6 ADJUSTINGTODAY.COM the fve buildings, the full extent of the exposure. When the amount of insurance is substantially less than the value covered, a coinsurance penalty is often deducted from the amount of recovery.) A coinsurance penalty reduces your insurance recovery for a loss to the percentage of the limit you purchased to the total value at risk. So, how might estimates of salvage value afect the determination of actual cash value or replacement cost? Could a robust estimation of salvage value work to drive up the replacement cost or actual cash value of the property subject to loss? Could that, in turn, trigger a coinsurance penalty? Give It Back? So much for complications that arise before a loss settlement. What happens after a loss payment if an insured that retained salvage makes more money than anticipated on its sale? Standard commercial property insurance policies include “recovered property” provisions that require the insured to reimburse the insurer for any property that was paid for and later recovered (less expenses for recovery and repair).1 It’s not clear whether and how greater-thananticipated salvage sales would equate to“recovered” property under the ISO provision. But numerous other property forms include a“salvage and recovery” provision which stipulates that all recoveries from salvage after a settlement would be considered as if they had occurred before the settlement, and that all payments would be adjusted accordingly.2 Under such a provision, an insured will have to reimburse its insurer for any salvage recovery that exceeded the estimated agreed upon value in the settlement. The Bottom Line: Be Informed! Perhaps the only certainty in dealing with insurance claims involving salvage is that no two cases will be exactly the same. To avoid unpleasant surprises after a loss, commercial property and business owners are well-advised to know ahead of time their rights, obligations and options regarding salvage, and all conditions in the law and in their policy that will afect the amount and timing of an insurance payment.
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