Our client has several buildings located in different parts of the country. One group of buildings had a flood loss last summer that damaged three buildings, personal property, and grounds. There were two policies in force: one, an NFIP flood policy with a $1,000 deductible, and the other a difference in conditions (DIC) policy, which has a $25,000 deductible. The flood adjuster applied the $1000 deductible separately to building and personal property, and paid a total of $14,593.78 ($20,593.78 ACV less $6,000 deductible). There was no coverage for much of the loss, which consisted of damage to the grounds including pumping creek water out of the outdoor swimming pool, and which amounted to nearly $30,000.

The adjuster for the DIC policy now seems to be applying the $25,000 deductible after he makes a deduction for both depreciation and the amount paid by the flood policy. But last year, when there was a package policy on the buildings with a $25,000 limit for flood, and the same DIC policy, the adjuster for a similar loss took into account the expenses not covered by the flood policy, like repair of grounds and cleanup of the pool, and did not adjust on an ACV basis. Are we missing something?

Pennsylvania Subscriber

First, in regard to the loss to the land, unless the DIC policy states that it will cover land, the adjuster is probably correct in not including the expense to restore the grounds. However, having said that, a precedent was set in the previous loss adjustment and that may give you some negotiating power.

Second, the declarations page you furnished clearly states that valuation is on a replacement cost basis, not ACV. The adjuster should do an evaluation of the amount of loss based on replacement cost, and then make the necessary deductible subtraction.

Third, the DIC “other insurance” clause states that “if the other insurance is not sufficient to cover all of your loss, we will pay that amount in excess of the amount due from that other insurance, whether you can collect on it or not.” So, if the amount of the replacement cost less the ACV, which was paid by the flood insurer, is greater than the DIC $25,000 deductible, the insurer owes that amount. For example, say the replacement cost is actually $50,000, the DIC insurer owes $50,000 minus $25,000. This scenario illustrates a common use of DIC policies, and that is to serve as excess coverage. For example, if the insured purchased $250,000 insurance under an NFIP policy, a DIC policy could be written with a $250,000 deductible.

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