The Question Burning Through Every Property Owner’s Mind: Can I a.) Just pocket the Actual Cash Value (ACV) payment that the insurer already paid me and not do the work? OR could I b.) just get the work done on the cheap and pocket the rest of the money?
Example & Options: You receive a $1,000,000 estimate from the insurer with $500,000 depreciation and you have a $50,000 deductible. The insurer has provided you with an initial $450,000 Actual Cash Value (ACV) check.
-Pretty much every insured explores this concept as either a curiosity or a business calculation. The short answer, based on present policy language, is that yes, you can just decide to Settle your claim for the ACV Payment or you can do the work on the cheap and pocket the remainder of the ACV money. Here’s why that is probably a BAD IDEA.
A. So, regarding the idea of simply not doing the work at all, you are accepting money that is being paid for a purpose and you are simply not fulfilling your end of the bargain.
Results: You inform the insurer than you don’t need any more money than the ACV payment and you are fine with them closing the claim file.
1. The insurer is overjoyed that they don’t have to come out of pocket any more than the claim ACV payment and they close their file and that is that…for now.
2. The insurer requests a final invoice to confirm work was completed and you are left feeling a bit awkward when you have to tell the insurer that you decided to not complete work and are settling the claim for the ACV total.
Repercussions: Either the insurer learns that you didn’t complete the work when they request a final invoice or another claim occurs and the insurer finds out you didn’t do any work the last time.
1. The insurer could cancel your policy.
2. Your property could be labeled a high-risk property since you did not complete repairs, have damages that could be causing additional risk to the property, and you might therefore be forced to complete the repairs or pay for a high-risk insurance policy (much more expensive than a similar, non-high-risk policy)
3. The insurer could (depending on the policy language) exclude all damages that occur to your property related to the scope that they already paid to fix but which you did not complete repairs on.
a. Example: The roof needed to be replaced and was paid for by insurance. You didn’t replace it. The roof starts leaking and you incur internal damages. Some policies would not pay you for anything at all. Some would pay you for certain internal damages or ancillary coverages but not to repair or replace the roof.
b. Example: The roof needed to be replaced and was paid for by insurance. You didn’t replace it. Another hail storm hits the roof. In essentially every insurance policy, the insurer would not owe you anything to replace the roof.
4. The insurer would not end up releasing any depreciated funds for the loss since you can’t show that the funds are needed. The time limits to collect depreciation would eventually lapse and you would no longer be able to collect the remaining $500,000 to use in the event that you eventually did decide to do the work.
B. In the case where you did do the work but for less than what the insurer provided (this would be referring to the ACV payment of $450,000 in our example), that would be ok. You would certainly be within your rights to have the work done cheaply. As long as you have completed all of the repairs that the insurer paid for, you are adhering to policy requirements and any left over ACV funds provided by the insurer would typically be ok to keep (most policies say that you can agree to settle your loss for the ACV funds).
1. Your building could have construction issues down the road (You have to ask yourself what kind of contractor does work for well below fair market value prices? Are they actually qualified to perform the work?).
Takeaway: 1. You could settle your insurance loss for the ACV payment, pocket the money and not make the repairs…But you suffer very significant repercussions that could cost you much more money down the road. 2. You could settle your insurance loss for the ACV payment, get the work done on the cheap, and pocket the remainder of the money, and, while you are technically adhering to your policy, please note that insurance policies don’t pay for damages that occur as a result of poor workmanship… and you might just have received subpar workmanship for the what you paid in order to pocket something from the insurance ACV payment.
To learn more about your options in completing work, click here!
-Article written by David Phalen,Executive General Adjuster of Solutia Adjusters.