SUPER STORM SANDY
We hope and pray that all of you receiving this newsletter came through SuperStorm Sandy safely.
Today, Governor Christie signed Executive Order 107 prohibiting insurers in New Jersey from applying hurricane deductibles as a result of Super Storm Sandy. The State held a telephone conference call with the industry on Tuesday to advise of this as well.
Sandy lost its tropical characteristics prior to landfall and was re-classified by the National Weather Service as a "post-tropical cyclone."
As Super Sandy Dozis has already advised, the New York State Department of Financial Services has informed the insurance industry that hurricane deductibles are not triggered for Sandy because it did not have sustained hurricane-force winds when it made land in New York.
We hope you do not encounter adjusters who are not tuned in to these announcements.
State mandated Catastrophe Plans implemented by insurers usually call for an influx of adjusters from elsewhere in the United States, principally it seems from areas where construction costs and values are significantly lower than in New Jersey. Believe it or not, there are some parts of this country where Wal-Mart is the place to shop. Not so in NJ! You may spend a considerable amount of time trying to educate the out-of-state storm trooper. If you can, try to identify where the adjuster lives and his/her experience with prices in NJ. Frequently, the values determined by the catastrophe adjuster are revised by the local office (State Farm follows this business model). Make that contact!
Three important aspects of repair estimates are provided by N.J.A.C. 11:2-17.10 (a)(15):
(1) when a settlement is offered based upon a written estimate prepared by or for the insurer, the insurer must supply a copy to the claimant before beginning negotiations;
(2) such estimates must be of an amount which will allow for repairs to be made in accordance with generally accepted standards for safe and proper repairs, subject to policy conditions, such as limits, deductible, depreciation and prior damage; and
(3) if the insured obtains a written estimate that exceeds the insurer's offer, the insurer must respond within 10 days, and if requested, must provide the name of the contractor that will make the repairs in accordance with generally accepted standards for safe and proper repairs. We suggest you make the request! This will eviscerate the "seat of the pants" estimate by the out-of-state catastrophe adjuster.
Actual Cash Value factors
Several insurance carriers have recently adopted the practice of using current selling prices to determine ACV of property losses. This is to be expected since the real estate market, both commercial and residential, has seen a precipitous decline in property values. You can expect to confront this in adjusting Sandy losses. However styled, this approach should be rebutted at every instance.
New Jersey, like many states, follows the Broad Evidence Rule which allows consideration of all evidence tending to an accurate determination of value. Many factors can be considered, including replacement cost, depreciation, capitalization, rental value, assessment, and original purchase price. A current comparative market analysis is not the sole, or even the best, measure of ACV.
A comparative market analysis has many flaws, the most compelling of which is the current dearth of sufficient comparable sales to make an accurate analysis. More significantly, the reason for current sales must be determined since distress sales, mortgage foreclosures, short sales, and the like skew the values to artificial lows. Fair market value is classically defined as the price a willing buyer would pay to a willing seller, neither party being under a compulsion to buy or sell. Many current sales lack the "willingness" component and thus should not be used for comparison purposes.
Assessment information in New Jersey must not be taken at face value. Municipalities in New Jersey do not re-assess their properties frequently. This leads to an inequality of tax values throughout the state. Accordingly, the State enacted a law leading to the County Equalization-Average Ratio of Assessed to True Value of Real Property, pursuant to N.J.S.A. 54:3-17 et seq. These ratios seek to equalize values throughout the different counties. For example, in Belmar Borough in Monmouth County, the ratio is 59.51%. This means that a property assessed at $200,000 by the municipality has a "true value" for tax purposes of $336,078. (divide the current assessment by the ratio, $200,000 ÷ 0.5951 = $336,078). Where property owners have not filed tax appeals, current assessment information may lead to prices that are in excess of the current market.
County equalization ratios are calculated as of October 1 of each year. The 2012 values are contained in the Lawyers' Diary and on line (search for "New Jersey County Equalization Ratio") or call me. With Superstorm Sandy, we would suggest application of the 2012 values.
If you encounter problems or issues with any adjustments following this storm, please feel free to contact me by telephone at 973-538-4100, or cell phone at 201-317-9806 or by email at email@example.com. We are here to help!