When the insurer issues partial payment for a demolition

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Question: We have a homeowner whose claim is being investigated. Their house blew up in a fire and partially collapsed. This happened in June 2019. The fire report deemed the cause was undetermined. 

The insurance company hired a company to disassemble the house in August 2019 to find the water heater in the basement to see if it was the cause of the explosion and fire. After retrieving the water heater (still not the cause of the fire), they didn’t make any effort to clean up the property. 

After several attempts from our company and the homeowner to have the insurance company clean up the mess they made, the homeowner hired a company in October that provided an estimate for $14,000 to demolish the house.

The insurance company approved the $14,000 invoice and just sent out a check for $6,500 ACV payment ($7,000 minus the $500.00 deductible). The check included the mortgage company’s name on it. 

My question is this:

1. Why does the mortgage company’s name have to be on the check?
2. Why are they only making an ACV payment on demolition?

The demolition company now has to wait for the check to go through the mortgage company and back to them to get started on the job with half of the money. 

This process will have to be repeated once the job is completed to get the depreciation money. Your thoughts? No other payment on this has been paid, as it is still under investigation.   

— Indiana Subscriber

Answer: In looking at the HO 00 03, debris removal is included in the liability limits for the property. Under the loss settlement provisions, the policy states that ACV will be paid first, and the rest paid when repair/replacement is complete. The mortgage clause states that any loss paid under coverages A and B will be paid to the mortgagee and the insured. They’re following the policy to the letter. I agree it’s awkward for the debris removal company, and it makes sense that that could be paid at once since it’s only part of the loss, but I can’t explain why they’re doing it the way they are other than that it strictly follows policy language.

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