Property Terms, Valuation, Deductibles and Policy Provisions for the 2-20 Exam

Risk, peril, hazard and the chain of causation

Four words the exam refuses to treat as synonyms. Risk is uncertainty about loss. A pure risk offers only loss or no loss and is insurable; a speculative risk offers loss, no loss or gain — a stock trade, a new restaurant — and is not. A peril is the cause of loss itself: fire, windstorm, theft. A hazard is anything that increases the chance a peril occurs or the size of the loss it produces.

Hazards are sorted by what they are a characteristic of, and that is exactly what the item is testing:

• Physical hazard is a tangible condition of the property or its use: oily rags in a closet, a blocked exit, a frame building next to a fireworks plant.
• Moral hazard is dishonesty in the person. Arson for profit, a padded inventory after a burglary, a financially distressed insured with a run of suspicious fires.
• Morale hazard is carelessness or indifference in the person that grows out of knowing a loss will be paid. No dishonest purpose, just the door left unlocked and the space heater left running.
• Legal hazard is the litigation and regulatory climate of the jurisdiction, which enlarges losses without touching the property at all.

Fire means hostile fire — a fire that was never meant to burn, or one that escapes the place it was meant to be. A friendly fire stays in its fireplace, furnace or grill, and property the insured drops into it is not a fire loss.

Proximate cause is the unbroken chain of events set in motion by the initial peril. Wind tears an opening, rain enters, the ceiling collapses: one windstorm loss, not three separate causes. Florida writes that result into the hurricane definition — s. 627.4025(2)(a), F.S. defines hurricane coverage to include ensuing damage to the interior of a building caused by rain, snow, sleet, hail, sand or dust when the direct force of the windstorm first damages the building and creates an opening.

Two drafting devices bend that chain. An anti-concurrent causation lead-in says the insurer will not pay for loss caused directly or indirectly by the listed exclusions, whether or not any other cause contributes concurrently or in any sequence — the words "or in any sequence" are the point, because they make the order of events irrelevant, so an excluded flood defeats a claim even where covered wind also contributed. Florida's concurrent cause doctrine, which favors the policyholder when independent perils converge, applies only where the policy carries no such clause. An ensuing loss exception runs the other way: the policy will not pay to correct faulty workmanship, but a fire that ensues from the bad wiring is paid, because the ensuing loss is not itself excluded.

Finally, who has to prove what. Under a named perils form the insured must prove the loss was caused by a listed peril. Under an open perils or special form the insured proves only a direct physical loss to covered property during the policy period, and the burden shifts to the insurer to bring the loss inside an exclusion. That is why an unexplained loss usually fails on a basic form and usually succeeds on a special form.

Insurable interest, indemnity, and the doctrines that enforce it

Indemnity is the idea that insurance restores the insured to the position held before the loss and never leaves the insured better off. It is not a clause you can point to; it is enforced through a set of supporting doctrines, and the exam tests the doctrines.

Insurable interest is a financial stake such that the insured suffers a real loss if the property is damaged. In property insurance it must exist at the time of the loss. That is the opposite of life insurance, where it need only exist when the policy is issued, and the contrast is a favorite item. Sell the house on March 1, forget to cancel a prepaid policy, and a March 20 fire pays nothing: the seller has no interest left and the buyer is not a party to the contract. The seller gets unearned premium back, not a loss payment.

A property policy is a personal contract with the named insured, not a covenant that runs with the building, so it does not transfer at closing. Assignment of the policy requires the insurer's written consent, and s. 627.422, F.S. makes a policy assignable or not assignable according to its own terms. Florida then went further on the claim side: s. 627.7152(13), F.S. bars a policyholder from assigning, in whole or in part, any post-loss insurance benefit under a residential or commercial property policy issued on or after January 1, 2023. That provision, from SB 2-A, ended the assignment-of-benefits contractor model in Florida for new policies. Candidates studying from an older manual will still see the pre-2023 AOB rules about written AOB agreements and 14-day rescission windows; those govern only policies issued before that date.

Subrogation lets the insurer step into the insured's shoes after paying and recover from the party legally responsible, which keeps the insured from collecting twice. The policy's subrogation condition obligates the insured to do nothing after a loss that prejudices those rights, so a post-loss release signed with the negligent contractor can cost the insured the claim to the extent it harmed the insurer. Timing is the whole distinction: a waiver of subrogation signed before a loss is expressly permitted by most forms and is routine in construction contracts and leases.

The other insurance condition does the same job across policies. Property forms usually share pro rata — each insurer pays the proportion its limit bears to the total insurance covering the loss. Contribution by equal shares ignores limit size: each insurer pays equal amounts until the loss is paid or its own limit runs out, which penalizes the smaller policy. The homeowners condition adds a second rule that is easy to miss: if the loss is also covered by a service agreement, home warranty or property restoration plan, this insurance is excess over the amounts payable under that agreement, not pro rata with it.

Two short conditions round it out. No Benefit To Bailee means the insurer will not recognize any assignment or grant any coverage that benefits a person or organization holding, storing or moving property for a fee — the insured's own property stays covered and the insurer may subrogate against the warehouse. Abandonment means there can be no abandonment of any property to the insurer: the insured cannot manufacture a total loss by handing over the wreck. Salvage runs the other way and belongs to the insurer alone, as an option exercised after payment.

The valuation ladder: ACV, replacement cost, market value and the special rules

Three numbers describe the same building and none of them is the same figure. Replacement cost is what it takes to rebuild with materials of like kind and quality. Functional replacement cost is what it takes to rebuild using common, modern, less costly materials that serve the same function — plaster becomes drywall, ornamental millwork becomes stock trim. Market value is what a willing buyer would pay a willing seller for the property as it stands; it reflects land, location and desirability and is not a measure of construction cost at all. On an older home market value is commonly the lowest of the three, which is the entire reason modified and functional forms exist.

