Chip Merlin | Property Insurance Coverage Law Blog | May 3, 2019
The Colorado Division of Insurance will hold a public stakeholder meeting at the Colorado Division of Insurance in Denver on May 21, 2019, regarding its proposal to eliminate one of its long-standing bulletins requiring insurance companies to pay contractor overhead and profit rather than deduct the amount until incurred.1 We discussed this in Colorado Overhead and Profit Issues—Merlin Law Group Files a Response for Colorado Policyholders.
Below is the Notice of Stakeholder Meeting for those wishing to attend.
The Bulletin (which has been the position of the Division of Insurance since first issuing the Bulletin back in 1998) provides in part:
Insurers shall be prohibited from deducting contractors’ overhead and profit in addition to depreciation when policyholders do not repair or replace the structure.
The relevant policy language states:
“We will pay the actual cash value of the damage to the buildings, up to the policy limit, until actual repair or replacement is completed.”
The Division of Insurance has learned that one or more insurers have interpreted this language, or substantially similar language, to permit deduction for contractors’ overhead and profit, in addition to depreciation, from replacement cost in calculating actual cash value.
The position of the Division of Insurance is that the actual cash value of a structure under a replacement cost policy, when the policyholder does not repair or replace the structure, is the full replacement cost with proper deduction for depreciation. Deduction of contractors’ overhead and profit, in addition to depreciation, is not consistent with the definition of actual cash value. The Division of Insurance will interpret policy provisions containing the foregoing or similar language to prohibit deduction of contractors’ overhead and profit, in the calculation of actual cash value, where the dwelling is not repaired or replaced by the policyholder.
We strongly urge that contractors, public adjusters and consumer advocates show up for this meeting on May 21st, to support retaining the Bulletin. Certainly, most consumers of insurance will be at work and few would fully appreciate how a change of the aforementioned would end up shortchanging them.
The withholding of contractor overhead and profit when paying actual cash value is clearly wrong. Any experienced insurance regulator should know it. The fact that this is still lingering rather than being shut down immediately is troubling. Please show up and speak out!T
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1 Colorado Bulletin No. B-5.1, Calculation of Actual Cash Value: Prohibition Against Deducting Contractors’ Overhead And Profit From Replacement Cost Where Repairs Are Not Made