Topics covered:

The purpose of valued policy laws

An alternative to valued policy laws

Desirability of valued policy laws

Typical valued policy law

Valued policies—personal property

Buildings constructively severed from the land

Variations as to property subject to laws

Applicable perils

Insurer's right to replace property

Total versus partial loss

Effect of other insurance

Blanket insurance

Builders risk insurance

Replacement cost insurance

Partial insurable interest

The Purpose of Valued Policy Laws

 Valued policy laws differ in their particulars among the various states, but the purpose for which they were enacted is similar—primarily to protect insureds from being subjected after loss to argument that the building was overinsured, in an attempt by the insurer to pay less than the face amount for which the insured paid premium.

 In general, valued policy laws require that in case of total loss to an insured building by a peril specified in the law, the amount stated in the policy declarations is considered the value of the structure at the time of loss and is payable in full. If the value of the property at time of loss is less than the amount of insurance, the insurer may not argue that payment should be limited to the lower amount, the actual cash value. Moreover, in most valued policy states, any policy provision inconsistent with the valued policy law is considered void.

 In most states, valued policy laws apply only to buildings and only to the perils specified in the law. See Valued Policy Laws—State Summary for a summary of the specific property and perils to which the various laws apply. Included are comments on any special provisions that appear in the various state laws.

 An Alternative to Valued Policy Laws

 An alternative to a valued policy law is a requirement in use in Massachusetts, North Carolina, and Wyoming. That provision requires that when the insurable value of the property is found at time of loss to be less than the policy amount, the insurer must refund the premium, plus interest, on the excess. Such a requirement, while perhaps better than the valued policy concept as a reflection of the indemnification principle inherent in fire insurance, does nothing for the insured with excessive insurance who does not have a loss and very little for the insured who, following loss, is in disagreement with the insurer over the actual value of the property. Moreover, this requirement does not provide the same incentive that a valued policy law does for the insurer to inspect risks and assist insureds in establishing proper insurance valuation.

 Four states with valued policy laws have provisions within these laws that are somewhat similar to this alternative. In these states—Georgia, Kansas, North Dakota, and Tennessee—the insurer has a period of time after the coverage begins (and, in Kansas and North Dakota, after any increase in coverage of 25 percent or more) while the coverage remains "open" (not valued), giving the insurer (or, in Tennessee, the agent) the chance to inspect and establish value.

 After this time, the policy becomes valued. During the initial period, any loss adjustment is made on the basis of actual property value, and the insurer must refund any excess premium. The time allowed for inspection is thirty days in Georgia and sixty days in Kansas. The Tennessee law allows ninety days, but the policy becomes valued only if the inspection is not made. In other cases in Tennessee, the insurer is not liable beyond the actual value of the insured property at the time of the loss or damage, and if it appears that the insured has paid premiums on an amount in excess of this value, reimbursement of the excess premium with interest at 6 percent per annum must be made by the insurer.

 A 1981 decision of the Tennessee Court of Appeals dealt with the application of this feature of the Tennessee law. In Price v. Allstate Ins. Co. 614 S.W.2d 377 (Tenn. App. 1981), the insurer was required to pay the $25,000 face amount of a fire policy on a dwelling. The policy had been in effect only eighty-five days but had replaced a homeowners policy issued several months before, cancelled when the insured moved out of the dwelling, which was to be moved to another location and rented. Inspection had not been made for either the homeowners or the dwelling policy. The dwelling had been purchased for approximately $2,000 and the new owner had spent $15,000 in improvements. The insurer contended that the ninety-day time limit as an open policy had not expired, but the court held that the dwelling policy was an extension of the earlier homeowners policy, making the policy a valued contract.

 Desirability of Valued Policy Laws

 The impact of price inflation on property values has reduced the importance of the valued policy law as a protective device for the honest insured. With inflation, unintentional overinsurance is rare; the larger problem now is underinsurance, with consequent inadequate premium for the insurer and inadequate protection for the insured.

 Failure of an insurer to inspect a risk for valuation purposes can encourage an excessive amount of insurance and can produce a moral hazard as well. If a building is insured for more than its actual worth, an insured might be indifferent about loss prevention, or even have an incentive to cause intentional destruction of the structure. This was one of the reasons behind Kentucky's repeal of its valued policy law in 1970. It was found that the law was encouraging and protecting the few who desired to defraud an insurer, while it had little or no effect on the legitimate claims of most insureds.

 Though most valued policy laws give an insurer a defense when fraudulent intent is suspected, the burden of proof of such intent rests with the insurer, a difficult task at best. This point is illustrated in Gamel v. Continental Ins. Co., 463 S.W.2d 590 (Mo.App. 1971). The insured purchased a one-family dwelling for $800. A little over a year later, he purchased a fire policy covering this dwelling for $10,000. The insurer neither questioned the amount of insurance nor inspected the premises although it had an opportunity to do so. Instead, it merely issued the policy upon payment of the premium. Additionally, during the early term of the policy, the insured advertised the sale of this house for $1,800. However, about six months after the policy was issued, the house was totally destroyed by fire.

