Expanding Ownership Restrictions Under Georgia's Valued Policy Law
By Eric R. Mull
Partner, Drew Eckl & Farnham, LLP
Georgia's Valued Policy Law provides that when a home is wholly destroyed by fire, the amount of insurance listed in the insurance policy shall conclusively establish the value of the structure or building. Several conditions must be met prior to the statute being applicable, including: (1) the insured must be a natural person; (2) the insured property must be a one or two family residential building or structure; (3) the home must be wholly destroyed by fire; (4) the insured must not have engaged in fraud; (5) the loss must occur more than 30 days after the original effective date of the policy; (6) the policy cannot be a builder's risk policy; (7) the insured property must not be insured under a blanket form coverage insuring multiple properties; and (8) there must not be multiple undisclosed properties on the same property.
As evidence of Georgia's thriving business friendly climate, The Georgia General Assembly recently amended these requirements with the passage of Senate Bill 137. Specifically, SB 137 expands the application Georgia's valued policy law, codified in O.C.G.A. ยง 33-32-5, to include "any legal entity wholly owned by a natural person or persons." Thus, the revised law applies to corporations and other legal entities owned by one or multiple individuals. According to State Senator Bill Heath, Senate Bill 137 "expands Georgia insurance law to allow companies to collect property insurance payouts in full for residential, single, or dual family units in cases of total losses by fire. Current law excluded this small section of the residential market."
At first glance, it appears that the intent of SB 137 is to extend the valued policy law to individuals who may own several rental properties as an individual operating as a DBA or a small family business. A reading of SB 137's bill summary supports this interpretation, reflecting that "Senate Bill 137 amends provisions for policies only covering fire loss so that a 'policy owner' includes any legal entity owned by one or more individuals and not just individuals themselves." However, a comparison of prior versions of SB 137 to the unanimously passed final version reflects that the intent is to apply Georgia's valued policy law to allow all defined corporations to collect property insurance payouts in full if a residential unit is completely destroyed by fire. Specifically, prior proposed versions of the language at issue include "or to any limited liability corporation" and "or to any limited liability corporation owned by three or less natural persons." However, the final language does not specify the required number of individual owners or that the legal entity is limited to only a limited liability corporation.
In application, any business, whether incorporated or not, which is "wholly owned by a natural person" is now afforded coverage under Georgia's valued policy law if the loss otherwise qualifies under the statute and factors enumerated above. As such, from an insurer's perspective, it is no longer sufficient to eliminate the statute's application when a policy holder is anything other than an individual. Rather, an analysis must be conducted to determine if the legal entity is wholly owned by a natural person or persons. Moreover, an insurer must determine all owners of a legal entity. Application of the new law will certainly raise additional concerns, such as when an insured entity is owned by multiple partnerships or limited liability companies. The required analysis will include an evaluation of each owner, which can be voluminous and time-consuming. Inevitably, questions will arise such as how many layers of an insured's ownership structure an insurer must investigate in order to determine the "ultimate ownership." For now, insurers should develop a standard list of questions developed to discover and understand the "ultimate ownership" of an insured entity. These questions should be addressed early on in the claim process when it is determined that a total loss has occurred.
Finally, insurers should understand that the recent changes to Georgia's Valued Policy Law do not otherwise effect it's application. Specifically, Georgia's Valued Policy Law only applies when the insured premises are insured for specific limits. Expanding the ownership criteria from "natural persons" to "any legal entity wholly owned by a natural person or persons" does not void the limitation that the insured property cannot be insured under a blanket form coverage insuring multiple properties. This distinction is important given the recent change in the law, as it is not uncommon for companies to insure multiple properties under a blanket form coverage. While companies may be subject to the new Valued Policy Law, the manner in which their property is insured could effectively eliminate the law's application to many companies.