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by Ed Schirick
Camp
directors have asked the following questions as the result of certain
events and experiences. We feel it is important to share them now, since
they are infrequently asked. However, we see these as developing issues,
which camp professionals need to understand if they are to manage them
successfully in the months and years ahead.
My camp insurance underwriter is concerned about insurance
to value on several of my buildings. What is insurance to value and what
impact does it have on my insurance?
Insurance to value is a property insurance underwriting concept,
which focuses on insuring your camp buildings and other real property
at their full replacement value.
There has been and probably will continue to be some confusion and tension
over this issue. On the one hand, policyholders want to transfer their
risk of damage to and loss of use of their property at the lowest possible
cost. If you talk with some underwriters, they point out that this goal
can lead to some policyholders understating their values to keep costs
down.
In my experience, much of the understatement of values in camping comes
from lack of awareness. But some insurance to value problems are
the result of inadequate attention to this issue by insurance agents
and insurance companies. In the final analysis, the policyholder is responsible
for buying the proper amount of insurance to adequately protect assets
and to ensure that a sufficient amount of capital is available from your
insurance proceeds to rebuild and recover following a loss.
Another aspect to this issue involves finding authoritative sources
to help directors estimate their full replacement values. Some underwriters
use independent services such as Marshall & Swift, or the Boeckh
valuation systems. But, this task becomes more difficult because of the
uniqueness of many camp buildings. Disputes can develop over the square
foot replacement costs when valuation models don't neatly fit the unique
structures at camps. This can often be overcome with some discussion.
The best source of replacement values, according to some directors, may
be your local contractor. Local contractor replacement cost estimates
eliminate some of the problems with the valuation models and can accurately
reflect the cost of labor and materials in your area.
Regardless of which resource you use to calculate the replacement value
of your real property, it is vitally important to carry insurance
to value. Which valuation method you choose - replacement cost or
actual cash value - depends upon what you want from your insurance following
a loss.
If insurance to value is neglected, your camp insurance underwriter
might be unwilling to provide you with certain coverages or considerations
such as agreed value endorsements or replacement cost coverage. The underwriter
might also charge higher rates based upon subjective judgements and conclusions
from their analysis of your property values. In addition, if your policy
has a coinsurance clause, you may not comply with its requirements. If
there is a coinsurance deficiency, you might not receive full reimbursement
for partial losses to your property. Finally, depending upon how your
insurance is written, you may not be fully indemnified if you suffer
a total loss to a building, for example.
My insurance agent has recommended that I purchase property
insurance for ordinance or law. What is ordinance or law coverage and
why should I buy it?
A standard property insurance policy covering camp property excludes
any expense that is the result of the enforcement of building ordinances
or laws regarding construction, use, or repair of property. For example,
some states have a building code regulation, which requires demolition
of any remaining part of a building not in compliance with current building
codes, when 50 percent or more of the structure has been damaged by some
event. Unless you purchased appropriate ordinance or law coverage
from your insurance company, you would not be reimbursed, in this example,
for the value of the undamaged portion of the building or for the cost
of demolition.
In addition, the increased cost of bringing the new, replacement building
up to the latest codes such as those required by the Americans with Disabilities
Act, the National Electrical Code, local building codes, and latest Health
Department regulations would not be covered.
Directors should buy ordinance or law coverage only if they intend
to replace their buildings. This ordinance or law exclusion is
an example of the "fine print" in insurance policies. The gap in standard
coverage underscores the fact that replacement cost insurance merely
replaces the building with the same or similar material. Replacement
cost insurance does not include the cost of building code deficiencies
or updating or improving plumbing, electrical, and other elements of
your building with superior materials to meet the latest requirements.
Ordinance or law coverage is becoming more important to camps
because new national and state codes are being established to standardize
building construction requirements. Compliance with these codes will
be required for renovation, repair, and new construction as they are
adopted across the country. Recognize that as code enforcement officers
become more active in our communities that some camp buildings could
be identified as not meeting these new codes. Some corrective action
may be mandated by these state and local officials depending upon the
scope of the code issues in question.
A property insurance policy without ordinance or law coverage will leave
you exposed to financial loss, which must be addressed in your future
risk management planning.
How would my loss of income and extra expense insurance
respond to camp being shut down by order of civil authorities because
of a disaster like the World Trade Center attack?
The standard policy for loss of income and extra expense extends
coverage to include loss caused by action of civil authority that prohibits
access to your camp premises when there is direct physical loss or damage
to property, not at your camp premises. The damage at the other premises
must be from a covered cause of loss. This applies for only up to two
consecutive weeks from the date of the action and is insufficient at
any time, but especially during the summer.
Generally speaking, there must be direct damage to your camp premises
for the Loss of Income and Extra Expense insurance to operate.
This extension of coverage for up to two weeks for the order of a civil
authority did not contemplate the events that took place in New York
or Washington. Underwriters may be willing to consider extensions of
terms beyond the two weeks under some circumstances. There is still some
uncertainty in connection with the risks involved, so underwriters may
be slow to respond to this need. However, your inability to transfer
this risk does not eliminate it as a potential threat to the success
of your business. It must still be addressed in your risk management
plans.
What are your plans if access to your camp is denied by order of a civil
authority? Look into insurance to value, and ordinance or law coverage
before your next policy anniversary. Take some time to plan your response
to an order of civil authority that denies access to your camp property.
Seek advice and perspective from your staff and trusted advisors. Give
yourself adequate time to make any appropriate changes before next summer.
Take care of yourselves and good luck!
Originally published in the 2002 January/February
issue of Camping
Magazine.
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