 The insurer denied the claim on the basis of fraud and misrepresentation on three counts: purchasing a policy ($10,000) far in excess of the price paid for the dwelling ($800); advertising the property for sale at the price of $1,800; and the insured's statement to his agent at policy inception, as well as at the time the proof of loss was submitted, that the property was worth at least $10,000.

 In holding for the insured, the court of appeals stated that nothing prevented the insurer from inspecting the property to determine the value of the premises. It also held that the insured's statement concerning the value of his dwelling was not a representation but merely an expression of opinion.

 Typical Valued Policy Law

 Though, as previously mentioned, there are several differences among valued policy laws of the various states, most have important points in common. The most common form of valued policy law applies only to real property under circumstances when damage is considered total. An example of this common type of law, §33-24-102 of the Montana statutes, reads as follows:

 Whenever any policy of insurance shall be written to insure any improvements upon real property in this state against loss (or damage) and the property is considered to be a total loss, without criminal fault on the part of the insured or his assigns, the amount of insurance written in such policy shall be taken conclusively to be the true value of the property insured, and the true amount of loss and measure of damages. The payment of money as a premium for insurance shall be prima facie evidence that the party paying such insurance premium is the owner of the property insured; provided that any insurance company may set up fraud in obtaining the policy as a defense to a suit thereon.

 Note the specific reference in this law to real property. The reason for the limitation is quite apparent and was well summarized in Orient Ins. Co. v. Parlin & Orendorff Co., 38 S.W. 60 (Tex.Civ.App. 1896), many years ago: "Real property is of a permanent nature, is readily open to inspection, and is susceptible of a reasonably accurate valuation by the insurer. On the other hand personal property, such as a stock of merchandise, often varies in quantity and in value and may be so scattered and so packaged that the prospective insurer cannot determine its worth by inspection."

 Valued Policies—Personal Property

 There are some exceptions to the general principle that valued policy laws apply only to real property. The valued policy laws of two states, Florida and South Carolina, specifically include mobile homes. The Florida law also includes manufactured buildings. In Florida, the insured may agree to waive the valued coverage on a mobile home by signing a disclosure form accepting actual cash value or replacement cost coverage instead. But unless this is done, the mobile home policy is valued as to the perils of fire and lightning.

 An interpretation of the Florida valued policy law has been given by a Florida appellate court with respect to application of the law to the contents of mobile homes. In Independent Fire Ins. Co. v. Sheffield, 404 So. 2d 406 (Fla. App.1981), the court recognized that the law does apply to mobile homes (defined in the Florida Motor Vehicles code as including their plumbing, heating, air conditioning, and electrical systems) but does not apply to other contents of the mobile home. This case involved a situation where waiver of the valued policy provision, permitted by the law, apparently had not been executed by the insured.

 In Montana, the state supreme court held that a trailer house set up for occupancy and connected to a cesspool, a light plant, and oil and propane tanks was an "improvement upon real property" within the meaning of Montana's valued policy law. The case is Staggers v. USF&G Co., 159 Mont. 254 (Mont. 1972). Also, a mobile home that rested on a permanent foundation with its wheels removed, had two additional rooms bolted to it, and was connected with a sewer line, was an "improvement on real property" as used in the state's valued policy statute. The case is Meccage v. Spartan Ins. Co., 496 P.2d 254 (Mont. 1970).

 In various states, including some that do not have valued policy laws, valued coverage is expressly permitted, but not mandated, on personal property. But for a policy to be considered valued, the language must in some way indicate the intent to agree in advance on the value of the property that is to be insured.

 Nichols v. Hartford Fire Ins. Co., 403 NYS 2d 335, a case decided in 1976 by the Supreme Court of New York, offers an illustration of such wording, which was held to constitute valued policy language under a fine arts policy: "This company shall not be liable for more than the amount set opposite respective articles covered hereunder, which amounts are agreed to be the value of said articles."

 California law specifies that insurance on scheduled property (other than business property and motor vehicles) shall be valued as to any item separately listed and described, for which a separate amount of insurance applies (except that if the item is insured by two or more policies the policies pro rate the loss), unless the policy and application set forth, "in type of prominent size," a different method of valuation. The ISO personal articles floater policy and homeowners scheduled personal property endorsement both detail an alternative method and so are not valued except as to fine arts.

 Even where not required by law, many insurers commonly write valued coverage on scheduled property, such as, jewelry, furs, camera equipment, or fine arts. There are obvious problems with insuring a general collection of personal property—such as household goods or store inventory—on a valued basis. One problem would be in valuing the inventory. Specific items, such as furs or cameras, usually have receipts. General inventories usually do not have receipts.

 Buildings Constructively Severed from the Land

 One interesting question, which has arisen in at least four valued policy states, concerns application of the valued policy law to a building that has been constructively severed from the real estate. In Farm Mut. Ins. Co. of Arkansas, Inc. v. Barnes, 305 S.W.2d 673 (Ark. 1957) and Magrath v. Mechanics & Traders Ins. Co., 249 F.2d 98 (10th Cir. 1957), courts held that the valued policy laws of Arkansas and Kansas, respectively, did apply to insurance on buildings purchased for removal to another site but destroyed by fire before removal could take place. In both cases recovery of the full policy amount was allowed even though in excess of the apparent value of the buildings.

