Many policyholders do not have enough insurance to replace their buildings or homes after a total loss. Often these policyholders were assured by their agents or insurance companies at the point of sale that their limits were sufficient. And many times these assurances were based on estimates that fell below the minimum standards set by law.
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California Insurance Commissioner Ricardo Lara

Many insurance policyholders who have lost homes in the devastating California wildfires call our firm and ask, “Can my insurance company really deduct the value of the land under the replacement home I purchased from my claim payment?” This is a great question because this is now an unlawful tactic by the insurance companies that has unfortunately pervaded this state recently. Finally, last week the California Department of Insurance officially agreed and issued a bulletin explaining why.1 The bulletin is not legally binding, so insurers can still refuse to comply, requiring litigation.
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Are California homeowners entitled to collect actual cash value (“ACV”) or replacement cost values (“RCV”) for property claims? It depends on what type of policy you have and whether you suffered a total or partial loss of your property. What’s more, in a few weeks, the California Assembly may vote to change existing law. To understand what homeowners are entitled to, we must first determine whether the policyholder has purchased an RCV or ACV policy and to analyze impact of depreciation.
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California has statutory and case law that defines replacement cost and actual cash value, and these laws are read into every insurance policy notwithstanding what the policy language says. This blog has several posts on the subject,1 and this post aims to give you one cohesive post to consult for all your questions on calculating ACV and RCV.
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Can you imagine Allstate Insurance Company running an advertisement explaining that it tries to deduct labor costs as depreciable items when you make a homeowners claim? Allstate runs television ads trying to warn against “cheap” insurance but fails to disclose that it instructs its claims adjusters to cheapen its insurance product when it comes to paying its customers’ insurance claims.
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Insurers often try to limit damages once they are found liable for breach of the insurance contract by claiming that the insurance policy limits the insured’s recovery to the actual cash value because the insured did not comply with the policy’s condition on recovering replacement cost.1
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In my experience, one of the most misinterpreted property insurance policy provisions is the 180-day notice requirement to receive replacement cost benefits. Many in the property insurance industry interpret the provision to require actual repair/replacement within 180 days of the loss. Others interpret the provision to simply require notice within 180 days of the loss of the intent to repair/replace. And, there are those who interpret the requisite 180-day notice to be given only if the insured initially makes claim on an actual cash value basis.
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Last month, California passed legislation that requires residential property insurers to take specific measures to review the estimated cost of rebuilding or repairing structures insured under residential property insurance policies. Assembly Bill 1797 added section 10103.4 to California’s Insurance Code. With certain, limited exceptions, under the new statute, residential property insurers must, at least biennially, at the time of renewal of a policy, offer to provide the insured an updated estimate of the cost to rebuild or replace the insured structures, or offer updated coverage limits based on an inflation factor that reflects the cost of construction in the policyholder’s geographic area.
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Replacement cost insurance generally allows recovery for the actual value of property at the time of loss, without deduction for deterioration, obsolescence, and similar depreciation of the property’s value. Depending on the circumstances, the difference between the actual cash value and the replacement cost value of a loss can be significant.
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