Actual cash value is replacement cost minus depreciation. Depreciation is measured by consumed useful life, so a workshop with a 20-year life and 15 years gone is 75 percent depreciated and retains 25 percent of value. Two mechanics decide these items. Depreciation is taken off replacement cost first, and the deductible comes off the settlement afterward — never off replacement cost before depreciation. And a replacement cost policy does not skip the depreciation step at claim time; it restores the depreciation later, which is a different thing.

The commercial property Valuation condition settles covered property at actual cash value unless Replacement Cost is shown as applicable in the declarations, and it carries named exceptions worth memorizing:

• Stock the insured has sold but not delivered is valued at the selling price as if no loss had occurred, less discounts and expenses the insured would otherwise have incurred. This is the one place a property form deliberately pays more than actual cash value, because the completed sale had already fixed the insured's economic position.
• Glass is valued at the cost of replacement with safety glazing material if required by law.
• Tenants' improvements and betterments have three valuations. Repaired promptly: actual cash value. Not repaired promptly: a proportion of the original cost, found by dividing the days from the loss to lease expiration by the days from installation to lease expiration. Repaired or replaced at someone else's expense: nothing. Failing to repair reduces the settlement to the unamortized proportion; it does not wipe out the claim.

The homeowners forms settle personal property at actual cash value unless replacement cost on contents is added by endorsement, and settle the dwelling at replacement cost only if the insurance-to-value test in the Loss Settlement condition is met. Florida then overrides parts of that scheme by statute for personal lines residential policies, which is the next cycle.

One more term the exam likes to hide in a valuation question: property that is simply gone, with no evidence anyone took it, is a mysterious or unexplained disappearance. Theft is a named peril for Coverage C, but theft has to be established, so the homeowners form pays nothing. A scheduled personal articles floater insures listed items on an open-perils basis with no unexplained-disappearance exclusion, normally settles at the scheduled amount, and usually carries no deductible.

Florida's replacement cost and law-and-ordinance rules under s. 627.7011

Section 627.7011, F.S. is the statute that displaces the national loss-settlement rules on a Florida homeowner's policy, and it is written as a set of mandatory offers rather than mandatory coverages. Read every answer choice for that difference: what the statute compels is usually the offer, not the settlement basis of every contract.

On the dwelling, s. 627.7011(1) requires the insurer to offer two things before issuing the policy. Paragraph (a) is replacement cost coverage for the dwelling that excludes law and ordinance costs. Paragraph (b) is replacement cost coverage that includes them, with the ordinance portion limited to 25 percent or 50 percent of the dwelling limit as the policyholder selects, and applying only to the repair of the damaged portion unless total damage exceeds 50 percent of the replacement cost of the structure.

Then the default. Under s. 627.7011(2), unless the insurer obtains the policyholder's written refusal on a form approved by the Office of Insurance Regulation, the policy is deemed to include law and ordinance coverage limited to 25 percent of the dwelling limit, and the insurer must give notice that the coverage is available at least once every 3 years. Twenty-five percent is the floor that arrives automatically; 50 percent is the upgrade the insured must affirmatively select. The 10 percent figure that so many candidates pick is real but belongs to a different document — it is the built-in Ordinance Or Law additional coverage of the unendorsed ISO HO-3, and the Florida statutory default displaces it.

How the money actually moves is set by s. 627.7011(3):

• On a dwelling loss, the insurer must initially pay at least the actual cash value of the insured loss less any applicable deductible, then pay the remaining amounts necessary to perform the repairs as work is performed and expenses are incurred. There is no receipts-first rule for dwellings.
• On a total loss of a dwelling, the insurer must pay the replacement cost coverage without reservation or holdback of any depreciation in value.
• On personal property, s. 627.7011(3)(b)1 requires the insurer to offer coverage that pays replacement cost without reservation or holdback for depreciation, whether or not the insured actually replaces the property. The insurer may also offer an alternative that pays actual cash value initially and further amounts as receipts are submitted, but only if it gives clear notice of the process before the policy is bound, gives an actuarially reasonable premium credit or discount, and does not require the policyholder to advance payment for the replaced property.

Two more subsections that show up as stand-alone items. Section 627.7011(4) requires a homeowner's policy that does not provide flood coverage to carry a boldfaced 18-point notice telling the policyholder to consider buying flood insurance and that the policy does not cover flood damage. And s. 627.7011(5), added by SB 2-D in 2022 (ch. 2022-268) and applying to policies issued or renewed on or after July 1, 2022, limits roof-age underwriting: an insurer may not refuse to issue or renew solely because of the age of a roof that is less than 15 years old, may require an inspection of a roof 15 years or older before issuing, and may not refuse solely because of roof age or condition if that inspection shows 5 years or more of useful life remaining. Nothing in the section prohibits an insurer from offering a guaranteed replacement cost policy — s. 627.7011(1) says so expressly, which is why Florida law neither requires nor forbids guaranteed or extended replacement cost.

Coinsurance, insurance to value, and the options that switch coinsurance off

Coinsurance is a rating bargain, not a penalty clause: the insured agrees to carry a stated percentage of value and receives a lower rate for it, and if the limit falls short at the time of loss the payment is cut in the same proportion. The formula is the same every time.

Divide the limit carried by the limit required, multiply by the loss, then subtract the deductible. The limit required is replacement cost or actual cash value at the time of loss, whichever basis the policy uses, times the coinsurance percentage. Carry $480,000 where $800,000 of value times 80 percent requires $640,000, and the ratio is 0.75, so a $100,000 loss pays $75,000 less the deductible. The single most common error in the whole property section is dividing by full value instead of by the required amount, which would give 0.60 and a wrong answer that is always on the paper. Coinsurance never increases the payment above the actual loss and never above the limit.