 The Tennessee valued policy law received a similar interpretation in Price. The dwelling stood on land that had been purchased by the state for highway right-of-way. The fire occurred before the dwelling could be moved to another location, but the court held that the constructive severing of the dwelling from the real estate did not remove the policy from the valued policy law. On the other hand, the opposite position was taken many years ago by a Missouri appeals court in Millis v. Scottish Union & National Ins. Co., 68 S.W. 1066 (Mo. Ct. App. 1902). In Millis, a building constructively severed from its land by transfer of ownership, even though not physically removed, was held to be personal property and outside the application of Missouri's valued policy law.

 The fact that the Missouri valued policy law applied to "real property" (rather than "any building or structure," the Tennessee language) may have influenced the Missouri court, as a building situated on land owned by another is no longer a part of the real property, even though retaining its identity as a building. But the Arkansas law simply exempts personal property from application of the law, while the Kansas law applies to "improvements upon real property." This shows the lack of consistency among the states in this matter. Also, it may be questioned whether Millis would be followed today in Missouri in light of the court's subsequent decision in Duckworth v. U. S. Fidelity & Guaranty Co., 452 S.W.2d 280 (Mo. Ct. App. 1970), where it held that personal property is subject to another section of the state's valued policy laws.

 Variations as to Property Subject to Laws

 There are numerous variations in the description in the various laws of exactly what property is subject to the law. Some states refer to real property, or improvements on real property; some to buildings, or buildings and structures; some to all property except personal property. A handful of states limit application of the law to residential buildings.

 Georgia, for instance, limits application to any "one or two family residential building or structure" being insured by "natural persons." A case from the Court of Appeals of Georgia demonstrated that, at least in that jurisdiction, a house under construction was a "residential building or structure" within the meaning of a valued policy statute requiring the insurer to pay the face amount of the policy if the residential building or structure is destroyed by fire. The court held that the statute applied to incomplete buildings. See Georgia Farm Bureau Mut. Ins. Co. v. Garzone, 523 S.E.2d 386 (Ga. App. 1999).

 Wisconsin Insurance Administrative Rules §4.01(2) offers an interpretation of that state's valued policy law as limited to one-to-four family buildings, at least one unit occupied by the owner, including dwellings used seasonally if "not rented to a non-owner for any period of time." This administrative interpretation was tested by the Wisconsin Appellate Court in Kohnen v. Wisconsin Mutual Ins. Co.,331 N.W.2d 598 (Wis. App. 1983), a case in which a cottage was totally destroyed by fire. The cottage, when the loss occurred, was occupied by the owner, but three months earlier had been rented to others for sixty days. The court, while admitting not to understand what was meant by "for any period of time," would not allow restriction on the basis of past rental and found the valued policy law applicable and the full amount of the policy payable to the insured.

 Several years later, in Seider v. O'Connell, 612 N.W.2d 659 (Wis. 2000), the Wisconsin Supreme Court held Wis. Admin Code § Ins 401(2)(e)—which provided that the valued policy statute did not cover real property "any part of which is used for commercial (non-dwelling) purposes other than on an incidental basis—invalid because it contradicted the plain language of the statute and with legislative intent, thus exceeding statutory authority of Office of Commissioner of Insurance. Seider held that the statutory language of the valued policy law did "not exclude any dwellings that are 'owned and occupied by the insured.'"

 Presumably in response to Seider, "primarily" was added to the language of the statute in 2001 to express its policy judgment that combined-use buildings whose primary use is not as a dwelling should be excluded.

 In 2007, the Court of Appeals of Wisconsin applied this new statutory language in Cambier v. Integrity Mut. Ins. Co., 738 N.W.2d 181(Wis. App. 2007), a case in which the insured suffered a fire loss to a cabin he had rented out to tenants for approximately ten of the fourteen months preceding the loss. The court determined that he was using the cabin primarily as a rental property, rather than as a residence, at the time of the fire. Therefore, the valued policy statute did not apply despite that the insured had previously made more personal use of the cabin, that he kept some of his personal property there, and that he claimed to have rented it out only to prevent burglaries.

 Applicable Perils

 The perils to which the various valued policy laws apply differ from state to state. Many years ago, when insurers began to include coverage for additional perils by endorsement to the fire policy, the question arose whether, in states that limited the valued policy law to fire and lightning, adding windstorm or extended coverage to the fire policy did not also extend the law to the additional perils. However, the courts have almost without exception limited the application of these laws to the perils specifically named in the law. Typical cases setting out this intent include Cox v. Home Ins. Co. of NY, 52 S.W.2d 872 (Mo. 1929), excluding tornado, and Kattelmann v. Fire Ass'n of Philadelphia, 79 Mo. App. 447 (1899), excluding lightning, both in Missouri; Kenmore Const. Co. v. Maryland Casualty Co., 348 N.E.2d 374 (Ohio App. 1973), limiting the Ohio law to perils of fire and lightning; and McNeely v. South Carolina Farm Bureau Mut. Ins. Co., 190 S.E.2d 499 (S.C. 1972), excluding windstorm in South Carolina.

