Georgia Association of Public Insurance Adjusters
(GAPIA)

Value Policy Statute: Recovering the Whole Dwelling Loss

 
by John D. Hipes, Hipes & Belle Isle, LLC
 
It’s late in the afternoon, you receive a call from a prospective client, he tells you that his house was damaged in a fire, and he needs your help.  You arrange for a meeting at the property.  When arrive at the property, you see charred timbers, the remnants of a foundation, but little or no remaining house.  What is your new client entitled to recover for his dwelling claim?
 
In part, the answer to the question is found in Georgia’s Valued Policy Statute which states:
“Whenever any policy of insurance is issued to a natural person or persons or to any legal entity wholly owned by a natural person or persons insuring a specifically described one or two family residential building or structure located in this state against loss by fire and the building or structure is wholly destroyed by fire without fraudulent or criminal fault on the part of the insured or one acting in his or her behalf, the amount of insurance set forth in the policy relative to the building or structure shall be taken conclusively to be the value of the property, except to the extent of any depreciation in value occurring between the date of the policy or its renewal and the loss, provided that, if loss occurs within 30 days of the original effective date of the policy, the insured shall be entitled to the actual loss sustained not exceeding the sum insured.”
 
 
 
O.C.G.A. § 33-32-5(a).
To summarize, in order to recover the dwelling policy limits for a fire loss, the following criteria applies:
1. Who is insured – the named insured is (a) a natural person or persons, or (b) a legal entity wholly owned by a natural person or persons;
2. What was insured – a one or two family residential building or structure
3. How was it destroyed – a fire loss
4. Extent of loss – wholly destroyed by fire
5. But not if – fraudulent or criminal fault on the part of the insured on someone acting for the insured;
6. How much is recoverable – the dwelling policy limits, less applicable depreciation between the issuance or renewal date and the date of loss.
 
Documenting the Loss
 
If you foresee a possible dispute as to whether the house is wholly destroyed, a public adjuster and the insured should document and preserve evidence of the post-loss condition and value of the house, including: statements by the insured whether the house was fully destroyed and unrepairable; statements by an adjuster, estimator, or building whether the house was fully destroyed and unrepairable; replacement cost values in the insurance application; evidence of the current market value; evidence of the purchase price; square footage size of the house; the actual cash value of the house; the cost to repair the house; diminution in value of the house as a result of the fire; fire reports noting the extent of damage; and photographs and video of the dwelling before and after the fire.
Numerous cases decided under Georgia law have interpreted the Valued Policy Statute (“Statute”) to provide guidance on how and when it applies.
Purpose
A primary purpose of the Statute is to simplify and expedite the claims process.  “It is clear that the statute protects property owners from the burden of proving the value of the property after it has been ‘wholly destroyed’ by fire, thus entitling a property owner to recover the policy limit.” Huckaby v. Travelers Prop. Cas. Co. of Am., No. 5:10-CV-299 MTT, 2011 WL 6300569, at *8–9 (M.D. Ga. Dec. 16, 2011).
 
“OCGA § 33-32-5 protects property owners from the overwhelming burden of proving the value of property after it has been totally destroyed by fire by ‘conclusively’ establishing that the value of the property equals the face value of the policy. In this way, a property owner is entitled to the benefits of the insurance coverage without the difficult and perhaps impossible task of proving actual damages. … Such a valuation is in the nature of a contract for liquidated damages.” Marchman v. Grange Mut. Ins. Co., 232 Ga. App. 481, 483, 500 S.E.2d 659, 661 (1998).
 
Intent
 
The intent of the Statute is to make the dwelling policy limits conclusive as to the amount owed when the house is wholly destroyed and the Statute applies. “Generally, the gravamen of Valued Policy Statutes is that, in defined circumstances, the amount of a property insurance policy is conclusive as to the value of the subject property and may not be contested after loss, either by the insured or by the insurer.”  Georgia Farm Bureaus Mut. Ins. Co. v. Franks, 320 Ga. App. 131, 139, 739 S.E.2d 427, 433–34 (2013).  “Georgia’s Valued Policy Statute, O.C.G.A. § 33–32–5, provides that when a residential building is wholly destroyed by fire, the amount of insurance set out in the policy is conclusive, except for depreciation.” Harmon v. Allstate Prop. & Cas. Ins. Co., 488 F. App’x 419, 420 (11th Cir. 2012).
 
When the Statute applies, other evidence indicating the value of the house is irrelevant.  For example, the dwelling coverage limits are conclusive even where the insured has contracted to sell their home for an amount less than the policy limits, and a loss occurs while the home is under contract. See Forbus v. Allstate Ins. Co., 603 F. Supp. 113, 115 (N.D. Ga. 1984).
Types of Dwellings
The Statute applies to “a specifically described one or two family residential building or structure located in this state.” It applies even if the house is under construction. In Georgia Farm Bureau Mut. Ins. Co. v. Garzone, 240 Ga. App. 304, 305-306, 523 S.E.2d 386-388, 387 (1999),  Georgia Farm argued the Statute did not apply because the structure was not complete. “The policy described a 1 ½ story, frame constructed, approved roof, one family rental dwelling located at a Georgia address. Because a dwelling is a common description for a residence, the policy described a residential building and thus fit within the language of the statute. No language in the statute exempts policies insuring incomplete buildings.”
 
