Florida's Valued Policy Law

On the total loss of a building, Florida stops the insurer from re-arguing value after the building is gone. The face amount controls, and actual cash value and market value drop out of the analysis entirely. Candidates who adjust the loss the way they would adjust a partial loss get this wrong every time. The real difficulty is the combined-peril rule, which is where the exam lives.

Questions and answers, explained

All 6 questions above, with the correct answer and why it is correct. Everything here is on florida's valued policy law.

1. A Florida dwelling insured for $250,000 is a total loss from a covered fire. Its actual cash value the day of the fire was $210,000, and the cost to rebuild it exceeds $250,000. There was no change increasing the risk without the insurer's consent and no fraud by the insured. Under s. 627.702, F.S., the insurer's liability for the building is:

   • A$250,000, the amount for which the building was insured and a premium paidCorrect
   • B$210,000, the actual cash value of the destroyed building on the date of the fire
   • C$230,000, the average of the policy amount and the actual cash value figure
   • D$250,000, but only if the insured actually rebuilds on the same premises

   Why: Florida's valued policy law, s. 627.702(1)(a), F.S., provides that on the total loss of a building caused by a covered peril, and absent an unconsented increase in risk or fraud, 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. The face amount controls; actual cash value does not, which is why B is wrong even though it is the intuitive property-adjusting answer. Two limits in s. 627.702(1)(b) are worth knowing. When a loss results partly from a covered peril and partly from an excluded one, paragraph (a) does not apply and the insurer pays only the covered portion, unless the covered perils alone would have caused the total loss. And the insurer is never liable for more than the amount necessary to repair, rebuild, or replace the structure following the total loss, after considering all other benefits actually paid. That second limit is why the stem states that the cost to rebuild exceeds $250,000: had rebuilding cost less than the face amount, that lower figure would cap the payout and A would no longer be the whole answer.

   Reference s. 627.702(1)(a) and (1)(b), F.S.

2. A Florida homeowner's dwelling is a total loss from an accidental fire. The Coverage A limit is $350,000 and premium has been charged and paid on that limit. Rebuilding the identical structure would cost more than $350,000, but the dwelling's actual cash value on the day of the fire was only $290,000 and its market value about $300,000. There is no fraud and no change increasing the risk without the insurer's consent. Under Florida's Valued Policy Law, how much is owed on the dwelling?

   • A$350,000 — the amount for which the property was insured as specified in the policy.Correct
   • B$290,000 — the actual cash value on the date of loss, because the principle of indemnity bars any payment above the property's value at the time it was destroyed.
   • C$300,000 — the market value, with the $50,000 difference returned to the insured as unearned premium.
   • DWhatever amount an independent appraisal fixes as the dwelling's value at the time of the loss.

   Why: Section 627.702(1)(a), F.S., is Florida's Valued Policy Law. On the total loss of a building from a covered peril — absent fraudulent or criminal fault 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 has been charged and paid. Value-based measures such as actual cash value or market value do not control, which is why B, C and D all fail. Two statutory limits still matter. Section 627.702(1)(b) provides that the insurer is never liable for more than the amount necessary to repair, rebuild, or replace the structure following the total loss — here rebuilding exceeds the limit, so that cap is not reached, but where rebuilding cost is lower than the face amount it governs. And under s. 627.702(3) the law does not apply where more than one insurer covers the same building and the insured did not disclose the other insurance, where two or more buildings are insured under a blanket form for a single amount, or to a builder's risk policy on completed value; s. 627.702(5) further excludes appurtenant and other structures whose coverage is not stated in the policy as a dollar amount specific to that structure.

   Reference s. 627.702(1), (3) and (5), F.S.

3. A Florida dwelling insured for $250,000 is a total loss from a covered peril. The adjuster values the actual cash value of the destroyed building at $210,000 and its replacement cost at $265,000. Under s. 627.702, F.S., what is the insurer's liability for the building?

   • A$210,000, the actual cash value the adjuster placed on it
   • B$250,000, the amount of insurance stated in the policy for the buildingCorrect
   • C$265,000, the full cost of replacing the destroyed building
   • D$210,000 now, and the rest only if the owner rebuilds on site

   Why: This is Florida's valued policy law. Under s. 627.702(1)(a), F.S., when a building insured against loss by any covered peril is a total loss, 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. The insurer does not get to re-argue value after the building is gone, so the adjuster's actual cash value figure is irrelevant, and the policy amount is a limit rather than a floor, so the higher replacement cost is not owed either. Option D is the most tempting because it correctly describes ordinary replacement cost adjusting on a PARTIAL loss under s. 627.7011(3), F.S. — pay at least actual cash value first, then the balance as work is performed — but that holdback mechanism does not apply here. Watch the split-cause rule in s. 627.702(1)(b): where a loss was caused in part by a covered peril and in part by a noncovered peril, the valued policy law does not apply and the insurer owes only the covered portion, unless the covered perils alone would have caused the total loss.