 The exceptions to this general principle usually have involved losses in which two perils, one covered by the valued policy law and one not, both accounted for damage, with total loss resulting. Two cases illustrate this point: In Lundberg v. Equitable Fire and Marine Ins. Co., 285 S.W. 741 (Mo. App. 1926), total loss by fire set by lightning was held to be loss by fire (Kattelmann notwithstanding), while in Great American Ins. Co. v. Smith, 172 So. 2d 558 (Miss. 1965), the Mississippi Supreme Court held that the valued policy law of that state applied to an explosion in a restaurant, with following fire. Here the insurer introduced evidence strongly suggesting that the building had been substantially destroyed by the explosion and that the ensuing fire simply consumed the debris, but the court found that the fire "was the dominant and efficient cause of the destruction" and allowed the valued policy law to apply.

 In Kansas, the legislature in 1981 amended its valued policy law to include windstorm (along with fire, lightning, and tornado), thereby eliminating the often controversial question of whether a particular windstorm strong enough to destroy a building totally was indeed a tornado. South Dakota is the only state with a valued policy law applying to tornado but no other windstorm.

 In 2004, a Florida district court decided Mierzwa v. Florida Windstorm Underwriting Ass'n, 877 So. 2d 774 (Fla. App. 2004), a case involving the amount of a wind insurer's liability under Florida's valued policy statute for damage to an insured building by Hurricane Irene. The statute, Fla. Stat. §627.702(1), provided that "in the event of the total loss of any building…located in this state and insured by any insurer as to a covered peril…the insurer's liability, if any, under the policy for such loss shall be in the amount of money for which such property was so insured as specified in the policy."

 Because the necessary repair costs were more than 50 percent of the value of the building, it was deemed a total loss. Of the total repair cost, however, approximately 57 percent was attributed to wind damage while 43 percent was attributed to flood damage. The policy provided coverage for wind damage but not for flood damage, and the insured argued that the valued policy statute required that the insurer pay the full policy limits. The insurer argued that it should not have to pay the policy limits because the total loss was caused in part by a peril excluded under the policy. The court held that the valued policy statute required the insurer to pay the full value of the building as long as any covered peril contributed to the total loss; the covered peril did not need to be the sole cause of the total loss.

 The court pointed out that insurers can alter policy language or the legislature can change the statute in order to remedy the potential problem of double recoveries with payment of two or more limits of insurance from insurers for different perils. In 2005, after Mierzwa was released, the legislature did just that, revising the valued policy law to make clear that an insurer is not responsible for damage caused by excluded perils. The legislature inserted the phrase "if caused by a covered peril" into Florida's valued policy law, specifying that "[t]he intent of this subsection is not…to create new or additional coverage under the policy, or to require an insurer to pay for a loss caused by a peril other than the covered peril." The changes, however, applied only to the future and not to events that had already happened including the Cox lawsuit, discussed later, and any damage done in Florida by Hurricanes Katrina and Rita, also discussed later in this section.

 In Florida Farm Bur. Casualty Ins. Co. v. Cox, 943 So.2d 823 (Fla. 1st DCA 2006), the court reviewed the 2004 statute and the Mierzwa decision, and in a split decision adopted Mierzwa's interpretation of the statute. Cox involved damage from 2004's Hurricane Ivan, in which the insured's home was considered a total loss and suffered both wind and flood damage. The insured had a homeowner's policy valued at $65,000.00 with Florida Farm Bureau Casualty Insurance Company and made a policy limit demand of $65,000.00, plus additional coverages for personal property and other additional provisions for a total of $117,000.00. The insurer inspected the home and asserted that the wind caused $11,583.93 of the damage to the home. The insurer tendered all amounts it claimed that it owed.

 The trial court granted the insureds' motion for judgment on the pleadings relying on Mierzwa, finding that, "[t]he holding in Mierzwa is controlling and binding" and that under Mierzwa's interpretation of the valued policy law, the valued policy law does not require that a covered peril be the peril causing the entire loss, so long as a covered peril caused some of the loss.

 The Florida Supreme Court reversed the court of appeals, finding that the valued policy law required, in the event of a total loss of the covered property, that the insurer pay the full value of the policy if a covered cause of loss formed any part of the loss in  Florida Farm Bur. Casualty Ins. Co. v. Cox, 967 So.2d 815 (Fla. 2007).

 In its decision, the court first reviewed the history of the valued policy law as well as its purpose. The court articulated that the law did not mention causation nor did it establish any requirement for an insurer to pay for excluded or noncovered perils. The court also noted that the statute repeatedly referenced and discussed only covered perils. Additionally, the court stated, "Based upon this plain language of the statute we conclude that the statute intends that an insurer is liable for a loss by a peril covered under the policy for which a premium has been paid."

 The court reiterated that the intention of the valued policy law was only to set the valuation of the insured property. This limitation of holding is recognized in Florida Farm Bureau Casualty Ins. Co. v. Mathis, 33 So.3d 94 (Fla. 1st DCA 2010), where the court expressly limited its holding in Cox "to only those cases in which a covered peril did not cause a total loss or constructive total loss." In reversing Cox, the court relied only on the plain language of the statute.