The homeowners forms do the same job with different words. The HO Loss Settlement condition pays buildings at replacement cost only if the amount of insurance is 80 percent or more of full replacement cost immediately before the loss. Fall below that and the insurer pays the greater of the actual cash value of the damaged part, or that proportion of the cost to repair which the amount of insurance bears to 80 percent of replacement cost. Note the divisor: 80 percent of replacement cost, not full replacement cost. The form also owes no more than actual cash value until repairs are actually complete, unless the repair cost is both less than 5 percent of the amount of insurance and less than $2,500.

Four commercial options manage the same exposure and the exam asks which one suspends coinsurance:

• Agreed Value states that the Coinsurance condition does not apply; in its place the insurer pays no more than the proportion the limit bears to the agreed value shown in the declarations. It removes the formula, not the duty to insure to value, and it expires if the agreed value expiration date in the declarations is not extended. It is not a valued policy — a partial loss is still adjusted as an actual loss.
• Inflation Guard automatically increases the limit during the term by the annual percentage shown, prorated by days elapsed, so half a year at 8 percent adds 4 percent. It does nothing to coinsurance.
• Blanket insurance applies one limit to two or more items or locations, so the whole limit is available wherever the loss happens. It is normally written with a high coinsurance percentage measured against total reported values, so an accurate statement of values is what keeps the penalty away. A margin clause endorsement is what caps any single location at a stated percentage of its reported value; unrestricted blanket coverage does not.
• The Value Reporting Form charges premium on values actually reported and grades its penalties: if the first report is past due at the time of loss the insurer pays no more than 75 percent of what it would otherwise pay; if a later report is missing, payment is capped at the values last reported for that location; and the full reporting or honesty clause reduces payment in the proportion that reported values bear to actual values when a report was filed but understated.

Florida regulates coinsurance rather than banning it. Section 627.701(1), F.S. permits a coinsurance clause only if the policy face or an attached form carries the statement that the rate charged is based on the use of the coinsurance clause attached with the consent of the insured, the clause is clearly identifiable, and the insurer furnishes the rate both with and without the clause on request. Section 627.701(4)(a), F.S. adds that a policy containing a coinsurance provision applicable to hurricane losses must show on its face, in boldfaced type no smaller than 18 points, the statement THIS POLICY CONTAINS A CO-PAY PROVISION THAT MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU. That warning is triggered only by coinsurance reaching hurricane losses; an ordinary commercial coinsurance clause does not require it.

Deductibles: straight, franchise, percentage — and Florida's hurricane deductible

Three deductible mechanics, and the exam separates them by what happens at the threshold. A straight or flat deductible is subtracted from every covered loss. A franchise deductible is a threshold rather than a subtraction: below the figure the insurer pays nothing, and at or above it the insurer pays the loss in full. It survives mainly in ocean marine and some crop forms, where it discourages small claims without punishing serious ones. A percentage deductible is stated as a percentage of the limit or of the insured value, not of the loss. A self-insured retention is different again: the insured pays and typically administers losses inside the retention, and the insurer's limit sits above it.

Florida's hurricane deductible is a percentage deductible and a straight one, so the two ideas combine. It is calculated on the Coverage A dwelling limit, never on the amount of the loss. A $400,000 dwelling with a 2 percent hurricane deductible carries an $8,000 deductible, so a $52,000 hurricane loss pays $44,000. Taking 2 percent of the loss is the most common wrong answer on the paper.

Section 627.701(3)(a), F.S. requires an insurer to offer personal lines residential applicants alternative hurricane deductibles of $500, 2 percent, 5 percent and 10 percent of the policy dwelling limits, along with written notice of the deductible that applies if none is selected — except that the specific percentage option need not be offered where the percentage would produce less than $500. Section 627.701(3)(d) then scales that offer set by size of risk:

• Dwelling limits of $250,000 or more: the $500 option need not be offered.
• Dwelling limits of $1 million or more but less than $3 million: the insurer may offer 3 percent in lieu of 2 percent.
• Dwelling limits of $3 million or more: the 2 percent option need not be offered.

Section 627.701(4)(a), F.S. requires a policy with a separate hurricane deductible to state on its face, in boldfaced type no smaller than 18 points, THIS POLICY CONTAINS A SEPARATE DEDUCTIBLE FOR HURRICANE LOSSES, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU. Section 627.701(4)(b) requires the insurer to compute and prominently display the actual dollar value of that deductible on the declarations page at issuance and each renewal, and to warn that an inflation guard rider can increase the dollar deductible along with the limit.

The rule candidates miss most is the calendar-year rule in s. 627.701(5), F.S. For personal lines residential policies issued or renewed on or after May 1, 2005, the hurricane deductible applies on an annual basis to all covered hurricane losses during the calendar year — not separately to each storm. Once part of it is consumed, s. 627.701(5)(a)3 lets the insurer apply, for a subsequent hurricane, the greater of the remaining hurricane deductible or the deductible that applies to other perils. The language is permissive. The same paragraph lets the insurer require the policyholder to report hurricane losses that fall below the deductible, or keep receipts of them, precisely so those amounts can be credited later in the year. And s. 627.701(5)(a)4 provides that where hurricane losses in one calendar year occur under more than one policy from the same insurer or insurer group, the hurricane deductible is the highest amount stated in any one of those policies. Aggregation follows the insurer group, so switching policies mid-year inside one group does not reset the clock.

Whether the hurricane deductible applies at all turns on timing, not on wind speed. Section 627.4025(2)(c), F.S. defines the hurricane occurrence as beginning when a hurricane warning is issued for any part of Florida and ending 72 hours after the last hurricane watch or hurricane warning for any part of Florida is terminated. The clock is asymmetric: only a warning starts it, but a lingering watch keeps it open, and both ends key to any part of Florida, not the insured's county.

