Actual Cash Value and the Delay/Denial of Contractor’s Overhead and Profit

If you own property you likely have a property owners insurance policy. The policy likely contains a replacement cost clause. The policy will also likely define what is a covered loss and how replacement costs are calculated. Examples of typical covered losses are hail damage, fire, and other perils.

Pursuant to the Colorado Division of Insurance Bulletin No. B-5.1, the actual cost value of replacing a dwelling or portion of a dwelling (i.e. roof), when a contractor is used to perform the work, is the full cost of replacement including overhead and profit less appropriate deductions for depreciation. It is important to realize, bulletins are the Division’s interpretation of existing insurance law or general statements of Division policy but these bulletins are neither binding nor final determinations of issues or rights. However, these bulletins are persuasive and can be indicative of rights under an insurance policy.

Typically, these insurance policies will contain language similar to “Insurer will pay the actual cash value of the damage to the dwelling, up to the policy limit, until actual repair or replacement is completed.” Based on a simple reading of this policy clause an owner may assume, for example, a hail damaged roof should be covered under the policy and entitling the owner to have the roof replaced. (Additionally, a property owner would need to hire a contractor to perform the work.) A contractor would provide a bid to replace the roof and the bid would include overhead and profit (generally a 20% markup is customary). The work performed by the contractor will be paid for by the Insurer under the property owner’s insurance policy.

However, some Insurers interpret the very same policy clause very differently and use a different calculation to determine the actual cash value to replace the roof. This interpretation has led to many property owners being denied coverage for the actual cash value of their claims. Insurers have interpreted such language to exclude contractor’s overhead and profit, as well as depreciation from replacement cost when calculating the actual cash value. Essentially, Insurers would pay for the construction repairs excluding any amounts for overhead and profit of the contractor who will be performing the work. If the Insurer’s interpretation of the clause was accurate a property owner would be hard pressed to find a contractor willing to complete a construction project without entitlement to overhead and profit.

Insurers may not deduct overhead and profit when calculating the actual cash value to replace or portion of a dwelling.

If your insurance claim has been delayed and/or denied or you would like more information about this insurance issue contact Miller|Kabler, P.C. at 720-306-7733 or visit our website at www.millerkabler.com.

Making Insurance Carriers Pay for Property Damage

Recent hail storm events have caused significant property damage to homeowners in Colorado, and many are having difficulty getting property insurance carriers to pay for roof and siding damage or losses to their homes or common interest communities.

Colorado law provides homeowners with significant rights and remedies when insurance carriers unreasonably deny or delaying paying homeowners for losses.  In Colorado, an insurance carrier that unreasonably delays or denies a claim can be held liable for twice the amount of the covered benefit and payment of a homeowner’s attorney fees.  Additionally, Colorado recognizes claims against insurance carriers for damages due to an insurance carrier’s breach of contract, bad faith conduct and violations of the Colorado Consumer Protection Act.

Should you have any questions about your policy or the manner in which you insurance carrier is handling your claim, please contact the attorneys at Miller|Kabler.

What is an “Act of God”?

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September Rain Storm Floods Stapleton’s Westerly Creek

In light of the recent flooding in Colorado some builders have taken the position that water damage to homes is an “act of god” and deny they are responsible for making repairs to the home.  The builders apparently rely on the theory that flooding is a natural event that cannot be controlled and the builder is not responsible for damage that water causes to homes.

Black’s law dictionary defines as “act of god” as follows:

“A natural event that causes loss. No human force is used and the event cannot be controlled.  An overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.”

When homeowners are faced with circumstances where a builder or insurance company denies responsibility for water damage, it is essential to determine what actually caused the damage.  It may be that the homeowner is entitled to relief from the builder or insurance carrier because the damage may not be due solely to uncontrollable acts of nature.

Often, builders fail to establish proper grading and drainage to allow water to flow away from the structure of the home.  This can result  in water intrusion into the home  entering window wells, through basement walls and into crawl spaces.  If the builder fails to establish proper grading/drainage and the cause of the water intrusion is the improper grading and drainage, the builder’s reliance of the “act of god” defense may be inappropriate.  This is because the water intrusion and resulting damage may be caused by the builder’s failure to use proper construction techniques and not a natural, uncontrollable “act of God.”

Similarly, some insurance companies may deny claims under the theory that water damage was caused by a flood and, in the absence of flood insurance,  that insurance carrier does not have a duty to provide the property owner with benefits to correct the resulting water damage.  Here again, the analysis needs to focus on the cause of the water damage.  The cause of the water damage may not be the natural flood event.  Rather, the cause of the water damage may be the result of a failure to adequately design or construct the property in such a manner that would have prevented the water from entering the home or other structures.

For more information, contact Milo Miller of Miller Kabler, P.C., at mmiller@millerkabler.com