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Personal Lines Claims

Adjusting Residential House Fires

George Epps | October 9, 2004

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House on fire

Adjusting a house fire is a difficult endeavor under the best of circumstances. Emotions run high, and values can run low, particularly where the coverage is on an actual cash value basis. Additional living expenses, damage to contents, cleaning, and restoration all need to be considered.

Fire claims can range from total losses to minor smoke damage and all degrees of severity between. In the examples provided in this article, it is assumed all causes of the fire are legitimate, and there is no question of arson on the insured's part.

There are many factors to consider when adjusting fires. For one, the emotional effect the fire has on the insured must be addressed. Oftentimes an entire family has been displaced, and all of their belongings have been lost. This can be very difficult for the family to handle, and can be emotionally difficult.

When a fire loss has occurred, the insured will be anxious to know what kind of coverage is available. The policy coverage will have a lot to do with how the adjuster handles the loss. Some of the major considerations are:

  • Is the risk underinsured?
  • Is the risk overinsured?
  • Is the risk owner-occupied?
  • Is the risk tenant-occupied or vacant?
  • Is there contents coverage?

A large factor in adjusting this kind of loss is whether the policy has replacement cost coverage or if it is an actual cash value policy. There will be situations where the claim is an obvious total loss. When there is only a pile of ashes, this can be an easy claim to adjust.


To understand why losses are adjusted the way they are, it is necessary to understand the terminology being used.

Replacement cost coverage means replacing with materials of like kind and quality.

Actual cash value or ACV is defined as replacement cost less depreciation.

Depreciation means a loss of value due to wear, deterioration, or obsolescence.

Additional living expenses or ALE is defined as expenses that would not have occurred had the loss not taken place. These are expenses over and above the normal expenses.

Total loss is a loss that completely destroys or renders useless the insured property or completely exhausts the applicable insurance limit.

Contents are defined as personal property.

Valuation and Limits

A common claim is a fire at a tenant dwelling. In many of these claims, the risk is written on an ACV basis. One example of this type of claim is a grease fire in the kitchen. In this situation, there may be only minor burns and heat damage but there is smoke and soot throughout the risk. If this is the case, repairs might be as simple as replacing a vent hood and cleaning or painting the rest of the risk. It should also be noted that under a tenant-occupied risk, the stove and refrigerator are usually considered part of the structure, while in an owner-occupied risk, they are considered to be personal property.

In a more serious fire, the policy limits can come into play. If there is a question of whether the loss will exceed the policy limits, a complete repair estimate should be written. Since the loss is expected to exceed the policy limits, the more expensive repairs should be considered first. With some companies, a scope of all repairs is necessary. With others, it is necessary only to include repairs until the policy limits are exceeded. The notation, "additional repairs in excess of the policy limits are not included in this estimate," may be added.

If this is a tenant-occupied dwelling, there might be a provision for loss of rent. If this is the case, it will be necessary to determine the amount of the rent and the time it will take to make repairs.

Another common claim is with an owner-occupied dwelling written on an ACV basis. If this is the case, the structure part of the claim could be handled in the same manner as the previous example. There would, however, be a great difference in the way the entire claim would be treated.

Additional Living Expenses

Of major concern is where a displaced family will stay. If the fire was severe enough to make the dwelling uninhabitable, it will be necessary to make arrangements for living quarters. When determining the living quarters, it will be necessary to determine an approximate time for repairs. If repairs can be made in a short period of time, it might be appropriate to house the insured in a local motel or hotel. If repairs will require many weeks or months, it might be more economical to rent a house or an apartment.

It is important to remember that ALE is usually a limited amount, and it is not advisable to use up the limits of coverage prior to repairs being completed. Also it should be noted that the insured should be kept as near as possible to the same standard of living. Thus it would not be appropriate for a person living in a $50,000 risk to be housed in a $1,000-a-night presidential suite.

Another consideration to be made relating to ALE concerns the size of the family. If the family is large and requires 3 or 4 rooms to house, it might be more economical to rent a house or an apartment even for a short stay. The age of the children and the required meals and laundry also have to be considered. If the insured is in a hotel or motel, all meals and laundry would fall under the ALE. If an apartment is rented and a stove, refrigerator, and washing machine are available, meals and laundry would now be normal expenses and not covered by ALE.