 In the opinion the court specifically disapproved Mierzwa, stating that the 4th District Court of Appeals misconstrued the law in holding that if the insurance carrier had any liability at all to the owner for a building damaged by a covered peril and deemed a total loss, that liability is for the face amount of the policy.

 Soon after Mierzwa, the devastating damage produced during the 2005 hurricane season in the Gulf Coast Region raised a slew of legal issues regarding insurance coverage and recovery in that region. One of the most prominent issues raised, of course, was the one that had just been scrutinized by the Florida courts and legislature: Did the states' valued policy statutes require insurers to pay full policy limits for property deemed to be a total loss if the total loss was caused in part by an excluded peril, such as flooding?

 The Fifth Circuit Court of Appeal in New Orleans in Chauvin v. State Farm Fire & Cas. Co., 495 F.3d 232 (5th Cir. 2007), affirmed the lower court ruling in favor of the insurance industry that said homeowners insurance companies do not have to pay the full value of the policy when the home was destroyed by a combination of flooding and hurricane wind damage.

 Chauvin involved consolidated valued policy law claims arising from Hurricanes Katrina and Rita. In these claims, the plaintiffs sought to recover the total value of their policies where a portion of their total loss was caused in part by covered wind or rain and in part by excluded flood. The court noted that if the valued policy law had the meaning plaintiffs ascribed to it, an insured holding a valued homeowner's policy that covered wind damage but specifically excluded flood losses could recover the full value of his policy if he lost twenty shingles in a windstorm and was simultaneously flooded by ten feet of water.

 The court found that such a result would be well outside the boundaries of any party's reasonable expectations and seriously doubted that the Louisiana legislature intended such a commercially unreasonable result. Therefore, the court held that Louisiana's valued policy law did not apply when a total loss was not caused by a covered peril. Consequently, the plaintiffs' claims under the law that were predicated on this theory were dismissed.

 Then, in 2008, the Louisiana Supreme Court addressed the ubiquitous wind/water/valued policy question. In Landry v. Louisiana Citizens Property Ins. Co., 983 So.2d 66 (La. 2008), the plaintiffs argued that the valued policy law should require their insurer to pay the full value of the policy, even though some of the damage was caused by wind, which was covered by the homeowners policy, and some of the damage was caused by flooding, which was not covered by the policy. Not surprisingly, the insurer countered that the law applied only when the home was destroyed by perils covered by the homeowners policy.

 The court held that the insurer was not required to pay the full value of the homeowners insurance policy. The insurer validly set forth a different method of loss computation in the policy and policy application, as allowed by valued policy law, and, under that method of loss computation, the insurer was not required to pay the face value of the policy to the homeowners. The court explained that when the state's valued policy law was reenacted in 1991, a provision was added allowing insurers to determine a loss by a different calculation than that contained in the statute, as long as this was announced in both the policy and the application for the policy. 

 The loss calculation of the statute is that the insurer must pay the full value of the policy if the property is a total loss because of a covered loss. The court found that the method of loss calculation in the policy—in essence, the cost to replace or repair—was valid under the exception noted in the valued policy law. This was significant because the plaintiffs' argument was that the valued policy law required the insurer to pay the face value of a policy whenever a covered loss factored into a total loss, even if much or most of the loss was due to an uncovered cause. 

 Insurer's Right to Replace Property

 The standard fire policy used in most states contains a provision giving the insurer the right to rebuild, repair, or replace the property destroyed or damaged, in lieu of cash payment of the loss.

 While the valued policy laws of many states eliminate this right as to total loss to buildings, the laws of Florida (except as to valued mobile home coverage) and Georgia specifically permit the insurer to replace the property at insurer's expense in lieu of paying the face amount of the policy for total loss. Florida, in 1983, added the provision requiring return of premium for the excess coverage carried above the cost of replacement.

 This provision, although rarely invoked by insurers, has the effect of controlling against the worst abuses of the valued policy law. In obvious cases of over-insurance, the insurer can rebuild rather than pay the face amount of the policy. But even this may produce a gain for the insured not contemplated in the indemnity principle that underlies property insurance. The right to rebuild, repair, or replace makes no allowance for depreciation or obsolescence, so the insured, even if this option is invoked, is better off than before the loss, with a new building instead of an old one.

 Total versus Partial Loss

 Most valued policy laws either specify that they apply only to total loss or provide a separate basis for adjusting partial losses on the basis of actual loss sustained not to exceed the amount of the policy. But two situations can arise that raise the question whether the loss is "total" or "partial."

 The first is the substantial loss that nonetheless leaves some portion of the structure sufficiently intact that it could be used in the reconstruction of the building. The courts have considered numerous cases involving this point and generally agree that the valued policy law may be applied at a point considerably short of absolute total destruction. As expressed many years ago in Lux v. Milwaukee Mechanics' Ins. Co., 295 S.W. 847 (Mo. Ct. App.—Kansas City 1927), total loss, in law, results when a building by reason of fire loses its identity, though some parts remain standing and could be used in repair or reconstruction.

