For the third part in this series on Alabama law, I want to focus on the scope of repairs and how actual cash value is determined. Alabama’s Administrative Code provides guidance for policyholders on how property insurance claims should be calculated.

Ala. Admin. Code. R. 482-1-125-.09 provides:

(1) When the policy provides for the adjustment and settlement of first party losses based on replacement cost, and a loss requires repair or replacement of an item or part, any consequential physical damage necessarily or reasonably incurred in making such repair or replacement not otherwise excluded by the policy shall be included in the loss. The insured shall not have to pay for betterment nor any other cost except for the applicable deductible, except as provided by the policy.

(2) When the insurance policy provides for the adjustment and settlement of losses on an actual cash value basis on residential fire and extended coverage, the insurer shall determine actual cash value as replacement cost of property at time of loss less depreciation. Upon the insured’s request, the insurer shall provide a copy of the claim file worksheets detailing any and all deductions for depreciation.

(3) In cases in which the insured’s interest is limited because the property has nominal or no economic value, or a value disproportionate to replacement cost less depreciation, the determination of actual cash value as set forth in Paragraph (2) is not required. In such cases, the insurer shall provide, upon the insured’s request, a written explanation of the basis for limiting the amount of recovery along with the amount payable under the policy.

For a discussion on the depreciation of labor when calculating actual cash value in Alabama, see Shane Smith’s February 2018 blog post on the topic.

In Part 4 of this blog series I’ll discuss Alabama’s guidelines for insurance payments.