Insured property owners may be entitled to interest on appraisal awards.  It is wise for property owners to know of this potential recovery when negotiating an adjustment and considering whether to demand an appraisal.

The right to interest is typically found in state statute rather than the terms of the insurance company’s policy. In the three states where I practice (Minnesota, Wisconsin, and Illinois), the right to interest is found in state statute.

Broadly speaking, interest begins to run on an insurance claim with a detailed statement of the loss. The detail must be something greater than a phone call announcing a claim. A property owner is required to identify the date of loss, the amount sought by the property owner, location of the property, and scope of repair.  A good rule of thumb is that the detail required for a proof of loss is the detail required to trigger when interest begins. That is not to say a proof of loss itself is required, but rather the substance of one.

The final appraisal award sets the principal amount for calculation of interest.  Parties are therefore unable to calculate interest prior to an appraisal award.  When considering whether to pursue appraisal, the property owner needs to predict the amount of the appraisal award in order to predict the amount of interest on the award.

In some states, insurance companies are allowed to set the date when interest begins to run.  Insurance policies can be written to state interest only begins when the loss is payable.  Yet this principle does not apply in all states.  Check the law in your state to see whether insurance policies can set forth the date when interest runs.

The interest rate also varies by state. In the states where I am licensed, the amount is 4%, 5%, 7.5%, or even 10%. The rate is always set by the legislature rather than an insurance policy.  It is hypothetically possible an insurance policy could include interest, but I have never seen that in the many years I have read insurance policies.

Some states deduct insurer payments prior to appraisal from the interest calculation some states do not, and in other states the law is vague.  Also uncertain is whether the interest applies only to the actual cash value or the replacement cost value – the two valuations rendered by appraisal panels. Insurance companies will argue that no interest is due on the replacement cost value because that is only due and owing after repairs are performed.  Some judges accept that argument and others do not.  The result usually turns on the specifics of how the legislature wrote the interest statute.

Consult the law of the state where your property resides to understand proper interest calculation.

If you need help, feel free to contact me.