Personal Property Claim Guide Introduction This workbook is a helpful resource designed for disaster survivors. We hope it assists you in this difficult time. Mauro Archer & Associates and our local team are committed to a full recovery for all those who suffered on account of the wildfires. Overview: Information, tips and strategies to help you produce the personal property inventory required to establish the amount of damages sustained in your catastrophic loss. The process will unfortunately be time consuming and inconvenient but following this guide and systematic approach will assure a complete and accurate portrayal of your loss items. The topics covered are specific to personal property and include: Overview of the typical insurance claims process Duties of Insured regarding inventory documentation Personal Valuation Concepts that impact insurance claim loss settlement Things to consider prior to preparing your inventory Suggested process to document your total personal property loss You will likely receive or have already received a claims packet of forms and instructions on how to proceed with your insurance claim. You are advised to consult your attorney if you find that any information or suggestions contained within this guide appear to conflict with insurance company instructions. Insurance policies operate under the Principal of Indemnity: after a loss occurs, the insured should be restored to his/her approximate financial condition before the loss, no better, no worse and with no profit or betterment from the loss. (Subject to the conditions and limitations of the policy) Insurance Claim - Points of Interest Overview - Typical insurance claims process First Notice of Loss: Insured notifies agent or insurance carrier that a loss has occurred Initiate Claim: Carrier identifies policyholder, locates policy and establishes claim file Assignment: Claims professional, the adjuster, is assigned to guide policy holder through the process and to adjust the loss Initial Contact: Adjuster contacts policyholder to gather initial loss information, review policy coverage and endorsements, explain the claims process and may suggest ways to prevent further damage Investigation: Adjuster reviews insured’s previous loss history, verifies that premium payments are current and proceeds to investigate and gather facts about the loss Inspection: Adjuster conducts on-site property inspection to gather additional facts about the loss and to document damage to property Coverage Determination: Adjuster verifies cause of loss and determines what damages are covered specific to your policies and endorsements Subrogation possibility: Adjuster will consider whether a subrogation case may be warranted in the future Scope of Damages Assessment: Adjuster, often with the participation of various third parties, determines and documents the extent of loss damage Specific to personal property and contents – develop detailed inventory of damaged contents. (I.e. Contents Inventory Property Loss Worksheet) This inventory may be completed by the insured or may involve assistance from the insurance company or a third-party vendor. Proof of Loss: Insured submits proof of loss and other documentation as may be required to substantiate the claim Loss Adjustment Activities: Prepare Dwelling/Structural Loss Estimate: Adjuster completes an estimate of the total loss and restoration damages Valuation of Personal Property: To establish the correct amount of loss, the adjuster completes the following: Review the property loss worksheet itemization & supporting documentation for contents Estimate Replacement Cost based on Like Kind & Quality research of individual items Calculate Depreciation and Actual Cash Value Settlement Activities to Resolve Claim: Subject to policy limitations and conditions, the adjuster will issue payments to policyholder and/or vendors involved Recoverable Depreciation: With a Replacement Cost policy subsequent payments to the policyholder may be required as property is replaced or restored Duties of insured – Inventory Documentation You are required to prove the full extent of loss. The duties of the insured, as stated in the conditions of the policy, include the submission of proof of loss, a list of damaged property and the amount of loss. Duties regarding personal property are typically stated as: “Prepare an inventory of damaged personal property showing the quantity, description, actual cash value and amount of loss. Attach all bills, receipts and related documents that justify the figures in the inventory”. In cases of catastrophic total loss, receipts, cancelled checks or other documentary proof supporting the personal property claim are likely to be no longer available. In the case of major catastrophic loss, the insurance carrier may provide assistance in inventory list development thus contributing to documenting the personal property scope of loss. In the event of total loss, where little physical evidence remains, the list of damaged personal property can only reflect your best effort to recollect your possessions. Creating the inventory list is a time consuming and daunting task. Every single item in your home for which you wish to make a claim must be listed… if you do not claim an item, it cannot be considered for settlement. Insurance Services Offices Form HO 00 03 10 00 Section 1 – Conditions – page 13 illustration: Example carrier instructions in the event of loss: Personal Property Valuation Concepts Explanations of Replacement Cost Value, Like Kind and Quality, Depreciation and Actual Cash Value Loss Settlement Conditions Loss settlement conditions for a typical ACV policy include: “Personal property…at actual cash value at the time of loss but not more than the amount required to repair or replace.” In the illustration below, within the policy Loss Settlement conditions, one can see that personal property losses are to be settled at “actual cash value at the time of loss but not more than amount required to repair or replace”. Further within the Loss Settlement conditions, one can see reference to buildings covered “at replacement cost without deduction for depreciation”. However, nowhere within the ISO Form HO 00 03 10 00 are the terms “replacement cost” and “actual cash value” defined. Insurance Services Offices Form HO 00 03 10 00 (Aka Stafford_Exhibit_B_ISO_HO_00_03_10_00.pdf) Section 1 – Conditions – page 13 illustration: Replacement Cost and Actual Cash Value “Replacement Cost” (RCV) is generally accepted to mean the current price of new for old like kind and quality property. In cases where the policy does not specifically define “Actual Cash Value” (ACV), ACV is generally accepted to mean Replacement Cost (RCV) less a deduction for depreciation. Depreciation accounts for the decline of an item’s value since being placed into use and ACV accounts for the item’s current value. Depreciation Rates It is common practice to consider an item’s age and apply an average percentage yearly rate to determine the amount of depreciation when valuing used property. Depreciation rates reflect the total expected serviceable useful life and are based on the type of product. In this illustration, televisions have a useful life expectancy of 10 years and an annual depreciation rate of 10%. (100% useful life / 10 years) = 10% rate. Illustration of straight line depreciation to arrive at ACV: Broad Evidence Approach Factors in addition to age and useful life span come into play in the determination of actual value as one should apply a broad spectrum of reasoning for the calculation of Depreciation and Actual Cash Value. Additional factors one may consider beyond the property category and age include the general condition and/or the past usage of the item. Since limited usage of an item would typically yield greater lifespan, such an item would depreciate at a lesser rate than one put to average use. Conversely, an item that has experienced greater than average usage would deteriorate more quickly and would depreciate at a higher rate than one put to average use. In addition, an item in better than average condition than that expected, given its age, would be anticipated to have greater remaining life and would depreciate less than the norm. Conversely, an item in lesser condition than that expected, given its age, would be anticipated to have a lesser remaining life and would depreciate more than the norm. The example below illustrates how broad-spectrum reasoning allows for variance in the amount of depreciation to account for the measurable difference in value between new and old property that is attributable to condition and age. Illustration depicting depreciation rates per item condition: California specifically requires adjustments for depreciation to account for property condition. California Code of Regulations - Fair Claims Settlement Practices Regulations - Title 10, Chapter 5 - Subchapter 7.5Section 2695.9. Additional Standards Applicable to First Party Residential and Commercial Property Insurance Policies : (f) When the amount claimed is adjusted because of betterment, depreciation, or salvage, all justification for the adjustment shall be contained in the claim file. Any adjustments shall be discernable, measurable, itemized, and specified as to dollar amount, and shall accurately reflect the value of the betterment, depreciation, or salvage. Any adjustment for betterment or depreciation shall reflect a measurable difference in market value attributable to the condition and age of the property and apply only