In unique situations, actual cash value (“ACV”) or replacement cost (“RC”) coverage may not be the best match to meet a property owner’s needs, or even be available. Policies that provide functional replacement cost (“FRC”) valuation, or endorsements that do so, offer an alternative. This valuation method is most commonly used to insure older structures built with obsolete materials and by outdated or custom methods; structures where the RC often exceeds the market value. One ISO endorsement defines FRC as:

‘Functional replacement cost’ means the amount which it would cost to repair or replace the damaged building with less costly common construction materials and methods which are functionally equivalent to obsolete, antique or custom construction materials and methods used in the original construction of the building.1
Continue Reading Functional Replacement Cost – When Will You Encounter It and What To Be On the Lookout For

The term “replacement cost policy” is a misrepresentation by many insurance companies about the product they are now selling. Insurance regulators should not allow the general public to be duped into buying something which is obviously not what the insurance company is promising. Accordingly, I propose that we should consider that unless minimum standards within a policy are met, insurance companies selling any all-risk replacement insurance are required and must warn that they are selling a Non-Standard Non-Replacement Cost Policy. Insurance products that are deemed to be Replacement Cost Policies in the residential market should at least meet the criteria found in mortgage requirements for federal negotiable mortgages.
Continue Reading Homeowners Insurance Policies Differ—The Need For A Standard vs. Non-Standard Replacement Cost Policy Designation

In recent weeks we have been hosting seminars and community events in Lake Charles, Louisiana to educate policyholders of their potential rights and obligations under their insurance policies. Along with the concern that most insureds do not yet have a copy of their full policy—including all forms and endorsements—to guide them through the process, is that those insureds who do have copies of their policies may be misled by the standard terms and provisions of their policies.
Continue Reading Louisiana Catastrophe Related Deadlines Extensions: Filing Proof Of Loss and Replacement Cost Coverage

On August 27, 2020, one month ago, Hurricane Laura made landfall causing catastrophic damage in Southwest Louisiana and beyond. For those who remained or were able to return quickly, it must seem a lot longer. Many of those may have been able to notify their insurers of their loss as soon as communications were restored. And, soon the damage estimates based upon the insurer’s investigation of their losses will begin to trickle in.
Continue Reading Determining Replacement Cost and Actual Cash Value in Louisiana

A recent case involving replacement cost value and actual cash value was recently decided—wrongly.1 The case involved an automobile, and GEICO ripped off its customer by successfully arguing that various items should not be included in actual cash value unless the car is actually replaced. Theoretically, replacement cost and actual cash value are the exact same when an item is brand new. But not if you are insured by GEICO in Illinois.
Continue Reading Replacement Cost Value and Actual Cash Value Should Be The Same For a Brand New Item—But Not If You Are Insured By GEICO

One of the things I enjoy is learning from so many really brilliant people in the insurance coverage business. One of those I am fortunate enough to work with: Ed Eshoo, out of our Chicago office. The other is insurance educator Bill Wilson who writes an extraordinary blog.
Continue Reading Is There a 180-Day Replacement Cost Notice Rule in the Standard ISO Policy?

I’ve run into this situation a handful of times recently in the Naples/Fort Myers area following Hurricane Irma. Generally, the policyholder is a retiree with ample spare time on his hands, a bit handy, and takes on the task of performing mostly cosmetic interior repairs himself (e.g., painting, drywall, flooring).
Continue Reading I Performed The Work Myself, Am I Entitled To Labor Costs?

Larry Bache and I are currently handling a devastating fire loss to a powder coating and plating facility located in Watertown, South Dakota. Our clients purchased a replacement cost value policy of insurance – the purpose being to allow them to rebuild after a loss. Unlike actual cash value coverage, which has the intent of placing an insured back in the position it enjoyed prior to a loss, but never allowing it to benefit because a loss occurred, replacement cost coverage is not a pure indemnity agreement. It reimburses an insured for the full cost of repairs, even if that results in placing the insured in a better position than it was before the loss.1
Continue Reading Determining Actual Cash Value in South Dakota

What is the replacement cost value of my classic brown dress shoes? How would you go about determining their actual cash value? You can see them in the photo above along with some Sperry Topsider shoes I have yet to take out of the box. As I am writing this post, I am looking at my Weber gas grill which has been getting a workout since our social distancing started. What questions and considerations should be made for that item in a property insurance adjustment? How are those questions and considerations different when considering replacement cost value and actual cash value if the damage were to real property? What are the considerations if the loss were to a commercial insured rather than covered under a personal property insurance policy?
Continue Reading What Do Chip Merlin’s Old Dress Shoes, New Sailing Shoes, and Weber Grill Have to Do With Replacement Cost Value, Actual Cash Value and Depreciation of Labor?

A class action lawsuit filed against Allstate in South Carolina raises the newly raised practice by some insurers of depreciating labor when repairs are made.1 I thought that the lawsuit was very well plead and was surprised to see citations to a law review article written in part by public adjuster Don Wood, and another citation to the Property Insurance Coverage Law Blog.
Continue Reading Can Labor Be Depreciated? Class Action Lawsuit Cites this Blog!