PROPERTY TERMS & CONCEPTS · 6 MIN READ

Valuation Methods from ACV to Stated Amount

Property policies settle losses under one of several valuation standards, and the exam constantly probes the boundaries among them. Actual cash value (ACV) is classically computed as replacement cost minus depreciation, but courts in many jurisdictions apply the Broad Evidence Rule instead: any evidence logically bearing on value at the time of loss is admissible — age, condition, market value, obsolescence, replacement cost — weighed together in a holistic determination. Market value is a different animal entirely: it reflects what a buyer would pay, includes land influence, and is neither the ACV formula nor a cap on replacement-cost recovery. A depressed-market building can have a replacement cost far above its market value, and a replacement-cost policy still pays replacement cost up to the limit — that is precisely what the insured paid premium for. Land is never insured. Replacement cost (RC) coverage carries its own conditions. Recovery is capped at the policy limit, and the actual-repair condition initially limits payment to ACV until the insured actually repairs or replaces the property, at which point the held-back depreciation is released. Functional valuation is the pressure-release valve for obsolete or overbuilt structures: the commercial Functional Building Valuation endorsement (CP 04 38, with counterparts in the CP 99 series) and the personal-lines HO 05 30 value the property at the cost of a less costly, functionally equivalent replacement rather than like-kind-and-quality reconstruction. A final family of terms describes how the value is fixed in advance. A valued policy pays a stated amount at total loss regardless of actual value; an open policy determines value at the time of loss. Agreed value, in the property context, is an optional coverage that suspends coinsurance after the insured files a Statement of Values. Stated amount works as a ceiling but not a floor: the insurer pays the least of the stated amount, ACV, or repair cost, so stating a high amount does not guarantee that recovery. Scheduled coverage lists individual items at specific appraised values and settles per item; unscheduled (blanket) coverage applies one limit to a class with per-item sublimits and leaves the insured the burden of proving value at loss. Related doctrines refine settlement: the pair-and-set clause pays the difference in value of the set rather than the whole set when one piece is lost, and a tenant's improvements and betterments are insurable through the tenant's use interest even though the improvements attach to the landlord's realty.