Insurance companies exert their power and influence in the property damage claim process through lobbying efforts to ensure local and state laws work in their favor. The passing of SB-76 in Florida is just one recent example. Carriers spent millions of dollars convincing lawmakers to pass bills that will ultimately cost property owners more and reduce claim payouts. While new insurance laws get a tremendous amount of press, they aren’t the only thing consumers should be worried about. Insurance companies and their lobbyists are now challenging existing to influence how claims are paid. One example is SB 434 in Wisconsin, which threatens to eliminate raze ordinances in the state.
What Is A Raze Order?
Under the Wisconsin general municipality statute 66.0413, the governing body, building inspector, or other designated officer of a municipality may file to demolish a building/home if the structure is old, dilapidated, or out of repair and consequently dangerous, unsafe, unsanitary, or otherwise unfit for human habitation and unreasonable to repair. Under this law, there is a general presumption that repairs are “unreasonable” when the municipality determines that the cost to repair a building would exceed 50% of the building’s value.
Why Are Insurance Carriers Concerned With Raze Orders?
Raze orders play an essential role in total loss property damage claims like those caused by fires. When a total loss claim is filed, and the building/home meets raze criteria, the insurance carrier must pay the policy’s total limits. However, the estimated repair costs are less in some cases, which could mean substantial savings for the insurance carrier if the raze order criteria didn’t apply.
How Do Raze Orders Protect Policyholders?
Insurance policies are sold based on the assumption that the policyholder will be “made whole” if a loss occurs. This assumption is especially important for total loss property damage claims as their home is likely their most significant investment. Therefore, should the property be deemed unreasonable to repair, the policyholder should be entitled to a total payout per their policy. However, insurance carriers in Wisconsin don’t necessarily agree.
Carriers have previously challenged raze order requirements when it comes to insurance claims in court. One example is the Auto-Owners Insurance Company v. City of Appleton, 2017 WI App 62 case from 2015 that involved a total loss claim for a house fire in Appleton, WI.
In the claim, the initial estimate for repairs was $130,000, but the home itself was only worth $124,000. The city ordinance calculation determined that the home qualified for a raze order to be executed. The insurance company argued that most of the damage was non-structural and high costs were associated with smoke and water damage. According to the carrier, the language in the raze order statute referring to “out of repair” buildings only authorized municipalities to raze “old” buildings that had deteriorated over time, not buildings that had suffered non-structural damage resulting from a sudden fire. In addition, they argued that the raze order was at the request of the homeowner, not from the city, and therefore should not apply to the claim.
The Wisconsin Court of Appeals ultimately sided with the city of Appleton. It upheld the raze order decision and found that the insurance carrier’s “interpretation of the raze order statute was “unsupported by the statute’s plain language and evident purpose and would “produce an absurd result.”
In the end, the raze order on the home allowed the policyholder to rebuild a new home and recover the benefits under the policy they paid premiums for.
How Much Control Do Carriers Have Over City Ordinances and State Statutes?
The short answer is insurance companies have a lot of control. In the U.S., the insurance industry is regulated at a state level. State lawmakers are obligated to ensure that policyholders’ interests are taken into account and protected, not big insurance companies. While this may seem like a black and white process, insurance carriers spend millions each year lobbying to pass bills that benefit them.
One example of this is newly proposed legislation in Wisconsin that is almost completely funded by big insurance companies. Known as SB 434, this proposed law would change the existing 50% of assessed value threshold to 70% of insured value and give insurance carriers unfair control of the raze order process. Learn more about the impacts of SB 434 and how to voice your concerns by clicking here.
Policyholders often don’t have the same level of representation in the legislation process, which puts them at a considerable disadvantage. In most cases, it is up to organizations like American Adjuster Association to ensure policyholder rights are protected.
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