   Reference s. 627.702(1), F.S.

4. A hurricane destroys an insured coastal dwelling. Investigation shows storm surge (flood, excluded under the homeowners policy) and wind (covered) each contributed, and that the wind damage alone would not have totaled the building. The Coverage A limit is $400,000. Under s. 627.702, F.S., what does the insurer owe?

   • AThe full $400,000 face amount, because the Valued Policy Law applies whenever a covered peril contributes in any degree to a total loss, regardless of what else contributed.
   • BOnly the amount of damage the covered peril actually caused, since the face-amount rule does not apply to a combined-peril total loss.Correct
   • CNothing at all, because storm surge was the predominant cause and the anti-concurrent causation language voids the entire claim.
   • DThe full $400,000 face amount, reduced by whatever the insured collects under a separate NFIP flood policy on the same dwelling.

   Why: Section 627.702, F.S., expressly addresses combined causation: where a loss was caused in part by a covered peril and in part by a noncovered peril, the face-amount rule does not apply, and the insurer's liability is limited to the amount of loss caused by the covered peril. The critical qualifier is that if the covered peril acting alone would have caused the total loss, the full policy amount is owed. In this scenario the facts state wind alone would not have totaled the building, so the insurer adjusts and pays the wind portion only, and the flood portion is left to the NFIP policy. The statute also confirms an insurer is never required to pay more than the actual cost to repair, rebuild, or replace the structure.

   Reference s. 627.702(1)(b), F.S.

5. A Florida dwelling is a total loss from an accidental fire. The Coverage A limit is $500,000 and premium has been charged and paid on that limit. There is no fraud and no change increasing the risk without the insurer's consent. Rebuilding the identical structure will cost $410,000, and the dwelling's actual cash value on the day of the fire was $360,000. How much does the insurer owe on the dwelling?

   • A$500,000 — the Valued Policy Law fixes liability at the amount for which the property was insured, and the cost of rebuilding does not reduce it.
   • B$360,000 — the actual cash value on the date of loss, because the principle of indemnity caps recovery at what the property was worth when it burned.
   • C$455,000 — the midpoint between the policy limit and the rebuilding cost, with the balance returned to the insured as unearned premium.
   • D$410,000 — the amount necessary to rebuild the structure, because the insurer is never liable for more than that following a total loss.Correct

   Why: Section 627.702(1)(a), F.S., fixes the insurer's liability on the total loss of a building at the amount for which the property was insured and for which a premium has been charged and paid — which is why actual cash value and market value do not control, and B fails. But s. 627.702(1)(b) caps that liability: the insurer is never liable for more than the amount necessary to repair, rebuild, or replace the structure following the total loss. Where rebuilding costs MORE than the face amount, the cap is never reached and the face amount is owed. Where rebuilding costs LESS, as here, the cap governs and the insurer owes the $410,000 rebuilding cost rather than the $500,000 limit. That is the whole difference between this item and the more common version of it, and reading the two numbers in the wrong order is how the point is missed. C is not a rule that exists anywhere in the statute.

   Reference s. 627.702(1)(a) and (b), F.S.

6. Florida's Valued Policy Law does not reach every total loss. To which of the following does s. 627.702, F.S., NOT apply?

   • AA homeowners policy insuring a single dwelling for a stated Coverage A amount, where the dwelling is a total loss from an accidental fire.
   • BA dwelling policy where the insured also carries an excess policy on the same building and disclosed that other insurance to the insurer before the loss.
   • CA commercial policy insuring two warehouses under a blanket form for a single combined amount, where one of the two is a total loss from fire.Correct
   • DA dwelling insured for a stated $500,000 whose actual cash value on the date of loss had fallen to roughly half that figure.

   Why: Section 627.702(3), F.S., withdraws the Valued Policy Law from three situations: where more than one insurer covers the same building and the insured did NOT disclose the other insurance, where two or more buildings are insured under a blanket form for a single amount, and where the policy is a builder's risk policy on completed value. C is the blanket-form exclusion — the statute needs one building insured for one stated amount before a face amount can be owed on it, and a single combined limit across two warehouses does not supply that. B is the near miss and it is worth reading carefully: other insurance defeats the law only when the insured FAILED TO DISCLOSE it, so disclosure keeps the risk inside the statute. A and D are ordinary Valued Policy Law cases; D in particular is the core of the law rather than an exception, since the whole point is that value-based measures do not control. Section 627.702(5) adds a further carve-out worth knowing: appurtenant and other structures whose coverage is not stated in the policy as a dollar amount specific to that structure.

   Reference s. 627.702(3) and (5), F.S.

Drill the whole domain

• Florida Statutes, Rules and Regulations Pertinent to Property and Casualty (15%)
• Property Policy Provisions and Contract Law (8%)

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