Staff adjusters, independent adjusters, and public adjusters usually are not licensed attorneys. It is no surprise, therefore, adjusters do not typically research case law for claim adjustment purposes, nor do we hold ourselves out to the public as those who offer legal services typically provided by a licensed attorney. We adjust claims according to the applicable policy and in the light of any relevant state laws and regulations.
What if a provision or the language of a specific policy is different from the wording of state laws? Is one automatically to be preferred over the other, regardless of the policy or peril involved in the loss? For example, consider the wording of the following California insurance law for the dispute resolution process known as “appraisal”:
In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written request of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of the request. Where the request is accepted, the appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon the umpire, then, on request of the insured or this company, the umpire shall be selected by a judge of a court of record in the state in which the property covered is located.—California Insurance Code, section 2051(b).
Notice the difference in wording regarding the same process of appraisal from the 2000 edition of the Homeowners 3 – Special Form (HO 00 03 05 01) policy by ISO Properties, Inc., which can be found in the same or similar form today in many California policies:
If you and we fail to agree
on the amount of loss, either may demand an appraisal of the loss. In
this event, each party will choose a competent and impartial appraiser within
20 days after receiving a written request from the other. The two
appraisers will choose an umpire. If they cannot agree upon an umpire within 15
days, you or we may request that the choice be made by a judge of a court of
record in the state where the "residence premises" is located.
The California insurance statute’s language appears to make ‘acceptance’ of the appraisal “request” contingent on the other party’s willingness to proceed. By contrast, the ISO 2000 Homeowners 3 – Special and other, similar policy forms appear to require the process once it is ‘demanded’ by the other party and after "receiving a written request."
Now consider the difference between many policies’ “Loss Settlement” provision and this state’s law concerning covered personal property losses. First the 2000 ISO Homeowners 3 – Special Form language:
Covered property
losses are settled as follows: 1. Property of the following types: a. Personal
property . . . at actual cash value at the time of loss but not more than the
amount required to repair or replace.”
Here it is stated personal property items are settled at “actual cash value” with replacement cost (“the amount required to … replace”) used as the ceiling amount or highest possible settlement for the actual cash value of the contents. But this language does not say whether to pay the lesser or greater of the two, should they differ, leaving it an open question in terms of the policy. By contrast, in the California Insurance Code, modified as recently as 2019 and effective January 1, 2020, we read (with underlining added):
Under an open policy that requires payment of actual cash value, the measure of the actual cash value recovery, in whole or partial settlement of the claim, for either a total or partial loss to the structure or its contents, shall be the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less.—Section 2051(b).
Since the HO 3 Special Form's wording appears more favorable to insureds than the language of the applicable statute, those policies with the same wording as the 2000 HO 3 Special Form will not likely be able to pay the "lesser" of the actual cash value and cost to repair or replace the contents if the values differ. But this appears to be true in California only with respect to one peril, fire. Note the following section from California’s Insurance Code:
All fire policies on subject matter in California shall be on the standard form, and, except as provided by this article shall not contain additions thereto. No part of the standard form shall be omitted therefrom except that any policy providing coverage against the peril of fire only, or in combination with coverage against other perils, need not comply with the provisions of the standard form of fire insurance policy or Section 2080; provided, that coverage with respect to the peril of fire, when viewed in its entirety, is substantially equivalent to or more favorable to the insured than that contained in such standard form fire insurance policy.—Section 2070 (underlining added).
Licensed adjusters should reasonably be able to determine whether the policy language applies or whether to use language from an applicable statute. Company or staff adjusters can determine this in association with the insurer's best practices for coverage analysis.
All adjusters can locate state insurance laws online and then compare relevant sections with the policy. Obtain an insurance attorney’s opinion if assistance is needed in understanding which statutes apply, what they mean, and how to follow them correctly in the adjustment of a specific claim.
Where state insurance laws and underlying
regulations do not apply, the policy contract governs the settlement of an
insurance claim. When there is a clear difference between policy language and
an applicable insurance law in California, at least when it comes to the common peril of fire, the coverage
provided must be “substantially equivalent to or more favorable to the insured
than that contained in such standard form fire insurance policy.”
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