Replacement Cost Value–Insurance vs Contractor Mayuko Sonokawa asked 2 months ago
Replacement Cost Value–Insurance vs Contractor

Hi all,

I am from Connecticut.

Last year our family home was destroyed due to water burst. We have significant water damage throughout the entire house.

It has been more than six months since the initial remediation began. Since the remediation, we are still in argument over settlement. The reason is regarding the replacement cost coverage and whether they are responsible to pay us the exact amount our contractor charges us.

Our adjuster provided us an estimate which was calculated through Xactimate. In it, it included General contractor costs, ACV and RCV. Our adjuster told us that we are only entitled to the RCV amount that they had calculated through RCV.

But when I mentioned our policy, which states:

1.A1 – Replacement Cost Loss Settlement –Like Construction.

a.We will pay the cost to repair or replace with materials of like, kind, and quality and for the same use on the premises shown in the Declarations, the damaged part of the property covered under SECTION I – PROPERTY COVERAGES, COVERAGE A – DWELLING, except for wood fences, subject to the following:

(1)until actual repair or replacement is completed, we will pay only the actual cash value of the damaged part of the property, up to the applicable limit of liability shown in the Declarations, not to exceed the cost to repair or replace the damaged part of the property.

The actual cash value is calculated as the amount it would cost to repair or replace a covered building at the time of such loss, with material of like kind and quality minus reasonable depreciation. Depreciation, as used in this provision, means a decrease in value over a period of time due to wear and tear;

(2) when the repair or replacement is actually completed, we will pay the covered additional amount you actually and necessarily spend to repair or replace the damaged part of the property, or an amount up to the applicable limit of liability shown in the Declarations, whichever is less;

(3) to receive any additional payments on a replacement cost basis, you must complete the actual repair or replacement of the damaged part of the property within a reasonable period of timeafter the date of loss and notify us within 30 days after the work has been completed.

I asked him–Doesn’t this mean that as long as insurance agrees to the scope of work, they are to reimburse us for the rest of the cost once the repair is finished? Our adjuster argued that I was incorrect. We will only receive the RCV that they had calculated. Or what they will do is, we would submit the invoice from our contractor and they will reconcile the price. He stated that insurance does not have to pay, and the rest of the difference is up to the homeowner to deal with.

He also explained that they use Xactimate, which calculates the market price and is more accurate than what the contractor charges. Contractors tend to upcharge thus the replacement cost value that they develop is not accurate.

Is insurance correct? Are we not entitled to the amount that our contractor charges us? If insurance is wrong and they have to pay us what we paid to get the work done, how would I approach this with them?

Also, in terms of the kitchen cabinets, hardwood floors, any hardware stuff, I am sure they will tell us that regardless of how much it actually is, they will only cover to how much they calculated through Xactimate. How do I deal with this?

Thank you.

2 Answers
Mark Dillman Mark Dillman Expert answered 1 month ago

Hi Mayuko,

I am sorry to hear about the extensive damage to your family home. Your question is a good one, and unfortunately, one that comes up frequently. To answer your question in short, Xactimate is a tool and by no means the final arbiter to determine what is owed under your policy. To the contrary, a contractor’s bid is not owed simply because it is incurred. The bid must be reasonable for the work performed and must contemplate repairs with materials of like, kind, and quality.


Xactimate is an estimating tool used widely throughout the property insurance industry. Xactimate is an aggregator of historical data and uses this information to estimate reconstruction costs on a unit and line-item basis, which makes it a valuable tool. Xactimate, however, is not a contracting company that will swing a hammer at your home, and has been known to underestimate the cost of jobs in certain circumstances or fluctuating market conditions. United Policyholders has published many great articles on this software, its uses, and its potential downfalls. You can access two of them here:

I highly encourage you to read these publications to learn more, and even consider sending the publications to your adjuster to help inform them of purpose of Xactimate – to act as a baseline or starting point to create a rebuild estimate.