 In McKenzie v. Fidelity-Phenix Fire Ins. Co., 3 P.2d 477 (Kan. 1931), the court applied the rule that "if an ordinarily prudent person would use any portion of the structure in the reconstruction of the building" the loss is not total. But "it matters not that portions of the material in the building can be utilized in rebuilding, for it is not the material composing the building that is insured but the building itself, and if its remnants cannot be used as a basis of repair and reconstruction the loss is total."

 These measures of total or partial loss continue in use today. But because the question of whether a particular loss is "total" or "partial" can be controversial even using these tests, and the difference in the amount of the loss settlement can be substantial, cases involving this question continue to be a frequent occurrence in the courts of valued policy states down to the present time. The second area in which a partial loss may come within the valued policy law concerns partial loss to a structure after which the structure must be demolished because of an ordinance or law regulating construction or repair. Most communities have building or zoning laws which regulate the type of construction or occupancy permitted in the city or in certain areas. Usually there are buildings that do not meet the standards, (in fact most older buildings do not, in any city with a modern and complete building code), but are permitted to remain because they were erected before the current laws were passed. Most such laws provide that if a building of unacceptable construction or standards of safety, or used for an occupancy no longer permitted at that location, is damaged or destroyed beyond a certain proportion—50 percent is a common requirement—it may not be repaired. Instead it must be torn down and, if it is to be replaced, a structure that meets the building or zoning requirement must be built.

 The New York standard fire policy provides that recovery shall be "without allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair." This is augmented in most forms used with the fire insurance policy by an exclusion—usually found in the debris removal clause—using identical or nearly identical language. But in spite of this policy limitation, courts have held that valued policy laws overrule the exclusion in the policy and made the company liable for a total loss where demolition is required by law after damage.

 A typical case to this effect is Gambrell v. Campbellsport Mut. Ins. Co., 177 N.W.2d 313 (Wis. 1970). A dwelling, owned by the insured and covered for $7,500, was severely damaged by fire. Since the municipality of Milwaukee, Wisconsin, found that the damage was in excess of 50 percent of the value of the property, it ordered the dwelling razed. The insured argued that since the municipality denied him a building permit to restore the dwelling and instead ordered that the structure be torn down, his dwelling was considered a total loss. The insurer argued, on the other hand, that since the insured was forbidden by law to repair his property, he lost his option to recover in full. Additionally, the insurer stated that, assuming the valued policy law applied, the value of the property is not $7,500 but is, rather, $4,500. The Wisconsin Supreme Court, in affirming the lower court's decision, held that the insured was entitled to receive $7,500, the amount stated in the policy. The court held that the municipality's order to raze the dwelling resulted in a constructive total loss, entitling the insured to payment of the full policy amount. However, the ruling in Gambrell is not say that a requirement shall be imposed on the City to prove that the Property was a total loss prior to issuance of the raze order, as this stretched reading of Gambrell was declined in A&A Enterprises v. City of Milwaukee, 747 N.W.2d 751 (Wis. App. 2007).

 In Stahlberg v. Travelers Indem. Co., 568 S.W.2d 79 (Mo.Ct.App.1978), the court of appeals explained that the general rule, in other districts as well as in Missouri, is that "if repair or reconstruction of a building damaged by fire is prohibited by municipal authorities…[it is] a total fire loss by operation of law." In that case, the claimant's building was partially destroyed by fire. His building was subsequently torn down and removed pursuant to a municipal ordinance. The court stated that under the doctrine of constructive loss, "there is a total loss by fire if the building is so damaged that no substantial remnant remains that a prudent uninsured person would use on rebuilding."

 Other similar cases include Larkin v. Glens Falls Ins. Co., 83 N.W. 409 (Minn. 1900); Palatine Ins. Co. v. Nunn, 55 So. 44 (Miss. 1911); and Hamilton County Mutual Ins. Co. v. Rosebaum, 171 N.E. 345 (Ohio App. 1929). A similar holding by a Texas court was reversed by the Texas Supreme Court in Glens Falls Ins. Co. v. Peters, 386 S.W.2d 529 (Tex. 1965). However, the basis for reversal was the determination that a letter from a building inspector was not a demand that the building be razed, but merely a request that insured either raze or repair it.

 Effect of Other Insurance

 Another problem area of valued policy laws concerns the building insured by more than one policy. Generally, when several fire policies are written on property—with the insurers' consent—all policies are governed by the valued policy statute. In such a case, the aggregate of all policies is considered the value of the property destroyed and each insurer is obligated to pay the full amount on each of its respective contracts.

 This point was considered in Miller's Mutual Ins. Assn. of Illinois v. LaPota, 197 So. 2d 21 (Fla. App. 1967). The insured had a fire policy covering his dwelling for $5,000 and contents for $1,000. He also had a policy with another insurer for $6,500 on the dwelling. When fire totally destroyed the dwelling and partially destroyed the contents, the insured sought $5,000 from the first insurer, the face amount of the policy covering the structure, and $300 for partial destruction of his contents.

 The insurer, on the other hand, argued that because of the pro rata clause in the policy and the insurance written with the other insurer, it was liable for its pro rata share, or $2,474. Moreover, the insurer argued that the Florida courts have never held the pro rata clause as offensive to valued policy laws and the court's recognition of this clause should not defeat the purpose of the valued policy law.

