Insurance loss settlements when costs increase

Coverage Q&A: How does the rising cost of lumber during COVID-19 affect a claim that occurred before prices skyrocketed?

Lumber prices are up over 250% in 2021 due to the COVID-19 pandemic, according to Kevin Libeg with Argo Construction. (Photo: romaset/Adobe Stock)

Every claim is different, and some insurance policies can be difficult to interpret for unique situations. FC&S Expert Coverage Interpretation, the recognized authority on insurance coverage interpretation and analysis for the P&C industry, makes it simple to find credible answers to your complicated coverage questions. Analysis brought to you by our FC&S experts. 

Editor’s Note: What happens when the cost of materials at the time of loss is much lower than the actual cost of repairs at a later date? This is what we tackle in this week’s insurance coverage question.

Question: Our client filed hail claims in May and June of 2020. We made actual cash value payments for the damages. We have holdback available for replacement cost coverage in the homeowners insurance policy (HO-3 form HO 00 03 05 11).

With the dramatic increase in building materials and labor, do we owe the extra costs or the cost at the time of loss? Some claims have more than doubled in cost. 

— South Dakota Subscriber

Analysis: The cost of building materials has skyrocketed during the pandemic as lumberyards experienced supply chain disruptions. With insurance claims, it’s not unusual for there to be a time delay between when a loss occurs and when the final settlement is made. In a homeowners insurance policy, the actual cash value is paid upfront, and the final settlement isn’t made until the repairs are final, which may take some time.

Answer: To learn the answer to this week’s coverage Q&A, please log into your FC&S Expert Coverage Interpretation account.

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