Why is My Insurance Company Offering Too Little?

Your insurance company may not be paying all the recoverable depreciation you are owed on your homeowners insurance claim.

If you have had property damage at your home and received an insurance claim payment from your insurance company, you may be wondering why this payment is significantly less than the cost to repair your property.

Insurers will often refer to the initial payment to you as “actual cash value” or a payment that has “depreciation” deducted. The term “actual cash value” simply means the cost to replace your roof minus the depreciation of your roof. This is often calculated by the insurance company using a computer estimating software called Xactimate.

Even if you have purchased a replacement cost insurance policy, most homeowners’ insurance policies contain payment provisions that allow the insurance company first to pay this lesser “actual cash value.” Then, after you complete the repairs, you can make an additional claim to recover the depreciation that is being held from you.

It is important to remember that after your repairs are done, you need to actively reach out to your insurance company to let them know the repairs are complete and that you are requesting to be paid the amount of recoverable depreciation. The full amount may only be available after this two-step process.

Think of it this way: let’s say you have damage to a roof that is 10 years old. If the damage requires the replacement of the entire roof, the insurance company will first make an “actual cash value” payment to you. This payment deducts depreciation so that the insurance company is paying you for the value of a 10-year-old roof. Once you complete the repairs, you can make an additional claim for the replacement cost, which is the cost of a new roof. The difference is the depreciation.

This issue was analyzed in Hicks v. State Farm Fire & Cas. Co., 965 F.3d 452 (6th Cir. 2020). The insurance policy in that case, like many others, contained language allowing the insurer to first pay “actual cash value,” and then after repairs were completed, the insured could seek to be paid the recoverable depreciation. The insurer:

produced an ACV calculation (RCV minus material and labor cost depreciation), subtracted the insured’s deductible, and then [the insurer] paid that Xactimate estimate to the insured.

Insureds did not have to spend this ACV payment or make repairs on their property; if they made no repairs or made repairs for less than the ACV payment, they did not have to return any of the ACV payment to [the insurer]. If an insured made repairs and incurred costs exceeding the ACV payment, however, the individual could seek further payment from [the insurer]. In this second stage, the insured could seek repayment of replacement cost benefits based on documentation showing the repairs made and the costs incurred.

Hicks, 65 F.3d at 455.

When you buy a replacement cost insurance policy, you are entitled to these additional benefits once your repairs are complete. Don’t forget to follow up with your insurance company to recover these funds. There may be a limited amount of time for you to make a claim for replacement cost benefits, so it’s always a good idea to complete the repairs in a timely fashion and then report the completed repairs to your insurer.

If you have had a property damage claim to your home and have questions, contact us at Mehr Fairbanks Trial Lawyers.

*The information contained within this post should not be considered legal advice or legal representation.