 The court of appeal, however, in affirming the lower court's decision, held that the valued policy law of that state prescribes the aggregate amount of insurance written as the amount payable in event of total loss. Also, the insurer was not permitted to use the pro rata clause in settling the loss because the insured would have received less than the face amount of the policy.

 An interesting point about the LaPota case is that the insurance policy in question had another insurance clause which stated that other insurance may be prohibited or the amount limited by endorsement. There was no endorsement attached to the policy limiting the amount of coverage; hence, the insurer indirectly permitted additional insurance.

 A number of other states follow the same principle, either by specific mention in the valued policy law or by judicial interpretation. In 2001, the Arkansas Supreme Court held that under the language of Arkansas' valued policy statute, the insurer was required to pay the full face value of an insurance policy where the insured had obtained two separate insurance policies for one insurable interest. Arkansas appeals court held that the state's valued policy statute allowed a single insured to recover for the face value of two separate insurance policies for a total loss to the covered real property. See St. Paul Reinsurance Co., Inc. v. Irons, 45 S.W.3d 366 (Ark. 2001).

 In Georgia, the statute provides that the valued policy provision shall not apply where there is other insurance when "the existence of such additional insurance is not disclosed by the insured to all insurers issuing such policies."

 And in Mississippi, two cases, Western Assurance Co. of Toronto, Canada v. Phelps, 27 So. 745 (Miss. 1900) and American Central Ins. Co. v. Meredith, 87 So. 2d 871 (Miss. 1956), establish the same principle in that state.

 In Missouri, a similar intent is spelled out in the Mo. Rev. Stat. §379.145, which provides, "When fire insurance policies shall be…issued or renewed by more than one company upon the same property…the defendant (insurer) shall not be permitted to deny that the property insured was worth the aggregate of the several amounts for which it was insured…unless willful fraud or misrepresentation is shown on part of the insured in obtaining such additional insurance."

 Recently, a Missouri district court examined this language in Herd v. American Security Ins. Co., 501 F.Supp.2d 1240 (W.D. Mo. 2007), where it determined that, in the absence of any persuasive authority to the contrary, the valued policy statute should be given its plain meaning. Thus, the statute precluded the insurer from denying coverage under a forced place policy on the basis of accord and satisfaction after the insureds received benefits under another fire insurance policy, absent a showing that the insureds had been compensated for aggregate of amounts for which their property was insured.

 In North Dakota, the valued policy law refers to "the amount of insurance written in such policy" as the true value of the property. This was interpreted by the North Dakota Supreme Court in Bumann v. St. Paul Fire & Marine Ins. Co., 312 N.W.2d 459 (N.D. 1981) as not requiring payment of the full policy amount, where several policies covered a building for a total amount in excess of the figure established as the value of the building. Instead, each policy paid its pro rata part of the loss.

 In a Wisconsin case, the insureds, who had recovered from their homeowners insurer for the total loss of their house, brought an action against another insurer to recover the limits for the replacement cost under the valued policy law. The appeals court held that the state's valued policy law, which required payment of the policy limits on destruction of the insured property, was qualified by the state's pro rata statute. According to the court, the valued policy law was designed to "discourage owners from over-insuring property while simultaneously thwarting insurers from collecting excessive premiums" and "multiple coverage can only exist where there is consent of insurance companies." See Wegner v. West Bend Mut. Ins. Co., 728 N.W. 2d 30 (Wis. App. 2006).

 In several other states, the valued policy laws, although not clearly allowing valued recovery for multiple policies, do not relate the value of the property to the amount of the policy, but instead refer to the amount for which the building is insured as the measure of its value. This suggests that these states also allow full recovery under all policies. These states include New Hampshire, South Dakota, Texas, and, for buildings not inspected within ninety days, Tennessee.

 Minnesota and Ohio also have similar laws but with the further provision that the law applies "in the absence of any change increasing the risk without the consent of the insurer." Sun Fire Office of London v. Clark, 42 N.E. 248 (Ohio 1895) held that additional insurance "increases the risk necessarily and as a matter of law" and that not only prevented application of the valued policy provision but voided the policy. This is an old case and perhaps at odds with current judicial thinking, but up to now has not been set aside.

 On the other hand, the laws of South Carolina and West Virginia specify that policies of two or more insurers pro rate on the basis of the actual loss sustained. The laws of Kansas, Montana, and Nebraska provide that the amount of the policy is taken conclusively to be the value of the property. In these three states, as well, the valued policy provision does not apply to multiple policies of separate insurers.

 Blanket Insurance

 The question sometimes arises whether the valued policy law applies to total loss of a building insured with other property under a blanket policy.

 The valued policy laws of four states—Florida, Georgia, Louisiana, and New Hampshire—specifically exempt blanket insurance from the application of the law. In these states, total loss under a blanket policy—even if the entire property subject to the blanket insurance is destroyed—does not invoke the valued policy provision; only the actual amount of the loss is payable.

