Difference in Conditions Coverage: What Is It and Who Needs It?

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...property policy must include a joint or disputed loss provision that is substantially the same as the DIC provision. If there is a dispute about joint coverage being available, adjusters should check to see if such provisions are included in the policies.

Deductibles

In most all cases, DIC policies contain separate deductibles for flood and earthquake and for all other perils. The flood and earthquake deductibles ordinarily are larger than those for all other perils as well as those found in commercial property policies. This is because they apply to catastrophic losses rather than recurrent smaller losses.

In addition to a dollar deductible, DIC forms use percentage deductibles for loss by earthquake when the exposure is particularly high. These can vary somewhat and usually range from two to five percent. Percentage deductibles apply not to the loss but to a certain percentage of the value of the property. They might be written to apply to a percentage of the total values of property at all locations, or a percentage of the value of each building, the business personal property in each building, or otherwise. It is advantageous for the insured to have a percentage deductible that applies to each unit or each building rather than a deductible that applies to the total values at all locations, as the latter would be a much higher deductible. 6 It is also fairly common to see DIC policies with a percentage deductible for earthquake along with a dollar minimum.

ADIC policy written for a business in a high risk flood zone will likely contain a provision that its flood coverage applies only as excess over a NFIP underlying policy. The NFIP policy for commercial insureds currently provides $500,000 coverage for building and $500,000 for contents. This provision functions like a flood deductible of $500,000 and, in effect, requires the insured to purchase flood coverage under the NFIP in order to activate the DIC coverage in the event of flood damage.

Both the AAIS and ISO forms indicate that all earthquake shocks that occur within 168 hours after the initial quake are considered a single event. In most DIC forms, the...

“In most all cases, DIC policies contain separate deductibles for flood and earthquake and for all other perils.”


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