What is a Scope of Loss?

Each part of your loss requires a different type of documentation. The documentation for the loss of your house is called a Scope of Loss. Like your personal property inventory, the Scope of Loss is a detailed itemization of the quantity and quality of every component of your lost home. However, the Scope of Loss will also include all the construction costs necessary to repair or rebuild your lost home.

One of the most important insurance concepts for survivors to understand is how the “replacement coverage” policy works. Most replacement coverage policies require the insurance company to pay you based on how much it would cost to “replace” the house you lost with “like-kind-and-quality” materials. They insured the house you lost; they should not pay you based on the house you will be building. That new house, as we have found following a disaster, almost always will be different than the house that was damaged or lost, based on building code changes alone.

It is important that you keep these two projects separate in your mind. The first project is to recreate the damaged or destroyed house on paper, and the second project is to complete the house rebuild or repairs.

Developing Your Own Scope of Loss

To have ANY chance of attaining FULL coverage under your insurance policy, YOU must first determine exactly all of the features of the home you lost. After that, you’ll need to hire a contractor to determine what it would cost TODAY to replace precisely what you had. You may be more interested in plans for what you hope to build, but it will be important right now to first focus on what you lost. Remember, your goal is to document and place a value on your actual loss.

Because most general contractors are not familiar with the Scope of Loss process, you may need a specialist. A Scope of Loss represents the total cost, including “hard costs” (labor and materials), “soft costs” (fees supervision, etc.), and overhead and profit, to replicate your lost home. It is not an estimated cost per square foot.

Having a contractor representing YOU through the Scope of Loss process is of utmost importance to make sure they catch everything. Just think of it as a second set of eyes. All works of importance (books, building plans, etc.) have some sort of stop-gap measure to verify the integrity of the work. This might be the most expensive and most important work you will complete. Don’t shortchange yourself.

To find a professional to complete your Scope of Loss, look for references from “bad faith” or construction defect attorneys who represent homeowners.

We cannot emphasize enough the importance of a complete and accurate evaluation of the replacement cost of the house you lost. Remember: all other coverages, such as personal property, are usually directly linked to the dwelling cost (see Chapter 4 our workbook for more information). An accurate Scope of Loss is extremely important as it documents any underinsurance issues you may have.

To create an accurate Scope of Loss, information is gathered from numerous sources. Next, read our post called Initial Steps to a Successful Scope of Loss.

More detail can be found in Chapter 5 of our free eBook “A Survivor’s Guide to Insurance