The roof deductible, sinkhole coverage, and Florida's Valued Policy Law

The separate roof deductible is new law and it is tested heavily. Section 627.701(10), F.S., created by SB 2-D in May 2022 (ch. 2022-268), lets a personal lines residential policy include a separate roof deductible, but caps it at the lesser of 2 percent of the Coverage A limit or 50 percent of the cost to replace the roof. The premium must include an actuarially sound credit or discount for it, it applies only to claims adjusted on a replacement cost basis, and when the roof deductible applies no other deductible may be applied to that loss. The policyholder may opt out on an office-approved form at initial issuance and at each renewal.

Four exceptions take the roof deductible off the table entirely:

• A total loss to a primary structure caused by a covered peril, which is settled under the Valued Policy Law.
• A loss caused by a hurricane as defined in s. 627.4025(2)(c), F.S. The hurricane deductible governs instead.
• A roof loss resulting from a tree fall or other hazard that damages the roof and punctures the roof deck. Nothing in the statute turns on whether water actually entered.
• A loss requiring the repair of less than 50 percent of the roof.

The roof deductible has a companion payment rule. Section 627.7011(3)(a), F.S. permits the insurer, where a roof deductible under s. 627.701(10) is applied, to limit the claim payment as to the roof to the actual cash value of the roof loss until it receives reasonable proof that the policyholder paid the roof deductible. The statute defines reasonable proof broadly: a canceled check, a money order receipt, a credit card statement, or a copy of an executed installment plan contract or other financing arrangement that requires full payment of the deductible over time. A paid-in-full roofing invoice is not required, and the roof portion is not denied — it is held at actual cash value.

Sinkhole coverage is a separate structure with its own deductible menu. Section 627.706(1)(a), F.S. requires every insurer authorized to write property insurance in Florida to provide coverage for catastrophic ground cover collapse, which is the narrow, mandatory grant: geological activity producing an abrupt collapse of the ground, a depression visible to the naked eye, structural damage to the covered building including its foundation, and condemnation with a vacation order by the governmental agency. Section 627.706(1)(b) then requires the insurer to make sinkhole loss coverage available for an appropriate additional premium on any structure including contents, and permits a residential policy to carry a sinkhole deductible of 1 percent, 2 percent, 5 percent or 10 percent of the policy dwelling limits. Those percentages are not the hurricane menu — the $500 option belongs to hurricane, not sinkhole. Sinkhole loss means structural damage to the covered building, including the foundation, caused by sinkhole activity. When the parties disagree after a sinkhole report has been issued, s. 627.7074, F.S. gives either party neutral evaluation: mandatory in the sense that it must go forward if either side requests it, nonbinding on everyone including the insurer, paid for by the insurer except that a party hiring a court reporter bears that cost, and it tolls the time to file suit until 60 days after the process concludes.

Florida's Valued Policy Law, s. 627.702, F.S., overrides valuation entirely on a total loss. On the total loss of a building from a covered peril — absent fraudulent or criminal fault by the insured and absent a change increasing the risk without the insurer's consent — the insurer's liability is the amount of money for which the property was insured as specified in the policy and for which a premium was charged and paid. Actual cash value and market value do not control. Three limits keep it honest. Under s. 627.702(1)(b) the insurer is never liable for more than the amount necessary to repair, rebuild or replace the structure. The same paragraph handles mixed causation: where the loss was caused in part by a covered peril and in part by a noncovered peril, the face-amount rule does not apply and liability is limited to the amount of loss caused by the covered peril — but if the covered perils alone would have caused the total loss, the face amount is owed. And s. 627.702(3) and (5) carve out situations the law does not reach: undisclosed other insurance on the same building, two or more buildings insured under a blanket form for a single amount, a builder's risk policy on completed value, personal property other than mobile homes and manufactured buildings, and appurtenant or other structures whose coverage is not stated as a dollar amount specific to that structure.

Time element: business income, extra expense, and loss of use

A direct loss is the physical damage the peril does to covered property. An indirect or consequential loss is the financial fallout that follows, and because it is measured over time it is also called a time element loss. The distinction controls which form pays: the Building and Personal Property Coverage Form insures direct physical loss only, so a fire that destroys $180,000 of building and equipment and also costs $60,000 of net income pays the $180,000 and nothing else unless a business income form was added with its own limit and its own coinsurance. One peril producing both kinds of loss does not make both losses direct.

Business income is net income that would have been earned plus continuing normal operating expenses, including payroll. Extra expense is the necessary expenses incurred during the period of restoration that would not have been incurred but for the loss, spent specifically to avoid or minimize the suspension and continue operations — at the described premises, at replacement premises or at temporary locations. Rent on substitute space and the cost to equip and operate it are named examples. A firm that keeps its revenue by relocating has little business income loss and a large extra expense claim; that is exactly why the stand-alone Extra Expense form exists. On the combined business income and extra expense form both coverages share one limit.

The period of restoration is where the numbers live. It begins 72 hours after the time of direct physical loss for business income coverage, but immediately after the loss for extra expense coverage — the waiting period never applies to extra expense, because that money is spent in the first hours. It ends on the earlier of the date the property should be repaired, rebuilt or replaced with reasonable speed and similar quality, or the date business resumes at a new permanent location. Three refinements are tested. The expiration date of the policy will not cut the period short. The clock runs on when repairs should be done, not on how long the insured actually takes. And any additional time required by enforcement of an ordinance or law is excluded from the period. The 72-hour wait is written into the form's own definition and is reduced to 24 hours or removed only by attaching endorsement CP 15 56.

