Why Do We Allow Arbitrary Deadlines to Repair or Replace? New Mexico Puts an End to the Practice

The New Mexico Superintendent of Insurance issued Insurance Bulletin 2024-003 to property insurance companies which highlighted the following:

THIS BULLETIN reminds insurers that all repairs or replacement of residential property must be covered at the cost to repair or replace, without deduction for depreciation.

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Section 59A-18-17(C) NMSA 1978 does not authorize an insurer to condition payment of the cost to repair or replace without deduction for depreciation by requiring the work to be completed within any timeframe. The payment of actual cash value if a repair or replacement is not completed within a certain timeframe is not allowed.

Within the next ninety (90) days from the date of this bulletin, all insurers must withdraw any previous forms citing a time limit for coverage for the cost to repair or replace and must refile new forms excluding any time limit for coverage.

The New Mexico law effectively makes residential policies true replacement cost policies similar to what Chubb and a few other insurers sell without obtaining a special endorsement. At one time, Florida was a state similar to New Mexico that mandated all losses were to be paid without deduction for depreciation. The Florida legislature changed that.

I suggested that insurance regulators address these arbitrary time deadlines in Insurance Breakage—Why Do Insurance Regulators Approve Arbitrary Time Limits for Replacement?:

Have you ever received gift cards only to forget about them or not use them for years? Consider the fairness of this scenario: companies sell gift cards and then retain all the revenue when these cards go unused within a specified period. This practice raises questions about consumer rights and corporate responsibilities.

A parallel situation is unfolding in the insurance industry. Take, for instance, a recent case in Virginia involving State Farm. The company is insisting that its customer must ‘complete’ repairs on a fire-damaged building within a two-year timeframe. This demand brings to light a critical issue: why do insurance regulators sanction clauses that impose such arbitrary time limits? These clauses effectively promote a concept akin to ‘insurance breakage,’ allowing insurance companies to potentially reap financial benefits from unreasonably stringent deadlines.

The core issue here is the potential for insurance companies to gain unfairly from these arbitrary time constraints. When policyholders are unable to meet these deadlines due to various reasons, they might find themselves inadequately compensated, or worse, they’re denied because of nothing other than a deadline that has no apparent basis other than to create a windfall for the insurance company. This situation is particularly concerning given the nature of insurance as a safety net for policyholders in times of distress.

It is refreshing to see an insurance regulator stand up for policyholders against these arbitrary and capricious time deadlines to complete repair or replacement. These boilerplate small print deadlines exist only to help make insurers more money and provide incentives to delay payment.

Thought For The Day 

Be still when you have nothing to say; when genuine passion moves you, say what you’ve got to say, and say it hot.

—D.H. Lawrence