PERSONAL RISK CONCEPTS · 6 MIN READ

Property Valuation: ACV, Replacement Cost, Coinsurance

How much a property claim pays depends on the valuation standard. Actual Cash Value (ACV) is the indemnity default, and courts define it three ways: replacement cost less depreciation (the majority rule and the usual policy formula), fair market value, or the broad evidence rule, which lets the fact-finder weigh any relevant evidence of value — replacement cost less depreciation, market value, age, condition, use, and obsolescence. The straight-line math is testable: a five-year-old roof with a twenty-year useful life is 25 percent depreciated, so a $12,000 replacement cost yields a $9,000 ACV before the deductible. Replacement Cost Value (RCV) pays the cost to replace with new materials of like kind and quality, without deduction for depreciation. Personal lines policies do not use the commercial-style proportional coinsurance penalty; instead the homeowners form conditions replacement-cost settlement on insuring the dwelling to at least 80 percent of its full replacement cost at the time of loss. Meet the threshold and partial losses pay at RCV up to the limit. Fall below it and partial losses pay the greater of ACV or a proportional replacement-cost figure (limit carried divided by 80 percent of replacement cost, times the loss). This is gentler than true coinsurance — small shortfalls rarely hurt small claims — but inflation-driven underinsurance can badly erode recovery on a large partial loss. Where classic coinsurance does appear, the formula is did-over-should: (insurance carried divided by insurance required) times the loss, less the deductible. Specialty standards fill the gaps. Functional replacement cost repairs with less costly but functionally equivalent materials — useful when modern materials replace obsolete construction — and modified replacement cost serves historic buildings on the same logic. Stated value, agreed value, and actual value differ in bindingness: an agreed value is settled at policy issuance and paid in full at total loss, while a stated amount typically operates only as a maximum, with the insurer still free to pay ACV if lower. The pair-and-set doctrine handles partial loss to matched items: losing one earring of a pair pays the difference between the value of the set before and after the loss — not the full set, and not an automatic half. Salvage rights let the insurer take over damaged property it has paid for, another corollary of indemnity.