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.

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.

 Tennessee law requires that the insured building be inspected within ninety days of the fire insurance being written to determine the fair value of the property. If no inspection is made and the property is a total loss, the policy becomes an open policy and the value of the building is determined at the time of loss.

 In the event of total destruction by fire, the company is liable for the actual value of the property. If the insured has paid premiums on an amount that exceeds the value of the property, the excess premiums are reimbursed with 6 percent interest.

 It is important to remember that the valued policy law does not apply unless the structure is a total loss. What that means can be a fact for a court decide. One Tennessee case, Hollingsworth v. Safeco Ins. Companies, 782 S.W.2d 477 (Tenn. App. 1988), noted that “the total destruction of a building within the meaning of an insurance policy means its complete destruction as a building, but not necessarily the absolute extinction of all its materials, or even that no part of it can be left standing.”

 The court also stated that the Tennessee Supreme Court adopted an “identity” test to determine if a building is a total loss. Under the test, a building would be considered a total loss if the building loses it specific character and identity as a building.

 If buildings or structures are deemed to be total losses due to the recent wildfires, insureds should receive policy limits.

 For an outline of the valued policy laws in various states, see Valued Policy Laws State Summary.