Introduction to Florida Statute 627.702
For candidates preparing for the Florida 2-20 General Lines Exam, understanding the Florida Valued Policy Law (VPL) is essential. Codified under Florida Statute 627.702, this law mandates how insurers must settle claims involving the total loss of a building or structure. The primary purpose of the law is to prevent insurers from collecting premiums on a specific limit of insurance and then attempting to pay out a lesser amount when a total loss occurs.
Under the VPL, if a building, structure, or mobile home located in Florida is insured by an insurer as to a covered peril and is a total loss, the insurer's liability for that loss is the amount of money for which the property was insured as specified in the policy. This represents a significant departure from the standard principle of indemnity, which usually limits recovery to the Actual Cash Value (ACV) or Replacement Cost Value (RCV).
To master this topic for your license, you should also review our complete FL 2-20 exam guide and practice with practice FL 2-20 questions.
Key Pillars of the Valued Policy Law
Criteria for Application
The application of the VPL is not universal to every claim. For the law to take effect, several specific criteria must be met:
- Total Loss: The property must be deemed a total loss. This can be a constructive total loss (where the cost to repair exceeds the value) or an actual total loss (where the structure is completely destroyed).
- Covered Peril: The cause of the loss must be a peril specifically covered under the policy. For example, if a house is destroyed by fire and fire is a covered peril, the VPL applies.
- Type of Property: The law specifically applies to any building, structure, mobile home, or manufactured building. It does not apply to personal property (contents) or detached structures unless they are specifically scheduled as buildings.
If these conditions are met, the insurer is prohibited from arguing that the property was worth less than the policy limit at the time of the loss. The face amount stated in the policy is considered the liquidated damages agreed upon by both parties.
VPL Settlement vs. Standard Indemnity
| Feature | Standard Indemnity (ACV/RCV) | Valued Policy Law (VPL) |
|---|---|---|
| Basis of Payment | Current Value or Repair Cost | Face Amount of Policy |
| Depreciation | Applied in ACV settlements | Never applied |
| Loss Type | Partial or Total Losses | Total Losses Only |
| Burden of Proof | Insured must prove value | Policy limit is pre-set value |
Important Exam Distinction
The Valued Policy Law does not apply to partial losses. For partial losses to buildings, the insurer's liability is limited to the actual cost of repairing or replacing the damaged part of the property, or the amount stated in the policy, whichever is less. Always check if the exam question specifies a total or partial loss.
The Wind and Flood Conflict
In Florida, a common complication arises when a total loss is caused by both wind (a covered peril) and flood (typically an excluded peril). This is often referred to as a "concurrent causation" issue. Under the VPL, if a covered peril (wind) and an excluded peril (flood) combine to cause a total loss, the insurer is generally only liable for the portion of the damage caused by the covered peril.
However, if the covered peril alone was sufficient to cause a total loss, the VPL may require the insurer to pay the full face amount regardless of subsequent flood damage. This area of law is frequently litigated and requires a clear determination of the "proximate cause" of the total loss. For the 2-20 exam, remember that the VPL applies when a covered peril causes the total loss.
Frequently Asked Questions
No. The Florida Valued Policy Law applies only to buildings, structures, and mobile homes. Loss of personal property (Coverage C) is settled based on the terms of the policy, usually Actual Cash Value or Replacement Cost, but not the face amount unless specifically endorsed.
If the insurer accepted premiums based on a certain limit, they must pay that limit in the event of a total loss by a covered peril, even if the limit exceeds the actual value of the home. This encourages insurers to perform accurate inspections and valuations at the time of underwriting.
No. If the total loss is caused by a peril not covered by the policy (such as an earthquake or a flood on a standard HO-3 policy), the insurer has no liability under the VPL because there is no coverage for the cause of loss itself.
No. In a total loss scenario governed by the VPL, the face amount of the policy is paid in full. Depreciation is irrelevant because the law establishes the policy limit as the agreed-upon value of the total loss.