Types of Policies
The Statute, however, does not override policy provisions for buildings insured under a builders’ risk policy. “No statute or regulation defines such policies, although several cases have passingly referred to them. An annotation on builders’ risk policies describes them as ‘ordinarily issued to a contractor or a property owner for the purpose of insuring him against loss during the construction, alteration, or repair of a building. ... Because the policy is a builders’ risk policy, OCGA § 33–32–5(a) does not override the policy's provisions regarding the amount of payment to [the insured].”  Georgia Farm Bureau Mut. Ins. Co. v. Garzone, 240 Ga. App. 304, 305-306, 523 S.E.2d 386-388, 387 (1999).
“Wholly Destroyed”
In some instances, whether the house is “wholly destroyed” by fire may be a jury issue.  When the evidence is in conflict, and there is at least some evidence of record that the insured’s home was totally destroyed by fire, a jury verdict awarding the full dwelling coverage limits of the policy is proper. See Allstate Ins. Co. v. Baugh, 173 Ga. App. 615, 617–18, 327 S.E.2d 576, 579 (1985).
The Statute may apply even when a portion of the structure remains standing. “[A]n issue of fact exists if there is some evidence that the home is wholly destroyed, photographs or testimony that the home is substantially gutted, or evidence showing it would cost more to repair the house than to replace it. In short, an issue of fact remains as to whether Georgia's Valued Policy Statute is applicable.” Huckaby v. Travelers Prop. Cas. Co. of Am., No. 5:10-CV-299 MTT, 2011 WL 6300569, at *8–9 (M.D. Ga. Dec. 16, 2011)
 
In Georgia Farm Bureau Mut. Ins. Co. v. Brown, 192 Ga. App. 504 , 507, 385 S.E.2d 87, 90 (1989), aff'd, 260 Ga. 160, 390 S.E.2d 586 (1990), “Plaintiff’s evidence showing that it would cost more to repair the house than to replace it and photographs submitted into evidence by Georgia Farm Bureau showing that the house was substantially gutted by the fire was sufficient to authorize the jury's finding that the house was ‘wholly destroyed by fire’ as contemplated by the above statute.” 
 
In the event of a dispute as to whether the house is wholly destroyed, a public adjuster and the insured should document and preserve evidence of the post-loss condition and value of the house. Factors for the jury to consider include: evidence from the insured, builder, adjuster or estimator showing whether the house was fully destroyed and unrepairable; replacement cost values set forth in the insurance application; evidence of the current market value; evidence of the purchase price; square footage size of the house; the actual cash value of the house; the cost to repair the house; diminution in value of the house as a result of the fire; and photographs of the dwelling before and after the fire.  See Harmon v. Allstate Prop. & Cas. Ins. Co., 488 F. App'x 419, 420-421 (11th Cir. 2012).  Evidence that a house was wholly destroyed may also include findings contained in a fire report. See Huckaby v. Travelers Prop. Cas. Co. of Am., No. 5:10-CV-299 MTT, 2011 WL 6300569, at *8–9 (M.D. Ga. Dec. 16, 2011).
 
Once it has been determined that the house was wholly destroyed by fire, the Statute takes precedence over the replacement cost provisions in the insurance policy. For purposes of the Statute, the dwelling policy limits are the equivalent of the actual cash value of the loss. The Statute “conclusively establishes the Property’s actual value as the amount of insurance set forth in the policy…” Love v. Safeco Ins. Co. of Indiana, No. 3:12-CV-87 CAR, 2013 WL 5442208, at *8–9 (M.D. Ga. Sept. 27, 2013).
 
However, amounts that are payable in excess of dwelling policy limits under a guaranteed replacement cost rider are payable only in accordance with the terms of the policy. “Accordingly, OCGA § 33-32-5(a) does not apply to insurance riders that require replacement or repair as a condition precedent to recovery of insurance proceeds” Marchman v. Grange Mut. Ins. Co., 232 Ga. App. 481, 483, 500 S.E.2d 659, 661 (1998).
 
When the Statute Applies, the Policy Limits are Owed
 
The insured is entitled to recover the dwelling policy limits under the Statute even if there are coverage issues involving other unresolved claims such as personal property or additional living expense.  In Ussery v. Allstate Fire & Cas. Ins. Co., 150 F. Supp. 3d 1329 (M.D. Ga. 2015), the insurance company alleged the insureds made misrepresentations in the presentation of their contents claim and argued that all of the insureds’ claims should be denied. The court disagreed.  The insurance company offered “no explanation for how misrepresentations regarding the value of Plaintiffs’ personal property would be material to the settlement of Plaintiffs’ claim for the loss of their dwelling.” “As such, regardless of whether Plaintiffs made material misrepresentations regarding the value of their personal property, Defendant would still be obligated to provide coverage for the loss of Plaintiffs’ dwelling as those misrepresentations would not affect the settlement of Plaintiffs’ claim for the loss of their dwelling. Accordingly, Plaintiffs are entitled to summary judgment on their claim for the loss of their dwelling.” Ussery v. Allstate Fire & Cas. Ins. Co., 150 F. Supp. 3d 1329, 1347-1348 (M.D. Ga. 2015).
Conclusion
Understanding how the Valued Policy Statute works and when it applies is yet another great way to provide value to your clients.
 
John D. Hipes
Hipes & Belle Isle, LLC
(770) 664-6699
March 6, 2017