Insurance companies sometimes pull a surprise. They tell an insured customer that their policy only covers the actual cash value, not the replacement cost value, of the property. It’s an unpleasant surprise, but as always, the last word on whether the insurer is right is not what is said on the phone, but rather how the policy reads.
The actual cash value of property is the value of the property just before the loss. The replacement cost value of property is, as the name implies, how much it costs to replace the damaged property. Actual cash value policies can be a wise idea for old property the insured does not intend to repair. Yet most of my clients absolutely need the replacement cost value and are appalled by the idea their policy may only insure the actual cash value only.
The initial 4-6 pages of your insurance policy should state the amount of coverage purchased. These pages are called the declarations as they declare what the insured property owner purchased. You can think of the declarations as a summary as later forms within the policy (and there can be many) provide the details of how the summarized coverage operates.
The declarations should state with specificity whether it is an actual cash value or replacement cost value. Often there will be a separate line item in the list of coverages that states whether the insured purchased replacement cost value. That line item often has a separate mention of the premium paid for replacement cost coverage. Other declarations have boxes that are checked when replacement cost coverage is purchased. Yet some insurance companies write declarations without any clarity on the type of coverage being purchased.
Ambiguity in an insurance policy should be resolved against the insurance company that wrote the ambiguous language. That is the law in all the states where I practice. As such, if the declarations are not clear the ambiguity should be resolved in favor of the property owner.
In one of my recent cases an insurance company sold, and my client purchased, ordinance and law coverage. With this coverage, all repairs required after an insured loss triggered by enforcement of ordinance and law are funded by insurance. Building codes enacted long after structures are built can enhance the expense of repairs. Insurance coverage of these costs are often sold separately, and in this case, the declarations had a separate line item for ordinance and law coverage. Yet the same declarations were silent as to whether this was an actual cash value or replacement cost value policy. In my view, the policy must be a replacement cost policy because ordinance and law coverage can only triggered with repairs. The property owner purchased properly clearly intending on repairs being fully insured, hence the ordinance and law coverage.
If you have any questions about your insurance you now have a resource. E-mail me at: ed@beckmannlawfirm.com.