The Value in Florida’s Valued Policy Law: The Importance of Being Adequately Insured

Florida Statute §627.702 is Florida’s Valued Policy Law. In short, the Valued Policy Law provides an insurer is liable for policy limits if a covered loss destroys a covered structure. This is significant because when disaster strikes, policyholders do not want to be entangled in disputes with their carrier.

For the Valued Policy Law to apply, two requirements must be met: (1) the loss must be caused by a covered peril, and (2) the structure but be a total loss. To make a policyholder whole after a loss, the insured must purchase an adequate amount of insurance. If policyholders are not fully insured, they may not be able to rebuild if they suffer a total loss. A common example is the following:

A fire burns down a single family home insured for $100,000. If the peril causes a total loss and is determined to be a covered peril under the terms of the insurance policy, the carrier is generally obligated to tender the policy limits. If the property in our example costs $110,000 to rebuild, the policyholder must come out of pocket $10,000 to make up the difference.

According to one Florida appellate court, the purpose of the law “is to simplify and facilitate prompt settlement of insurance claims when total loss occurs, serving to remove what otherwise would be a troublesome issue to be determined by negotiation or litigation.” Springfield Fire & Marine Ins. Co. v. Boswell, 167 So.2d 780.

In a time of peril, policyholders’ lives are turned upside down. As explained in Boswell, the purpose of Florida’s Valued Policy Law is to help insureds return to their pre-loss condition. This allows policyholders to focus on more important issues, including relocating and recovery instead of fighting over the value of their destroyed property.

Some authorities suggest having your property appraised every year, and some suggest less frequently. That decision lies on each individual, but policyholders should be aware of the consequences of being underinsured.

It is important to note that this statute speaks in terms of the building only, and other coverages may need to be addressed differently. If you have questions, please consult an insurance professional.