Bill Wilson Explains the Myth of the 180-Day Replacement Period
Bill Wilson wrote two Insurance Journal articles regarding hail damage issues: The Problem(s) With Hail Claims, Part 1: A Cautionary Tale for Insureds and Insurers, and The Problem(s) With Hail Claims – Part 2. These articles should be read in their entirety by claims practitioners.
One article noted the following regarding the 180-day election period I find in many replacement cost policies:
That being said, though, on this issue I’d rather focus on dispelling the all-too-common myth that a roof must be replaced within 180 days of the loss in order to receive replacement cost, rather than ACV, coverage. For example, a commercial insured (multiple condo buildings) experienced a hailstorm in May but was not aware of the damage until February when a claim was filed. The insurer admitted coverage but said only the ACV of the damage was covered because replacement cost coverage was not requested within 180 days of loss.
This is the actual governing language in the policy form [emphasis added]:
‘You may make a claim for loss or damage covered by this insurance on an actual cash value basis instead of a replacement cost basis. In the event you elect to have loss or damage settled on an actual cash value basis, you may still make a claim for the additional coverage this [coverage] provides if you notify us of your intent to do so within 180 days after the loss or damage.’
For this policy provision to be correctly applied, one must follow the ‘RTFP!’ principle and read the provision carefully. Yes, there is a 180-day (from the date of the loss) conditional requirement to get replacement cost coverage, BUT only if the insured initially ‘elects to have loss or damage settled on an actual cash value basis,’ ‘instead of a replacement cost basis.’
In this case, the insured never elected ACV instead of replacement cost. He requested recovery on a replacement cost basis, as provided by the policy. Therefore, the 180-day condition is never triggered.
In addition, to dispel another myth, nothing in this language, or similar language in other policies, requires that replacement actually take place within 180 days of the loss. In some cases, such timely replacement is not possible, nor do most policies require it. The insured must simply express, within 180 days of loss, an ‘intent’ to recover on a replacement cost basis.
Ed Eshoo wrote a more comprehensive article on this topic in Replacement Cost Coverage and the 180-Day Notice Requirement. Eshoo stated:
In my experience, one of the most misinterpreted property insurance policy provisions is the 180-day notice requirement to receive replacement cost benefits. Many in the property insurance industry interpret the provision to require actual repair/replacement within 180 days of the loss. Others interpret the provision to simply require notice within 180 days of the loss of the intent to repair/replace. And, there are those who interpret the requisite 180-day notice to be given only if the insured initially makes the claim on an actual cash value basis.
…
Practically speaking, the 180-day notice requirement to receive replacement cost benefits should never be an issue. Most public adjusters I have spoken to have told me that their practice is to notify the insurer in writing well before the 180-day deadline (a) that the insured is making a replacement cost claim and (b) that the insured intends to repair/replace the damage to the insured property. Even if the insured is uncertain as to his or her future plans, I see no downside to giving such notice.
Both authors highlight that the 180 day period is often wrongly interpreted to require replacement when the only requirement is an election.
Thought For The Day
Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young.
—Henry Ford