Two additional coverages extend the idea. Extended Business Income begins on the date operations resume and runs until the business is restored to the condition that would have existed had no loss occurred, but no longer than 60 consecutive days under the current ISO form — older editions used 30 days, and endorsement CP 15 04 buys a longer extended period of indemnity. The Monthly Limit Of Indemnity option caps payment in each period of 30 consecutive days at the limit multiplied by the fraction shown, so $600,000 times one-fourth is $150,000 a month, and under that option the coinsurance condition does not apply at all. The fraction is a monthly cap, not a coinsurance percentage.

On the homeowners side, Coverage D Loss Of Use is one pot of money shared by three coverages: Additional Living Expense, Fair Rental Value, and Civil Authority Prohibits Use. The Coverage D limit is the total limit for all three. Two provisions matter after a hurricane. Civil Authority Prohibits Use is itself capped at two weeks. And the periods of time under those coverages are not limited by expiration of the policy, so a displacement that begins before expiration keeps being paid past it. Coverage D does not cover loss or expense arising from cancellation of a lease.

What kind of contract a property policy is, and how it is formed

Six characteristics, and the exam tests them by asking which one explains a specific outcome.

• Contract of adhesion. The insurer drafts every word and the applicant may only accept or reject it, so Florida construes genuinely ambiguous language against the drafter and in favor of coverage — contra proferentem. Two refinements are worth carrying. Form approval by the Office of Insurance Regulation under s. 627.410, F.S. is a regulatory act and does not make the insurer's reading binding on a court. And in Washington National Ins. Corp. v. Ruderman, 117 So. 3d 943 (Fla. 2013), the Florida Supreme Court held that when a policy term is ambiguous the court construes it against the insurer without resorting to extrinsic evidence at all.
• Aleatory. The values exchanged are unequal and depend on chance: a fixed premium against a payout that may be nothing or many times the premium.
• Unilateral. Only one party makes a legally enforceable promise. The insurer promises to pay covered losses; the insured makes no enforceable promise to keep paying premium, so the insurer's remedy for nonpayment is cancellation, not a collection suit.
• Conditional. The insurer's promise is subject to conditions the insured must satisfy, which is why the homeowners duties-after-loss condition opens by saying the insurer has no duty to provide coverage if the failure to comply is prejudicial to it.
• Personal. The contract insures a person's interest, not the building, so assignment requires the insurer's written consent.
• Utmost good faith. Both parties rely on the other's honesty, which is the doctrinal home of representations, concealment and warranties.

Formation runs through Florida's own statutes. Section 627.420, F.S. provides that binders or other contracts for temporary property, marine, casualty or surety insurance may be made orally or in writing, and are deemed to include all the usual terms of the policy for which the binder was given together with any endorsements designated in the binder, except as superseded by the clear and express terms of the binder itself. So an oral binder that says nothing about deductibles still carries the insurer's standard deductible, exclusions and conditions. No notice of cancellation or nonrenewal is required under chapter 627 unless the duration of the binder exceeds 60 days.

Section 627.421(1), F.S. requires the insurer to mail, deliver or electronically transmit the policy to the insured within 60 days after the insurance is effectuated, and lets a personal lines policyholder affirmatively elect electronic delivery instead of mail. Delivery is an administrative duty that follows attachment; coverage attaches on the effective date shown in the binder or policy, not when the paper arrives.

Section 627.413(1), F.S. lists what every policy must specify: the names of the parties, the subject of the insurance, the risks insured against, the time the insurance takes effect and the period it continues, the premium, the conditions pertaining to the insurance, and the form numbers and edition dates of attached endorsements. Subsection (3) exempts surety contracts and group policies from the list. Section 627.419(1), F.S. then tells you how to read the assembled document: every contract is construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended or modified by any rider, endorsement or application attached to and made a part of the policy — so an attached endorsement can broaden as readily as it can restrict.

Two disclosure statutes finish the file. Section 627.4143, F.S. bars delivery of a private passenger automobile or basic homeowner policy unless an appropriate outline of coverage has been delivered before issuance or accompanies the policy. For a basic homeowner's, mobile home owner's, dwelling or condominium unit owner's policy the insurer must provide both a comprehensive checklist of coverage on a form adopted by the commission and an outline of coverage, on the initial policy and each renewal thereafter — the initial-policy-only rule belongs to the motor vehicle outline. Both documents are informational only, and the statute states that Florida law prohibits the outline or checklist from changing any provision of the contract. Section 627.4091, F.S. is the underwriting-notice statute: denial of an application must be accompanied by specific reasons, and each notice of nonrenewal or cancellation must be accompanied by specific reasons. It is not a claims statute; the duty to give reasons for denying a claim comes from s. 627.70131(7)(a), F.S.

Finally, mid-term and renewal changes. Section 627.43141, F.S. defines a change in policy terms as the modification, addition or deletion of any term, coverage, duty or condition from the previous policy — correcting a typographical error or applying a mandated legislative change is not one. A renewal policy may contain such a change only if the insurer gives the named insured advance written notice summarizing it, entitled Notice of Change in Policy Terms, within the same timeframe the Insurance Code requires for a notice of nonrenewal for that line, with a sample copy to the agent. Since January 1, 2025 the notice must be in bold type of not less than 14 points and appear as a single page or consecutive pages within the written notice. Subsection (5) provides that receipt of the renewal premium is deemed acceptance of the new terms — but subsection (6) provides that if the insurer fails to give the notice at all, the original policy terms remain in effect until the next renewal and proper service of the notice, or until replacement coverage takes effect, whichever comes first. Read the fact pattern for which of those two subsections is in play. And optional coverage that increases the premium may never be added through a Notice of Change in Policy Terms without the policyholder's affirmative approval.

