While specific statutes vary by state, valued policy laws generally require that in the event of a total loss caused by a covered peril, the limit listed in the policy declarations shall be the dollar amount paid to the insured at the time of the loss. If the value of an insured item at the time of said loss is less than the amount of insurance, the insurer has no recourse to contest payment in full. Moreover, in most valued policy states, any policy provision inconsistent with the valued policy law is considered void.
Here’s a sample from Florida,
627.702 Valued policy law:
“(1)(a) In the event of the total loss of any building, structure, mobile home as defined in s. 320.01(2), or manufactured building as defined in s. 553.36(13), located in this state and insured by an insurer as to a covered peril, in the absence of any change increasing the risk without the insurer’s consent and in the absence of fraudulent or criminal fault on the part of the insured or one acting in her or his behalf, the insurer’s liability under the policy for such total loss, if caused by a covered peril, shall be in the amount of money for which such property was so insured as specified in the policy and for which a premium has been charged and paid.
(b) The intent of this subsection is not to deprive an insurer of any proper defense under the policy, to create new or additional coverage under the policy, or to require an insurer to pay for a loss caused in part by a covered peril and in part by a noncovered peril, paragraph (a) does not apply. In such circumstances, the insurer’s liability under this section shall be limited to the amount of the loss caused by the covered peril. However, if the covered perils alone would have caused the total loss, paragraph (a) shall apply. 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 for the total loss.”
So, how do you know if your state includes laws like this? We created a quick guide to help.