Salvage: Dealing with Damaged Inventory After a Loss

ADJUSTING TODAY

The more difficult part is establishing the ac- curate salvage value of the damaged goods.

Although typically not given much thought, salvage has a significant impact on a claim and the claim process. It can either be a means to be fully indemnified for a loss, or potentially impede the recovery. If there is sufficient insurance on the damaged goods, the insured still has the first choice in the handling of the goods whether they are sal- vageable or not. After all, it’s his/her goods until paid for by the insurance company. If the owner of the damaged goods has no insurance for his/her loss, every penny that can be recouped from the pile of debris is even more critical for the owner.

The Basics of Salvage

The dictionary describes “salvage” as

The owner of damaged goods (insured or not) will always want to recover as much as possible for the salvageable items. How that is accomplished could fill volumes of books, as almost every salvage effort is unique. This is because the major factors that affect sal- vage value are market conditions, and time and place of loss. Each of these components is ever-changing.

The following scenarios provide a basic look at salvage principles.

1. Salvage Turned Over to the Insurance Company

Insured A has $100,000 in inventory value. They have $100,000 in coverage without a coinsurance clause or a deductible in the policy. In the event of a total loss to the in- sured property the insured would be paid the policy limits of $100,000 and surrender title and ownership of the damaged inventory. The inventory, now owned by the insurance company, would be removed by them and salvaged if possible.

2. Salvage Retained by the Insured

Insured A has $100,000 in inventory value. They have $100,000 in coverage without a coinsurance clause or a deductible in the policy. In the event of a loss to the insured property the insured decides to retain and attempt to salvage the inventory themselves. The insurance company places a salvage value of $30,000 on the damaged inven- tory. The $30,000 value is deducted from the policy limits of $100,000 and the insured would be paid $70,000. It is then up to the insured to salvage the inventory.

3. Salvage in an Underinsured Loss

Insured A has $100,000 in inventory value. They only have $50,000 in coverage and no coinsurance clause or a deductible in the policy. In the event of a total loss the insured is paid $50,000 — the limit of liability of their policy. The insured also retains the damaged inventory and, if salvageable, those monies contribute to the reduction of the policyholder’s un-insured loss. Salvage becomes a means to become more fully in-...


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