Representations, concealment, waiver, estoppel and the parol evidence rule

At common law a warranty had to be literally true and any breach voided the contract. Florida abolished that treatment for applications. Section 627.409(1), F.S. provides that any statement or description made by or on behalf of an insured in an application for a policy, or in negotiations for a policy, is a representation and not a warranty. A representation speaks only to the facts as they stood when it was made; it is not a continuing promise, so an alarm service the insured genuinely had at application and later canceled does not void the policy.

A false representation avoids the policy only on one of two grounds, and s. 627.409(1) is written in the disjunctive:

• Paragraph (1)(a): the misrepresentation, omission, concealment of fact or incorrect statement is fraudulent, or is material to the acceptance of the risk or to the hazard assumed by the insurer.
• Paragraph (1)(b): had the true facts been known, the insurer in good faith would not have issued the policy, would not have issued it at the same premium rate, would not have issued it in as large an amount, or would not have provided coverage for the hazard resulting in the loss.

Because the prongs are alternatives, a knowingly false answer to a direct question satisfies the fraud prong on its own, and proof that underwriting would not have changed does not save the claim. Run the other direction too: an approximate roof date that is neither fraudulent nor material to the risk leaves the policy standing, and attaching the application to the policy makes it part of the contract but does not eliminate the statutory test. Watch for the garbled version of s. 627.409(3), F.S., which bars denying a residential property claim on the basis of credit information available in public records once the policy has been in force more than 90 days. That is a narrow credit-information rule, not a general 90-day amnesty for misrepresentation.

Concealment is the policy-side remedy and it is harsher. Under the current ISO homeowners Concealment Or Fraud condition, no coverage is provided for a Section I loss, with respect to all insureds, if one or more insureds have, whether before or after a loss, intentionally concealed or misrepresented a material fact or circumstance, engaged in fraudulent conduct, or made false statements relating to the insurance. A fabricated item on a claim inventory is material because it would affect the settlement, and the remedy reaches the entire claim, not just the padded item. Filing a false or fraudulent claim is separately a criminal offense in Florida and can support licensee discipline.

Waiver is the voluntary relinquishment of a known right. Estoppel bars a party from asserting a right when its own conduct induced the other side's detrimental reliance. An insurer that keeps adjusting, funds repairs and accepts renewal premium for six weeks with full knowledge of a breach and no reservation of rights has waived the defense and is estopped from raising it. But the policy limits how waiver happens inside the contract: the Waiver Or Change Of Policy Provisions condition says a waiver or change of a provision must be in writing by the insurer to be valid, and adds that the insurer's request for an appraisal or examination does not waive any of its rights. An adjuster's phone call therefore changes nothing under the contract, though a court may still find estoppel from the insurer's conduct — that is a doctrine imposed from outside, not an effect the condition itself gives.

The parol evidence rule bars a party from using prior or contemporaneous oral statements to contradict or add terms to an integrated written contract. When the agent described a coverage the issued form does not grant, the policy is the contract and the customer's remedy, if any, is an errors and omissions claim against the agent rather than coverage. Do not confuse it with the liberalization clause, which applies only to broadenings the insurer itself makes to its own filed form.

The conditions that run a claim: duties after loss, appraisal, and the insurer's options

The homeowners Your Duties After Loss condition opens with the sentence that makes insurance a conditional contract: in case of a loss to covered property, the insurer has no duty to provide coverage if the failure to comply with the listed duties is prejudicial to it. The duties are to give prompt notice, protect the property from further damage and make reasonable and necessary repairs to do so, keep a record of repair expenses, prepare an inventory of damaged personal property, cooperate in the investigation, show the damaged property as often as reasonably required, provide the records and documents requested, submit to examination under oath, and send a signed sworn proof of loss within 60 days after the insurer's request.

Prejudice is an element of the defense, and Florida supplies it on strong facts. A total, unexcused refusal to perform post-loss obligations is a material breach barring recovery, Goldman v. State Farm Fire & Cas. Co., 660 So. 2d 300 (Fla. 4th DCA 1995), and breach of a post-loss condition raises a rebuttable presumption of prejudice the insured must overcome, State Farm Mut. Auto. Ins. Co. v. Curran, 135 So. 3d 1071 (Fla. 2014). A lesser breach usually does not void the untouched part of the claim: an insured who fails to tarp a roof still recovers the original windstorm damage, and only the resulting additional damage is denied. Note also that mitigation costs the insured nothing in the end, because Reasonable Repairs pays the reasonable cost of measures taken solely to protect covered property from further damage — while stating expressly that it does not increase the limit and does not relieve the insured of the duties after loss.

Appraisal resolves disagreements about the amount of loss only. It does not decide whether the peril was covered, whether a condition was breached, or whether the insurer is liable at all; those are questions for the courts. Each side pays its own appraiser and the two share the umpire's expense equally. Section 627.70151, F.S. lets an insurer offering residential coverage as defined in s. 627.4025, or a policyholder, challenge and disqualify a proposed umpire on four grounds only: a familial relationship within the third degree between the umpire and a party or a party's representative; the umpire having previously represented a party in a professional capacity in the same claim or matter involving the same property; the umpire having represented another person in a professional capacity on the same or a substantially related matter involving the claim, the same property or an adjacent property where that person's interests are materially adverse to a party; and the umpire having been an employer or employee of a party within the preceding 5 years. The statute governs umpires specifically; the party-appointed appraisers are held to the policy's own requirement that they be competent and impartial.

Two conditions give the insurer elections on a clock. Our Option provides that if the insurer gives written notice within 30 days after it receives the insured's signed sworn proof of loss, it may repair or replace any part of the damaged property with material or property of like kind and quality. The election belongs to the insurer alone and no consent is required, but missing the 30 days costs the insurer the right and forces a money settlement. Loss Payment provides that loss is payable 60 days after the insurer receives the proof of loss and one of three things happens: it reaches agreement with the insured, a final judgment is entered, or an appraisal award is filed with the insurer. Both elements must be satisfied, so the 60 days runs from the later event. The commercial Loss Payment condition gives a parallel set of choices — pay the value of the property, pay the cost of repair or replacement, repair or rebuild with property of like kind and quality, or take all or any part of the property at an agreed or appraised value — and requires the insurer to give notice of its intentions within 30 days after receiving the sworn proof of loss. That last choice is the insurer's salvage right and it belongs to the insurer alone.

