changed.

I can't imagine the would have put in anywhere else. I recall Jim Donelon talking about it on the radio recently. That's what prompted this post.

Puddinhead said...

If I drank or used controlled substances I'd have an excuse for believing things I evidently imagined....LOL