Along with the publications above, I encourage you to read and utilize the following blog post from Merlin Law Group, Xactimate Price Warning—Xactimate Finally Admits It Is Not So Exact!

This article highlights Xactimate’s own words in section 12.3 End User Licensing Agreement, pasted again here below for your quick reference:

“We do not warrant the accuracy of pricing information in the Price Data. Price Data is intended to represent historical information and should be used as a baseline or place to begin creation of an estimate. We provide Price Data for informational purposes only. You must ensure that estimates include pricing consistent with actual materials, equipment, labor pricing, etc. You acknowledge and understand that the Price Data provided as part of the Services is intended to target the most representative price of the various price points collected relevant to the specific line item in question. Having this single representative price per line item computed from all valid price points researched in the market means that some market price data is higher and some market price data is lower than that which is reported. You agree not to prohibit or preclude deviations from the Price Data where contractor requirements, market conditions, demand, or any other factors warrant the use of a different line item price in a specific situation.”

In sum, Xactimate is not intended to replace reasonable contractor bids for required work, but rather, to act as a valuable tool in estimating costs based on data.

Contractor Bids

To the contrary of the above, just because a contractor bids out a job does not mean the insurance company will owe the final invoice. Let’s look at some of the key words you pasted from your policy into your question. At quick glance, this appears to be a State Farm Homeowners Policy. Please note that the policy states the insurer will “pay the cost to repair or replace with materials of like, kind, and quality […]” but that only actual cash value will be paid until the repairs are actually completed, and then those amounts you “actually and necessarily spend […]” will be reimbursed.

To oversimplify, your contractor’s bid must be reasonable as compared to market conditions (necessary) for work that replaces your home with materials similar to what you had prior to the loss (like, kind, and quality) to be owed your replacement cost.

Next Steps

Helping to educate your adjuster in a positive and non-combative way may assist in moving your claim forward while advocating for your contractually owed benefits. Share the articles linked above and have a dialogue with your adjuster about the points raised by Xactimate themselves.

As to the current bid you have obtained, if you are able, provide as much support for the figures as you can. This may mean including additional details on the bid, including subcontractor bids, including material costs, or even securing additional quotes from other local contractors. Show your carrier that your contractor’s bid is “necessary” to complete the work!

If all else fails, and you have shown your contractor’s bid is reasonable to replace your home to pre-loss condition, explore the appraisal provision in your policy or consult an insurance professional to assist. Best of luck.

Brian Evans Brian Evans Expert answered 1 month ago

Mr. Dillman did a great job of summarizing some key points here. I’ll provide additional context and a slightly different recommendation.

As noted, Xactimate is a software system used to estimate mitigation and repair costs for residential and commercial property losses. This software is primarily used by insurance companies and restoration contractors (not to be confused with general contractors or insureds) and involved in more than half of all property claims in the United States.

It’s critical to understand that the pricing allowances made through the software are largely influenced by data entered by its users. Since most Xactimate users are insurance carrier representatives, not the general contractors actually performing the work, and because those price lists and data are frequently manipulated by insurance carrier claims examiners, the data relied upon in Xactimate is often inherently inaccurate.

Furthermore, the unique nature of certain types of properties is not captured in Xactimate’s fixed pricing. For example, completing drywall repair on the first floor of a single-family residence is far less expensive than completing the same repair on the 44th floor of a high-rise building. Additionally, there are varying levels of quality and cost depending on the craftsmanship and how the work is performed. Understanding how to affectively document and articulate these nuances to the carrier’s representatives can dramatically impact the accurate evaluation and settlement of claims.

If you feel like you have hit a wall in negotiating yourself, my recommendation is to speak with a reputable public adjuster or plaintiff’s counsel regarding the situation. Through a review with an experienced claims professional, you can examine the strengths and weaknesses of the situation and determine the appropriate next steps. Hope this is helpful.