Finally, two settlement measures that produce arithmetic answers. The Loss To A Pair Or Set condition lets the insurer either repair or replace any part to restore the pair or set to its value before the loss, or pay the difference between the actual cash value of the property before and after the loss. It never uses a simple fraction of the set's value, and it does not treat the loss of one article as a total loss of the set, so the insurer cannot be forced to pay the full set value and take the survivor. The Coverage C Special Limits Of Liability are internal sublimits that apply no matter how large Coverage C is: under the 2011 ISO homeowners edition, $200 on money, bank notes, bullion, gold and silver other than goldware and silverware, coins and medals — and that one applies to loss by any peril, not just theft — $1,500 for loss by theft of jewelry, watches, furs and precious or semiprecious stones, and $2,500 for loss by theft of firearms and related equipment. ISO's 2022 revision raised the jewelry and firearms figures to $2,000 and $3,000, and Florida study material still teaches the 2011 numbers, so read the stem for the form edition. Scheduling the items on a personal articles floater removes the sublimit and usually the deductible.

Mortgagees, loss payees, vacancy, and the conditions that quietly move coverage

The standard mortgage clause, also called the union mortgage clause, creates a separate contract between the insurer and the mortgagee. The mortgagee's interest survives even when the named insured's own claim fails for arson, fraud or breach of a policy condition, because the mortgagee did not commit those acts. Having paid, the insurer receives an assignment of the mortgage to the extent of payment or subrogates against the insured. The clause is reciprocal: if the named insured fails to perform, the mortgagee must pay premium on demand, submit a signed sworn statement of loss within 60 days after being notified of the insured's failure to do so, and notify the insurer of any change in ownership, occupancy or substantial change in risk of which it becomes aware. The mortgagee is bound by the policy's appraisal, suit-against-us and loss-payment terms, and must receive at least 10 days' notice before a cancellation or nonrenewal takes effect.

An open mortgage clause, also called a loss payable clause, gives none of that. The loss payee's rights rise and fall with the insured's. The homeowners Loss Payable Clause is a single idea: where the declarations show a loss payee for listed personal property, the definition of insured is changed to include that loss payee as to that property, and the loss payee will be notified in writing if the insurer decides to cancel or not renew. No independent right of recovery, no right to pay overdue premium, no separate proof of loss.

Vacancy is where a claim quietly disappears. Vacant and unoccupied are different words. A building is unoccupied when people are absent but the contents remain. Vacancy depends on who is insured: where the policy is issued to a tenant, the leased unit is vacant if it does not contain enough business personal property to conduct customary operations; where the policy is issued to the building owner or general lessee, the entire building is vacant unless at least 31 percent of its total square footage is rented to a lessee or sub-lessee and used to conduct customary operations, or used by the building owner to conduct customary operations. A building under construction or renovation is not considered vacant. Under the commercial property vacancy condition, if a building has been vacant for more than 60 consecutive days before the loss, the insurer will not pay for vandalism, sprinkler leakage, building glass breakage, water damage, theft or attempted theft, and will reduce the payment by 15 percent for any other covered cause of loss. The 60-day vacancy limitation also removes the homeowners Glass Or Safety Glazing Material additional coverage, except where the breakage results directly from earth movement.

Four short conditions decide items on their own:

• Liberalization. If the insurer makes a change that broadens coverage under this edition of the policy without additional premium, the change applies automatically as of the date the insurer implements it in the state, provided that date falls within 60 days before or during the policy period shown in the declarations. No endorsement or signature is needed. The clause does not apply to a general program revision that mixes broadenings with restrictions.
• Nuclear Hazard Clause. Loss caused by the nuclear hazard is not considered loss caused by fire, explosion or smoke, and Section I does not apply to loss caused directly or indirectly by nuclear hazard — except that direct loss by fire resulting from the nuclear hazard is covered. The fire exception is the whole point of the clause.
• Volcanic Eruption Period. One or more volcanic eruptions occurring within a 72-hour period are considered one volcanic eruption, so eruptions 34 hours apart share a deductible and one 88 hours later carries its own.
• Control Of Property, in the commercial property conditions. Any act or neglect of a person other than the insured and beyond the insured's direction or control will not affect the insurance, and a breach of condition at one location will not affect coverage at any location where the breach did not exist at the time of loss.

The additional coverages carry small numbers the exam likes because they are checkable. Under the ISO homeowners form: Debris Removal pays 25 percent of the sum of the deductible plus the amount paid for the direct loss, with additional amounts where that is exhausted; Reasonable Repairs pays protective repair costs without increasing the limit; Trees, Shrubs And Other Plants is named-peril coverage that conspicuously omits windstorm and hail, capped at $500 per tree and 5 percent of the Coverage A limit in the aggregate; Fire Department Service Charge pays up to $500 for liability assumed by contract or agreement and does not apply where the property sits inside the responding district, with no deductible; Property Removed insures covered property against direct loss from any cause while being removed from a premises endangered by a Peril Insured Against and for 30 days after removal, without increasing the limit; Credit Card, Electronic Fund Transfer Card, Forgery And Counterfeit Money pays up to $500 with no deductible; Loss Assessment pays up to $1,000 for one loss regardless of the number of assessments; and Landlord's Furnishings pays up to $2,500 per apartment per loss for a Coverage C peril other than theft. Coverage B Other Structures is 10 percent of Coverage A and its use does not reduce the Coverage A limit.