There might be rental property right in the neighborhood. If this were the case, undamaged contents could be moved directly into the rented unit. If there were school-age children, this would be more convenient and less disruptive on the family. If the rental unit does not have a stove, refrigerator, or washing machine, they could be rented.


There also may be a situation where all of the insured's contents are lost. If this is the case, it might be necessary to get an advance to purchase clothing and other immediate necessities. This is the time when it is important for the adjuster to take the lead and provide guidance for the insured. When the adjuster takes the time to reassure and advise the insured at the beginning of the claim, the conclusion of the claim is usually much easier.

An important consideration is the amount of coverage for the contents and if the coverage is on a replacement cost basis. If the amount of coverage is small and on an ACV basis, it may be obvious the loss will exceed the policy limits for contents. In any event, the insured will usually be required to make an inventory of damaged contents. The inventory form should show the item by brand name if possible, where the item was purchased, when the item was purchased, the cost of the item, and whether the item was new or used when it was purchased.

If it is not obvious the damaged contents will exceed the policy limits for contents, it will still be necessary to make an inventory. However, in addition to obviously damaged contents, there may be contents that can be cleaned. There may also be contents that it may not be possible to clean. It is important to separate the contents into yes, no, and maybe. To determine if contents can be cleaned, it might be necessary to bring in a fire restoration company. Companies such as Servicemaster, Servpro, Blackmon-Mooring Restoration, and others specialize in fire and water restoration. These companies can assist the adjuster and the insured in determining what can and cannot be cleaned.

If the insured is going to exceed the policy limits for contents, it is important to save any items that can be salvaged. When the insured begins the inventory, it is important to proceed in an orderly manner. The easiest way is to go room by room with the most expensive items listed first. It is also important for the adjuster to take detailed photographs of each room. Big ticket items such as televisions, computers, beds, large furniture, and any other expensive items should be photographed and identified. The photographs can help confirm or deny the insured's inventory. Of special concern when dealing with the insured's contents are computers and electrical items. If there is only smoke and light soot and no heat, it might be possible to clean these items. However, if these items are to be cleaned, immediate attention is required. This is another reason to have a restoration company involved in the claim.

Cleaning and Restoration

When adjusting any fire claims that are not going to be a total loss, there are two things that have to be considered. A claim cannot be settled if there is an odor problem. Any time there is smoke, soot, or charred wood, an odor is emitted. To stop the odor, it is necessary to eliminate the source of the odor. Charred wood can be replaced or the burned area can be scraped and sealed. Smoke and soot can usually be eliminated from areas or items with hard surfaces. They can either be cleaned or painted. Items such as insulation should be replaced if there is smoke or soot. It is very difficult to seal insulation on a permanent basis. Soft-surface items such as clothing, mattresses, sofas, and curtains tend to absorb the smoke and soot odors. A restoration company should be used if there is a question as to whether these items can be cleaned and deodorized.

A second area to be considered when the fire is not going to be a total loss is the air-conditioning system and ductwork. Smoke and soot tend to gravitate to the A/C ducts. The ductwork either needs to be replaced or to be cleaned and sealed. There can be a real problem when the house and contents are all painted and cleaned but the A/C ducts are not addressed, because when the A/C unit is turned on, soot can blow out onto the freshly painted and cleaned areas.

When dealing with fire claims, the fact of ACV versus replacement cost becomes very important to an adjuster. There will be times when items may or may not clean or when items may or may not be repairable. What the adjuster needs to look at in these situations is what will it cost for the repair or cleaning versus what is the cost of totaling the items and applying the proper depreciation. In many cases, it will cost less to just total the item.

Obsolete and Sentimental Items

An area where the adjuster has to be very careful to properly make explanations to the insured is with items that have become obsolete. These may include items such as old computers, old typewriters, and other electronic equipment. In many cases, the insured assigns a value much greater than the actual value of the item.

The insured also tends to overvalue items that have a family history or sentimental value. These might include handmade items handed down from previous generations, old family photographs or picture albums, old baby clothes, and old wedding dresses. These type items have great sentimental value to the insured but may have little or no actual value.


This article has mostly dealt with fire claims where the coverage is on an ACV basis. My next article will be a continuation and will include adjusting claims where there is replacement cost coverage.

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