FOLK WISDOM 

Many of life's thorniest problems can be successfully analyzed by referring back to what we learned as children. Take the case of the Three Little Pigs.

You remember, the first little pig built his house out of straw; the second little pig built his house out of sticks, and the third little pig industriously built his house out of bricks. The big, bad wolf huffed and puffed and blew down the houses made of straw and sticks, but could not damage the house made out of bricks.

As luck would have it, the first little pig purchased a policy of homeowner's insurance and has come to you for assistance in making his claim. Having learned his lesson, he now wants to rebuild, but with bricks. Can you help him?

As always, the first recourse is to the policy. Does the policy provide sufficient coverage to fund rebuilding with bricks? Let's assume that the underwriter did provide sufficient coverage. Let's assume moreover that coverage is on a replacement cost basis[1]. How can the insured recover the amount necessary to rebuild what he wants? Bear in mind that the policy usually contains a provision limiting the maximum payment to the amount necessary to rebuild with materials of like kind and quality. This does not, however, require the insured to rebuild with such materials, it just limits the payment. The first challenge then is to determine if any legitimate builder will provide an estimate of the replacement cost for what was lost (a straw house) that would come close to the cost to build a brick house. Assuming a shortfall, where can you go?

First suggestion: check the policy for additional coverage for the increased cost of construction required by code. While the "cut rate" insurance policy may limit or exclude this coverage, other policies do provide real help. Then check the local building codes. Did they, at the time of the loss, require wind-resistant construction or something similar? If so, you may be able to recover additional funds to help your insured, but note that this coverage is payable only if the insured actually rebuilds.

Second suggestion: the unfortunate insured may have to reallocate some of the actual cash value payment received for contents to the building reconstruction cost. This may be necessary, but it is not a happy situation unless your insured buys into the "de-cluttering" mantra.

In the final analysis, you can assist the insured to recover the depreciated cost of the lost or damaged property, and even the replacement cost of that lost or damaged property, but your opportunities magically to elevate the insured into a better position after a loss are few. You may have to explain to your disappointed insured that under the policy of insurance purchased, the insurer will only cover the cost to rebuild the house that was damaged, not the cost to construct a better residence. You can perhaps soften the blow by offering the analogy of the Three Little Pigs.

If we can assist you in dealing with these difficult situations, please feel free to contact us by telephone at 973-538-4100 or by email at tmaloney@thomasmaloneylaw.com. We are here to help!

We wish you all very Happy Holidays and a New Year of health, peace and happiness.