Florida's claim clock and the road to court after the 2022-2023 rewrite

This is the cycle where old manuals cost points. SB 2-D (ch. 2022-268) in May 2022, SB 2-A (ch. 2022-271) in December 2022 and HB 837 (ch. 2023-15) in March 2023 rewrote first-party property practice, and the figures below are the ones in force.

The insurer's clock, s. 627.70131, F.S. Within 7 calendar days of receiving a communication about a claim, the insurer must review and acknowledge it unless payment is made in that period or factors beyond its control intervene. Within 7 days after receiving proof-of-loss statements it must begin such investigation as is reasonably necessary. Any physical inspection of the property must be conducted within 30 days after receipt of those statements, and the adjuster assigned must give the policyholder a printed or electronic document with his or her name and state adjuster license number. Under subsection (3)(e) the insurer must send the policyholder a copy of any detailed estimate of the amount of the loss within 7 days after the estimate is generated by its adjuster — automatic, with no request required. And under subsection (7)(a) the insurer must pay or deny the claim, or a portion of it, within 60 days after receiving notice of an initial, reopened or supplemental claim. Before SB 2-A those figures were 14 days to acknowledge, 14 days to begin the investigation, 45 days for the physical inspection and 90 days to pay or deny; the amended deadlines took effect March 1, 2023, and the superseded numbers are the most common wrong answers on the exam.

The policyholder's clock, s. 627.70132, F.S. Notice of an initial or reopened claim must be given within 1 year after the date of loss. Notice of a supplemental claim must be given within 18 months after the date of loss. A supplemental claim is a claim for additional loss or damage from the same peril the insurer previously adjusted, or for costs incurred while completing repairs under an open claim; a reopened claim is one the insurer closed that the insured asks to reopen for costs relating to loss previously disclosed. For a hurricane, tornado or windstorm the date of loss is the date the hurricane made landfall or the date the event is verified by NOAA. A 2024 amendment, s. 627.70132(4), F.S. (ch. 2024-139), added a rule for loss assessment coverage under s. 627.714, F.S.: notice is due the later of 1 year after the date of loss or 90 days after the condominium association or its governing board votes to levy the assessment, but in no event later than 3 years after the date of loss. Do not drop that 3-year ceiling — it is the one place a 3-year figure is still live in this statute, and for that subsection the date of loss is the date of the covered loss event that created the need for the assessment. The old rule matters here. Before SB 76 in 2021 the notice bar reached only windstorm and hurricane claims and ran 3 years; SB 76 extended it to all property claims at 2 years for initial and reopened claims and 3 years for supplemental claims; SB 2-A cut those to 1 year and 18 months. Manuals printing 2 years and 3 years are describing 2021 law.

The suit clock is separate and much longer. Section 95.11(2)(e), F.S. requires an action for breach of a property insurance contract to be brought within 5 years, with the period running from the date of loss — not from the denial, which is where the general written-contract rule in paragraph (2)(b) would start. Section 95.03, F.S. voids any contract provision fixing a shorter period than the applicable statute of limitations, which is why the two-year Suit Against Us condition printed in the ISO homeowners form cannot cut the five years down. Do not mix the 5-year suit deadline with the 1-year notice bar; they run independently and the notice bar expires first. The 2-year figure that appears as a distractor is the negligence period in s. 95.11(5)(a), F.S., shortened by HB 837 in 2023, and it governs tort actions rather than a suit on the policy.

Three gateways sit between the claim and the courthouse. Mediation, s. 627.7015, F.S.: the insurer pays the cost of the conference, the process is nonbinding, but a written settlement signed at the conference binds and releases the claims presented unless the policyholder rescinds within 3 business days — and the right to rescind is lost once a settlement check is cashed. The insurer must notify the policyholder of the right to participate either at issuance and renewal or when a first-party claim is filed; those are alternatives. Commercial coverages, private passenger motor vehicle coverages and disputes over liability coverages in a property policy are outside the program, and a dispute under $500 is not eligible unless both parties agree. If the insurer requested mediation or failed to give the notice and either party rejects the result, the policyholder need not submit to a contractual appraisal before suing. Presuit notice, s. 627.70152, F.S.: a written notice of intent to initiate litigation is a condition precedent to filing suit, served on the insurer through the Department of Financial Services at least 10 business days before the complaint is filed, stating that it is given under that section, identifying the alleged acts or omissions and, for claims that are not pure coverage disputes, itemizing the presuit settlement demand and the disputed amount. The insurer must respond in writing within 10 business days, and a court must dismiss a suit filed without proper notice. Do not confuse it with the civil remedy notice and its 60-day cure period under s. 624.155, F.S., which is the prerequisite to a statutory bad faith action. Mandatory binding arbitration, s. 627.70154, F.S.: a property policy may require it only if all five conditions are met — the requirement is in a separate endorsement, the premium includes an actuarially sound credit or discount for it, the policyholder signs a form electing arbitration that discloses the rights given up including the right to a jury trial, the endorsement requires the insurer to comply with s. 627.7015 mediation before arbitration begins, and the insurer also offers a policy that does not require arbitration.

Finally, attorney fees, which is the change candidates are least likely to have read. One-way attorney fees are gone. Section 627.428, F.S. was repealed outright by HB 837 (ch. 2023-15), and SB 2-A had already ended their application to property claims. The narrow replacement, s. 86.121, F.S., awards fees to a prevailing insured in a declaratory action brought after a total coverage denial — but subsection (2) states that the section does not apply to any action arising under a residential or commercial property insurance policy. On a property claim, each side now bears its own fees except under the ordinary offer-of-judgment rules. Any study material describing a right to attorney fees whenever the policyholder wins a property coverage dispute is describing law that no longer exists.