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Florida’s Valued Policy Law and Its Impact on a Total Loss Claim – What Is It and What is Covered? Part 1

As Stated the purpose of Florida’s Valued Policy is to fix the measure of damages in the event of a total loss.

The rationale for doing so is to facilitate prompt settlement of claims after a total loss by making it unnecessary for the insured to prove the value of the property.

The benefit of the “valued” policy is to eliminate the guesswork associated with trying to ascertain the value of the loss since that amount has been pre-determined and agreed upon.

To accomplish the objective of facilitating prompt settlement of claims the insurer must ascertain the insurable value of the property at the time of writing the policy – and before the loss occurs. In other words, the insurance company is agreeing to pay the agreed upon face value of the policy in the event of a total loss. serves to “remove what would otherwise be a very troublesome and difficult issue to resolve either between parties by negotiation by courts in litigation.”

Consequently, Florida’s valued policy law requires insurance companies to pay the policy limits in the event of a “total loss” caused by a covered peril, even though the insurance company could rebuild for less. What constitutes will be the subject of a separate blog post.

But Florida’s valued policy law has two essential requirements. First, the damage sustained to the insured property must have resulted from a covered peril. Second, that the building be a total loss. If these two elements are satisfied by the insured, then the insurance company who chooses not to repair is mandated to pay policy limits for the face amount of the policy no matter what other factors may exist as to the cost of repairs or replacement.

A simple illustration of how the valued policy works is as follows: an insured owns a property and the insurance company agrees that the property is valued at $100,000. The insured purchases a “valued” insurance policy from that insurance company for $100,000 of coverage. The insured suffers a total loss from a covered peril. The insurance company is therefore obligated to pay the pre-determined agreed upon amount of $100,000.

Florida’s valued policy law only covers real property. It does not cover personal property. It also typically does not apply to appurtenant or additional structures on the property (typically referred to as Coverage B structures.) This would include buildings like sheds, cottages, and detached garages. The primary reason why these items are not covered is because they do not have a stated value in the policy.

In future posts, we will discuss what constitutes a total loss, and pertinent amendments and Florida case authority guiding Florida’s valued policy law.

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