What is the Difference Between a Total Loss Claim and a Constructive Total Loss Homeowner's Insurance Claim?

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

If you are filing a homeowner’s insurance claim, whether you have suffered a total loss or a partial loss is very important because it will affect the types of laws that will govern your claim, and ultimately your recovery. Generally speaking, there are two forms of total losses. To help distinguish the two types I will call the first type an actual total loss and the second type a constructive total loss. I would like to point out that the term “total” loss may be a bit of a misnomer. This is because your home does not have to be completely destroyed for your home to be characterized a “total” loss for the purposes of your insurance claim. In fact, the main difference between an actual total loss and a constructive total loss is merely definitional.

Actual Total Loss

The Supreme Court of Florida established that the “identity test” is the proper test to determine whether your home will qualify as the first type, the actual total loss. The identity test does not require that the home be completely destroyed to the point beyond recognition. However, this test does require that the building have lost its “identity and specific character...” such that is has “become so far disintegrated, it cannot be possibly designated as a building…” As a practical matter, this designation often means that the replacement cost exceeds the total value of the property. However, in reality the identity test, as set out by the Court, envisions a situation in which your home has become so damaged that a reasonable person under the circumstances would not repair it. For example, a two-story home where the second floor has collapsed onto the first floor has lost its identity as a two-story home. Additionally, it’s probably the case that such a repair may cost more than the property itself. Under these circumstances, an actual total loss is the proper designation.

Constructive Total Loss

A constructive total loss is a little bit different. Courts have generally defined this type of total loss as one in which a building is destroyed to such an extent which local ordinances, building codes, or regulations prevent the homeowner from rebuilding the home. This type of total loss does not need to meet the stringent identity test standard, and indeed the building may not even require a very large amount of money to repair. The only thing this test requires is that the insured be prevented from repairing her building because of some government action. A typical example is a fire that has burned part of a building. The fire may have been contained so that it only damaged a section of the building. However, the fire may have compromised the structural soundness of the remainder of the building. Perhaps the county condemns the building as a result of this fire. Although the building is not actually a total loss, the building is, for all intents and purposes, a total loss because the insured cannot return to status quo. Thus, in these circumstances a constructive total loss is the proper designation.

Does it matter whether my home is deemed a constructive total loss or an actual total loss?

If your home is deemed a total loss and your homeowner’s insurance covers the peril, it really doesn’t matter whether the loss is constructive or actual. In effect, an actual total loss and a constructive total loss are very similar. The difference is one of form, but not necessarily one of substance. The only thing that is important is that your home has suffered a total loss. This is because of Fla. Stat. §627.702, otherwise known as the Value Policy Law (VPL). At its core, the VPL states that a homeowner that has suffered a total loss as a result of a covered peril is entitled to receive the full value of her dwelling limits under her insurance policy regardless of the actual value of the property. The value of the insured property is deemed to be determined at the time the insurance contract is made, and the rule states that the insurer will be barred from later challenging the value of the property. The VPL does not differentiate between constructive total losses and actual total losses, and Florida courts have consistently held that the type of total loss is irrelevant.

However, even if the home is determined to be a total loss, thus implicating the VPL, insurance companies are only prevented from disputing value. Of course, they may still deny your claim on other grounds, such as loss by a non-covered peril, or failure on the insured’s part to comply with the insurer’s investigation. So for example, if a home has become a total loss as a result of a hurricane, the cause of the loss may have been flooding or windstorm. If the insured only has windstorm coverage, the insurer will probably claim the total loss was caused by flooding, a non-covered peril. Issues like this often become the point of litigation. Do not let your insurance company deny you the benefits you are entitled to. You paid your premiums, and now it is your insurer’s turn to make good on their promise to take care of you in your time of need. If you need help dealing with your insurance company, it is never too early to consult with an experienced insurance claims attorney.

You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].

Sources

Fla. Stat. §627.702

Lafayette Fire Ins. Co. v. Camnitz, 111 Fla. 556 (Fla.1933).

State Farm Florida Ins. Co. v. Ondis, 962 So. 2d 923 (Fla. 1st DCA 2007).

Citizens Property Ins. Corp. v. Hamilton, 43 So.3d 746 (Fla. 1st DCA 2010).

Ceballo v. Citizens Property Ins. Corp., 967 So. 2d 811 (Fla. 2007).