Apparatus Insurance: Are You Really Covered? - Part 2

In last month's column we looked at some often misunderstood apparatus insurance issues. This month we will continue with information so that your fire department can make sound decisions in the purchase of apparatus insurance. Some insurance...


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In last month's column we looked at some often misunderstood apparatus insurance issues. This month we will continue with information so that your fire department can make sound decisions in the purchase of apparatus insurance.

Some insurance companies offer replacement cost value as an option to actual cash value, when insuring fire apparatus and EMS vehicles. For more information on actual cash value apparatus insurance refer to Emergency Vehicle Operations in Firehouse®, January 1999. One problem associated with replacement cost value is that there is no standard definition among insurance companies. For this column we will use the following definition, which is fairly close to what several of the big insurance companies use:

Replacement cost value is the LESSER of:

  1. The cost to repair the damaged vehicle;
  2. The cost to replace the damaged vehicle with another vehicle of like kind and quality; or
  3. The amount you actually spend to repair or replace the damaged vehicle.

Immediately, you can see that replacement cost value eliminates one of the biggest hassles of actual cash value: depreciation. Because replacement cost value does not mention depreciation, you don't have to argue with the insurance company about how many years of useful life are left in the vehicle. With replacement cost value, the insurance company does not care how old the vehicle is. All the company needs to know is, "What it is going to cost to repair or replace the vehicle?" Replacement cost value has a number of problems, though, and you will need to understand these problems before we can look at solutions.

The first problem with replacement cost value insurance is that, just like actual cash value insurance, you are going to have arguments with the insurance adjuster about repairs. The adjuster will want to make the repairs as cheaply as possible while your department will want everything done first class. The adjuster may want to use aftermarket parts or used (salvage yard) parts, while you will want only new parts. The adjuster wants to use touch-up paint on the scratches; your department wants the entire panel repainted. These will be difficult arguments for your department to win.

Technically, using touch-up paint or aftermarket parts satisfies the legal definition of "repair the damage." The policy will not require the repairs to be made to your department's satisfaction. The insurance company is obligated to its investors to spend the least amount of money as possible on your claim. Of course, you have the option of rejecting the insurance company's recommended repairs and getting the repairs done the way you want. But the insurance company must pay your department only what the cheapest repairs would have cost at the cheapest shop; your department must pay for anything over that amount.

To avoid arguments over repairs (and to attract more customers), some insurance companies have tried to improve the "repairs" clause in their definitions of replacement cost value. For instance, one fire department that I know has an insurance policy that says repairs will be based on "the amount needed to repair the lost or damaged parts using NEW parts identical to the lost or damaged parts without deduction for depreciation." Another policy that I have read will pay "the cost to replace a part or parts of the damaged vehicle at the time of the loss with a part or parts of like kind and quality, without deduction for depreciation." While neither of these definitions is perfect, they are an improvement over the standard wording, "the cost to repair the damaged vehicle." Please read your policy carefully to see what it says about repairs. For that matter, read your whole policy and make sure that your department is covered for all those calamities that you believe it should be insured against.

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