Contents Claim: ACV Exceeds Policy Limit – Is Full Limit Owed? United Policyholders Staff asked 3 days ago
Contents Claim: ACV Exceeds Policy Limit – Is Full Limit Owed?

I’ve attended both of your smoke damage claims webinars.

I’m currently negotiating with my insurance company regarding the contents portion of our smoke-damage claim. We have prepared a contents inventory where the total actual cash value (ACV) exceeds the replacement cost value (RCV) limit stated in our policy. Based on the slide below from your webinar this past spring, we requested that the insurer pay the full contents policy limit. They have refused. Their response is below: “You requested that the full policy limit be released at actual cash value. Please note that doing so would result in the approved replacement cost value amount exceeding your policy limit. As we previously discussed, a settlement based on ACV would not reach the policy limit because ACV is calculated from the RCV limit. The policy’s RCV limit is $733,642.00. As mentioned, whatever contents are paid for, Berkshire Hathaway GUARD will collect the items that were paid for as part of the salvage process. The global settlement allows you to receive the full policy limit and buy back your items at a discounted price, meeting your request to keep your contents. If you choose not to purchase them, GUARD will collect the paid items as part of the salvage process.” Are they correct in their interpretation of how the ACV and RCV limits apply? If not, do you have any suggestions regarding what we should do next or how we should respond?

1 Answers
Sandra L. Moriarty Sandra L. Moriarty Expert answered 3 days ago
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Your carrier is incorrect with their interpretation.

ACV (Actual cash value) is calculated on the total RC (replacement cost) of the damaged/destroyed items, not on the policy limit.

The controlling statute is CA Ins. Code 2051 and 2051.5:

CA Ins. Code 2051:

(a) Under an open policy, the measure of indemnity in fire insurance is the expense to the insured of replacing the thing lost or injured in its condition at the time of the injury, the expense being computed as of the time of the commencement of the fire.

(b) Under an open policy that requires payment of actual cash value, the measure of the actual cash value recovery, in whole or partial settlement of the claim, for either a total or partial loss to the structure or its contents, shall be the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less. A deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure.

CA Ins. Code 2051.5:

(2) If the policy requires the insured to repair, rebuild, or replace the damaged property in order to collect the full replacement cost, the insurer shall pay the actual cash value of the damaged property, as defined in Section 2051, until the damaged property is repaired, rebuilt, or replaced. Once the property is repaired, rebuilt, or replaced, the insurer shall pay the difference between the actual cash value payment made and the full replacement cost reasonably paid to replace the damaged property, up to the limits stated in the policy.

Hope this helps!

Sandy