ACV with no appraisal

[Jared Minnick]

Hi all, looking for some input on how the "other agent" was able to get the higher limits.

Central California coastal area.

The customer purchased a commercial property - 1930's with updates over the years to the current code. 11k sqft, ISO 2, 2 story, currently vacant. The first floor is built out, and the second floor is stripped to studs.
The original published asking price was $1.6M. the customer paid $1.05M cash. No appraisal was done.

So we have a vacant property w/ a builder risk.

Customer said he has quotes with $2M and $2.04M limits ACV.
I am being told, (if the carriers will even entertain the vacancy/age/ shared common wall, builders risk, etc) that there is really no above-board way to get a $2M ACV policy with no appraisal when the published asking price was $1.6, the actual purchase was $1.05 and it's only halfway built out and currently vacant. "what carrier is going to knowingly allow risk to profit in the event of a loss?"
I am green enough that I know that I do not know how to respond intelligently.
thoughts?
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[Al3x Lee]

Are you trying to harvest us for data to respond to someone on Facebook? I only assume because you have "Like, comment and send" at the bottom of your post. Tell them that ACV Alex gave you this information -

As far as I am aware, unless there is an agreed value endorsement or something similar, you can claim whatever ACV limit you want; that doesn't mean the carrier will pay out $2M+ at the time of the loss. From what you've described, the building may be over-insured, meaning the insured pays more in premium for the $2M+ Limit. It's called a "limit", not a guarantee, for a reason.

I can ask my insurance company for a $50,000 ACV value on my 1993 Honda accord, but if I total it, I'll be lucky to see a check for $1,500 after my deductible, because the car's actual cash value isn't $50,000.

If the depreciated value of the insureds structure is $1M for example, the $2M ACV limit is meaningless.

 

[Jared Minnick]

Are you trying to harvest us for data to respond to someone on Facebook? I only assume because you have "Like, comment and send" at the bottom of your post.

Didn't understand what you were saying, then went back and read my post.

I just copied my question from my own Facebook group question instead of retyping it. I didn't realize it copied that as well.

No, not trying to harvest for someone else. It's my question. I appreciate your answer!

 

[Al3x Lee]

Didn't understand what you were saying, then went back and read my post.

I just copied my question from my own Facebook group question instead of retyping it. I didn't realize it copied that as well.

No, not trying to harvest for someone else. It's my question. I appreciate your answer!

Happy to help. What's the consensus on your Facebook group?

 

[adjusterjack]

I am being told,

Told by who? "I was told" is the most dangerous phrase in the English language. Especially if you've been "told" by anybody but an insurance company underwriter whose job it is to evaluate risk, coverage, and price.

Jared, you're new here so a brief introduction to me will help you validate my comments. I spent 35 years in the property/casualty insurance industry with the last 9 years as a property loss adjuster.

Asking price, purchase price, market value, appraised value, all of those have absolutely nothing to do with how much builder's risk coverage a building owner should buy.

You determine the amount of coverage by determining the anticipated cost of construction.of the completed project (less some depreciation to determine ACV) plus whatever ancillary coverage the insured might want to buy.

Here's a brief explanation of builder's risk coverage.

What Is Builder's Risk Insurance? | The Hartford

$2M to $2.04M for an 11,000 sf building is $182 to $185 per sf. At today's construction costs that seems a little light but I suppose that could have already been adjusted for depreciation, in which case I can't imagine any insurance underwriter being unwilling to write those amounts of coverage, with a building contractor's estimate to back it up if, indeed, that amount is the estimated construction cost.

 

[Jared Minnick]

Happy to help. What's the consensus on your Facebook group?

Only a single reply so far, paraphrasing - insured lied to other broker/agency.

That seems like a harsh goto immediately without knowing all the facts. It very well could be something else. Hence the reason I am asking for alternative possibilities.

 

[Jared Minnick]

Told by who? "I was told" is the most dangerous phrase in the English language. Especially if you've been "told" by anybody but an insurance company underwriter whose job it is to evaluate risk, coverage, and price.

Jared, you're new here so a brief introduction to me will help you validate my comments. I spent 35 years in the property/casualty insurance industry with the last 9 years as a property loss adjuster.

Asking price, purchase price, market value, appraised value, all of those have absolutely nothing to do with how much builder's risk coverage a building owner should buy.

You determine the amount of coverage by determining the anticipated cost of construction.of the completed project (less some depreciation to determine ACV) plus whatever ancillary coverage the insured might want to buy.

Here's a brief explanation of builder's risk coverage.

What Is Builder's Risk Insurance? | The Hartford

$2M to $2.04M for an 11,000 sf building is $182 to $185 per sf. At today's construction costs that seems a little light but I suppose that could have already been adjusted for depreciation, in which case I can't imagine any insurance underwriter being unwilling to write those amounts of coverage, with a building contractor's estimate to back it up if, indeed, that amount is the estimated construction cost.

Hi Adjusterjack,
So I am aware RE: builders risk vs limits/vales, etc. The Builders Risk quote was separate and for estimated materials and estimated costs and values associated with the build-out of the second floor. Those estimates were itemized and submitted by the insured.

The issue was surrounding that initially the insured wanted a 5M Limit, I told him not possible as that's estimated value once construction is completed and you have occupancy cert, and even then, probably a little high at at nearly 500/sqft.

He came back and asked me to get a 2.5M. I asked for anything establishing a ACV of that high in current condition. The listing for the property was at 1.6M and he only paid 1.05M. no appraisal was done. Comps for similar in the area at market value, fully renovated and operational were 2M-2.5M.

I just couldn't get any UW to quite higher than purchase price if they were even entertaining it. I understand it. It makes sense to me, I just can't see where /how he could get the other limits without some sort of agreed value or some misinformation being used and not checked?

 

[adjusterjack]

I just couldn't get any UW to quite higher than purchase price if they were even entertaining it. I understand it. It makes sense to me,

Well, it doesn't make sense to me because the basis for builder's risk is the cost of construction.

I just can't see where /how he could get the other limits without some sort of agreed value or some misinformation being used and not checked?

In my days as an agent I had that happen to me. A competing agent got a better deal than I could get and I could never figure out how.

All you can do is your best and then move on.

 

[Jared Minnick]

Hi Adjusterjack,
Sorry, two separate policies. One the builders risk, the other a vacant property. The vacant property is the policy with the limit issue.

The Builders Risk was only for materials, and limited premise liability. No property coverage.

 

[adjusterjack]

One building?

First floor complete?

Second floor to be under construction?

Why two policies? Why not one policy with a builder's risk endorsement for the area to be worked on?