 In other states with valued policy laws it would seem that for the law to apply the coverage must be only on buildings and all buildings insured under the blanket item of coverage must be totally destroyed. But this question does not appear to have been resolved one way or another in the courts.

 Builders Risk Insurance

 Another common question is whether builders risk insurance is subject to the valued policy laws—particularly completed value builders risk insurance where the face amount of the policy is the expected value of the building at completion rather than the value of the work and materials actually in place at any time before completion. Several states specifically exempt builders' risk insurance from their valued policy laws. These states include Florida, Georgia (as to completed value builders risk policies only), Kansas, and Wisconsin. The South Carolina law does not mention builders risk coverage as exempt, but a court many years ago ruled that builders risk policies in South Carolina were open rather than valued policies. Ulmer v. Phoenix Fire Insurance Co., 39 S.E. 712 (S.C. 1901).

 In Garzone, the Georgia appeals court concluded that the fire policy issued to the owner of the house under construction was a "builders' risk policy." Therefore the policy—which granted permission to complete the structure, covered construction materials and supplies, and covered vacant building under construction—was exempt from the valued policy statute, even though it tracked the language of the standard fire insurance policy.

 Several other states are of a similar mind when it comes to the applicability of their valued policy statutes to builders risk policies. In Arkansas, in a case where an insured contractor brought an action against the insurer to recover the limits of a builder's risk policy under the valued policy law, the Arkansas Supreme Court held that the valued policy law was inapplicable to the policy. The court explained that the law did not apply because the builders risk policy operated as an open policy with premiums based on the estimated project value. See St. Paul Fire & Marine Ins. Co. v Griffin Const. Co., 993 S.W.2d 485 (Ark. 1999). Under a similar statute, a Missouri court in Jones v. State Farm Fire and Cas. Co., 740 S.W.2d 708 (Mo. Ct. App., 1987), refused to allow recovery of the face amount of the policy before the building was completed where the amount insured depended on the percentage of completion.

 In Montana, for a policy intended only to cover remodeling work done on a building and not a fixed value, the state supreme court held that the valued policy law was not applicable. See Century Corp. v. Phoenix of Hartford, 482 P.2d 1020 (Mont. 1971). And the Minnesota Court of Appeals found that a policy covering the actual value of a building at the time of destruction was a builders risk policy, thus the insured was not entitled to the estimated limit of loss under the valued policy law. See White v. New Hampshire Ins. Co., 390 N.W.2d 313 (Minn. App. 1986).

 In states where the valued policy law does not exempt builders risk policies, the law can be applied to a basic builders risk policy but not to a reporting form or completed value policy. The provisions of these latter two types of builders risk coverage set the amount of insurance at any time short of completion in accordance with the value of the work installed up to that point and use a provisional amount of insurance as the basis for determining the premium. This provisional amount becomes the actual amount only at completion of the building, so only then could it be used as a basis for applying the valued policy law.

 Replacement Cost Insurance

 With the increased popularity of replacement cost insurance, the question arises how or whether the valued policy laws apply to a building insured for its cost to repair or replace. The amount of insurance may well exceed the "actual cash value" of the building, as it is premised on the cost to rebuild new for old. But the policy promises to pay this amount only if the building is actually restored.

 One state, Ohio, added a provision to its valued policy law in 1980 exempting replacement cost building insurance from the application of the law. Several other states have provisions specifically permitting the writing of replacement cost insurance without clarifying whether or not the coverage is exempt from the valued policy law, but thus far no court seems to have declared any policy written for replacement cost to be a valued policy.

 In Unified School District No. 285 v. St. Paul Fire and Marine Ins. Co., 627 P.2d 1147 (Kan. App. 1981), the Kansas Court of Appeals found the opposite. In this case, a school building and a school bus garage were damaged by a tornado to the point that the building code would require extensive change on reconstruction. The court held that unless the buildings were in fact restored the insured could not recover their replacement value, but was limited to the actual cash value of the loss notwithstanding the requirement of the Kansas valued policy law. However, in Thomas v. American Family Mut. Ins. Co., 666 P .2d 676 (Kan. 1983), the court overruled Unified School District to the extent that term "actual cash value," when applied to a partial loss under homeowner's policy, meant cost to repair without any reduction for depreciation.

 Partial Insurable Interest

 Courts in at least four states—Mississippi, Missouri, South Carolina, and Texas—have held that even where the insured's interest in property subject to a valued policy law is less than total, the full amount of the policy is payable to the insured in case of total loss. The courts and cases are: Mississippi Supreme Court—Harrison v. American Motorists Ins. Co., 245 So. 2d 577 (Miss. 1971); Kansas City Court of Appeals, Missouri—Michigan Fire and Marine Ins. Co. v. Magee, 218 S.W.2d 151 (Mo. Ct. App.—Kansas City 1949); South Carolina Supreme Court—Hunt v. General Ins. Co. of America, 87 S.E.2d 34 (S.C. 1955); and Texas Court of Civil Appeals—American Cent. Ins. Co. v. Harrison, 205 S.W.2d 417 (Tex. Ct. App.—Eastland 1947). These cases involved, respectively, a mortgagee, an heir who was also administratrix of her late husband's estate, a life tenant, and an individual member of a partnership.