This is where your thorough knowledge of your policy might come in handy. Obviously, these agents are fraudulent and are violating several guidelines such as ISO rules, the requirements of the policy language and the intent of the endorsements.
The following are evidence-based claims on the violations:
ISO Rule 407 Violation
Any standard ISO homeowners’ policy states that the home must be insured to 80% of the actual cost to rebuild for replacement cost to apply. According to HO 04 11 and HO 04 20 (guaranteed replacement cost endorsements), the Coverage A limit of liability shall be at least 100% of the full replacement cost of the property insured under Coverage A at policy inception or at the time the endorsement is added to the policy.
Policy Language Violation
Both these ISO endorsements specifically state that the additional limits apply to the extent that coverage is provided, and that is to arrange for an additional amount of insurance if you have:
1) Allowed them to adjust the Coverage A limit of liability and the premium in accordance with:
1. The property evaluations they make; and
2. Any increases in inflation; and
2) Notified ISO, within 30 days of completion, of any improvements, alterations or additions to the building insured under Coverage A which increase the replacement cost of the building by 5% or more;
These provisions will apply after a loss, as you choose to repair or replace the damaged building.
The carrier will be a victim of the undervaluing practice if it only receives an additional 3% of the required premium for the “up to” 50% increase in Coverage A, since the amount of coverage is supposed to be 100%. If this continues to happen, it will have a big impact on the carrier rates.
With regard to how this will play out in a large property claim, you would need endorsements so the carrier could void the misinterpretation and failure to comply the rules and policy language. Nevertheless, there is no assurance that the carrier will provide some recovery.
Just a piece of advice for the insured’s protection, there must be an agreed use of the property valuations. It is better to be safe than sorry.
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