Coverage Primary Agent | February 2011
CORNER
INSURERS’ RIGHT TO WITHHOLD DEPRECIATION UNTIL REPAIR OR REPLACEMENT
JERRY MILTON, CIC Jerry M. Milton teaches and consults on industry issues. The legal profession recognizes him as an expert on insurance coverages. He is also the education consultant for IA&B, working with CISR, CIC and continuing education programs.
The replacement cost provisions of the Commercial Property and Homeowners’ policies agree to pay the cost to repair or replace, without deduction for depreciation, subject to the least of the limit of liability, the cost to replace with like kind and quality or the amount actually spent. The provisions further stipulate that the insurer will pay no more than
the actual cash value of the damage until repair or replacement is complete. Once the repair or replacement is complete, the loss will be settled on a replacement cost basis subject to the above limitations. On Oct. 28, 1993 Jeffrey David Burton and Terri L. Burton suffered a substantial loss to their home and
[ 10 ]
personal property as a result of a fire. Their insurer, Republic Insurance Company estimated the cost to repair the home at $114,924.70, and after deducting $14,051.02 for depreciation and the deductible, paid the Burtons $100,219, which represented the actual cash value of the loss. After the Burtons completed the repairs, Republic paid an