Fire Insurance, Church, and holdbacks

[not2cleverRed]

What is the name of your state (only U.S. law)? NY Sorry if this is the wrong category, but a church burned down, it was insured. There is a difference of opinion of what the budget for rebuilding should be, based on potential insurance money beyond the initial ACV checks. There are several holdback items. Is it reasonable to expect that upon rebuilding, the money initially held back would become available, even if these items weren't replaced? "Because it's a church" the rules are different, or so it's being said by the person who's the intermediary with the adjuster, even though the adjuster did not say any such thing.

It is my understanding that in order to get the insurance holdback money for an item, you have to actually replace the item, and the amount of the money received would be the difference between your replacement cost and what you have already received, up to the insurance's holdback amount.

For example, suppose the insurance estimates the replacement cost of a pipe organ is $500K and gives the church $200K check with a holdback of $300K.
My understanding is that *if* we buy a pipe organ and *if* the cost of the pipe organ exceeds $200K, we could get some of that $300K, but that if we don't get a pipe organ or something serving a similar purpose exceeding $200K, none of that $300K will be paid out by the insurance.

However, this other person is adamant that "because it's a church", the rules are different, and the insurance company will be extra generous in its interpretation of what it should payout upon rebuilding - and that we should count these holdbacks in determining the rebuilding budget even if replacing those particular items is not part of the plan. He has even said, "Well, and if they don't, we can threaten to sue... they wouldn't want that negative publicity, because it's a church in a highly visible location."

Is that realistic?

Or is it more realistic to base our budget on not getting extra money back for items that we're not replacing?

 

[LdiJ]

What is the name of your state (only U.S. law)? NY Sorry if this is the wrong category, but a church burned down, it was insured. There is a difference of opinion of what the budget for rebuilding should be, based on potential insurance money beyond the initial ACV checks. There are several holdback items. Is it reasonable to expect that upon rebuilding, the money initially held back would become available, even if these items weren't replaced? "Because it's a church" the rules are different, or so it's being said by the person who's the intermediary with the adjuster, even though the adjuster did not say any such thing.

It is my understanding that in order to get the insurance holdback money for an item, you have to actually replace the item, and the amount of the money received would be the difference between your replacement cost and what you have already received, up to the insurance's holdback amount.

For example, suppose the insurance estimates the replacement cost of a pipe organ is $500K and gives the church $200K check with a holdback of $300K.
My understanding is that *if* we buy a pipe organ and *if* the cost of the pipe organ exceeds $200K, we could get some of that $300K, but that if we don't get a pipe organ or something serving a similar purpose exceeding $200K, none of that $300K will be paid out by the insurance.

However, this other person is adamant that "because it's a church", the rules are different, and the insurance company will be extra generous in its interpretation of what it should payout upon rebuilding - and that we should count these holdbacks in determining the rebuilding budget even if replacing those particular items is not part of the plan. He has even said, "Well, and if they don't, we can threaten to sue... they wouldn't want that negative publicity, because it's a church in a highly visible location."

Is that realistic?

Or is it more realistic to base our budget on not getting extra money back for items that we're not replacing?

An insurance company is not going to treat an insurance claim by a church any differently than a claim by a business or individual. Therefore you honestly should not count on an extra generosity and it would behoove the church not to make threats.

 

[not2cleverRed]

An insurance company is not going to treat an insurance claim by a church any differently than a claim by a business or individual. Therefore you honestly should not count on an extra generosity and it would behoove the church not to make threats.

Thank you for the reality check!

That's been my thinking as well.

The Board of Trustees has been convinced otherwise, and is presenting these numbers to the congregation.

I am very concerned, because this seems fiscally unsound. The congregation could chose to go with an expensive building proposal, with a contractor known to go way over budget, based on thinking that they have $500K more to play with - a huge sum for a congregational that gets a fraction of that in annual pledges. Perhaps the octogenarian advising this should make the church the beneficiary of a life insurance policy...

 

[adjusterjack]

However, this other person is adamant that "because it's a church", the rules are different, and the insurance company will be extra generous in its interpretation of what it should payout upon rebuilding - and that we should count these holdbacks in determining the rebuilding budget even if replacing those particular items is not part of the plan.

No, doesn't work like that. You can take it from me that the Replacement Cost provisions of a commercial property policy don't change for a church.

I can quote you the section of the policy word for word if you like. I keep sample policy forms on my computer for use in answering questions like this.

He has even said, "Well, and if they don't, we can threaten to sue... they wouldn't want that negative publicity, because it's a church in a highly visible location."

Is that realistic?

No. It's downright delusional. I spent the last 9 years of my career as a property adjuster and can't count the number of times I was threatened with a lawsuit. In about 6000 claims it only happened once. I spent $40,000 of my company's money on legal fees to fight an $80,000 bogus claim. We won the lawsuit. I was a hero and nobody said boo about the legal fees.

The point being that the insurance company isn't going to be "extra generous." It will pay what is covered and pay it in accordance with the policy provisions.

Or is it more realistic to base our budget on not getting extra money back for items that we're not replacing?

Yes, that.

By the way, if you choose a contractor who exceeds the insurance company's repair cost estimate (which is based on the actual damage using local averages for repair costs) the church will be paying the difference there, too.

I used to tell my customers "Here's the repair cost appraisal, give it your contractor. If he can't do the repairs for that price, he'd better have a good reason or you pay the difference or get another contractor."

 

[not2cleverRed]

Adjusterjack & Ldij, I am so missing the like button.

What you say makes sense.

Unfortunately, the person adamantly disagreeing is highly respected, and is a retired lawyer (insurance law, no less). So, since I lack a law degree and am not yet old enough for an AARP membership, I fear that my concerns will be regarded by the many in the octogenarian elitist crowd as naively disrespectful. But, one has to at least try to convince others of the right thing.

Hopefully it will go better than my attempt to explain that 0 results in a tax warrant database search is not a bad thing, and certainly does not mean that the person is in trouble with the law.

I wish I were kidding.

 

[adjusterjack]

Unfortunately, the person adamantly disagreeing is highly respected, and is a retired lawyer (insurance law, no less).

That's bizarre. Though I guess every profession has a few boneheads, even insurance lawyers.

So, since I lack a law degree and am not yet old enough for an AARP membership, I fear that my concerns will be regarded by the many in the octogenarian elitist crowd as naively disrespectful. But, one has to at least try to convince others of the right thing.

I don't know how far you want to get into this with the old fogeys but here's a sample of the CP 00 10 Commercial Property form. It's an industry standard and even when insurance companies use proprietary forms, the provisions are usually the same. My well educated guess is that your church policy will either have that form or one with similar or identical wording.

The Replacement Cost provision starts on Page 13 but look at Paragraphs c. and d. on Page 14. They explain what we are talking about.

http://www.propertyinsurancecoveragelaw.com/uploads/file/CP%2000%2010%2004%2002.pdf

There it in plain English, so simple that even a cave man and a myopic old fogey can understand it.

 

[not2cleverRed]

Thanks for the link!