I’ve just posted the new regulations promulgated by the Tennessee Department of Commerce and Insurance governing the investigation and disposition of claims arising under certain types of insurance issued to residents in Tennessee. We’ve attended the hearings that were held on these regulations, and followed the rulemaking process. Regulation 0780-01-05-.010, entitled Standards for Prompt, Fair and Equitable Settlements Applicable to Fire and Extended Coverage Type Policies with Replacement Cost Coverage, contains two provisions which may expand fire insurer’s obligations when calculating replacement cost:
a.The replacement cost must include the value of any consequential physical damage incurred in making such repair or replacement unless otherwise excluded by the policy. The insured does not have to pay for any cost except for betterment an any applicable deductions; and
b.When a loss requires replacement of items and they do not match in quality, color or size, the insurer shall replace items so as to conform to a reasonably uniform appearance according to the applicable policy provisions. This applies to interior and exterior losses. The insured shall not bear any cost over the applicable deductible, if any.
There were comments during the process regarding this rule, particularly the “matching” component. One comment was discussed in the regulations:
0780-01 -05-.10(1 )(b)
It was commented that the phrase “uniform appearance,” when referring to replacement of an item when the replacement item does not match the item being replaced under a property insurance policy, may be ambiguous. The commenter indicated that a reasonableness factor is already applied to replacement claims. It was further commented that there is concern this may also apply to repairs of damaged items.
Response to Comment 8
The Division disagrees with this comment. The term “reasonably uniform appearance” is sufficiently specific when read in the full context of Rule 0780-01-05-.10(1 )(b), as that rule clarifies that this reasonableness assessment must be made when there is a deviation in quantity, color, or size of a replacement item. Read in context, it is clear when such a determination must be made, and a reasonableness assessment is already an industry standard. The Rule specifically states it applies in instances “[w]hen a loss requires replacement of items[,]” and does not contemplate repair claims.
So, we know the matching requirement only exists with replacement claims, but what is the impact of policy language? The regulations seem to open the door for application of clear policy language. This will have to be more fully addressed as matters arise under the regulations.