Property insurance contracts usually sets conditions specifying situations and methods for settlement and in handling disputers raised by insured. The conditions are embedded as part of the insurance contract and are to be followed up to the specification.
Appraisal is the condition embedded on the policy and provides regulations to be followed when there is a dispute between the insured and the insurer regarding the amount of loss or the amount of insurance to be carried. If there is a disagreement on valuation, the appraiser appointed by the insured and the insurer appraiser appoints umpire who settles the matter. When the amount is in dispute, the arbitration process is applied as provided by arbitration condition.
An insured cannot abandon a property and decide to claim a total loss when there is no total loss. Abandonment condition allows the insurer to decide the totality of loss and make conclusion on whether the property is repairable or not. An insured cannot decide to abandon wrecked car as total loss and claim replacement without the insurer weighing on valuation of whether the car is repairable or not.
When an insured removes a property from the premises to prevent further damages of property from a covered peril, the property is usually covered up to 30 days while still out of the premises. The property coverage turns to all risk coverage and the property is covered beyond the specified perils. If the property was not initially covered against theft and theft occurs when the property is removed, the loss on theft will be covered. Property coverage will provide coverage for debris removal after the covered peril has occurred.
The damages coverage amount depends on conditions imposed by the policy and erection of coverage chosen during policy application. Some properties such as personal property are covered at actual cash value, which means depreciation amount will be deducted from replaceable value. Endorsement of the policy eliminated the deduction of depreciation amount from replaceable value. When depreciation cannot be easily determined for a property, insurer can choose to use fair market value instead of actual cash value.
By using stated value or valued policy, the parties in the contract can avoid the problem of determining the values after the loss has occurred. The insurer pays full amount based on written appraisal submitted at policy inception without considering depreciation, market value or replaceable cost when making payment. A different option available to the insured when selecting coverage is to choose replacement cost and guaranteed replacement coverage which pays for cash settlement to allow purchase of a new item or replace the loss with a new item.
The insured has control to decide on how settlement will be made. By weighing on loss exposure and coverage requirement, the insured can choose the settlement method to suit his/her needs.