Agreed Value Option Explained

I need clarification or opinion regarding CP 00 10 04 02, Optional Coverages, Agreed Value, paragraph a, second sentence: "We will pay no more for loss of or damage to that property than the proportion that the Limit of Insurance under this Coverage Part for the property bears to the Agreed Value shown for it in the Declarations." This statement seems to contradict the fact that the coinsurance condition has been suspended and seems to put back in some kind of proportioning or "coinsurance" calculation when loss occurs.

1. What is the purpose of this condition?

2. Is it conceivable that a company will actually put out a policy that shows a different amount for the Limit of Insurance versus the Agreed Amount? Why would anyone do that? And why would a buyer agree to that? In other words, per condition, it seems to say that on the same policy, there will be a limit of insurance of $100,000 for real and somewhere else in the policy there will be an agreed amount of $80,000 for the same piece of property?

3. If I understand this condition correctly, if the limit of insurance is $100,000, and somewhere else in the policy we also show the agreed value as $80,000, that when there is a loss, we will pay only 80 percent of the loss?

California Subscriber

We agree with what you've said about this condition. To answer your questions:

1. The main purpose we see for this clause is to protect the insurer from having to pay more than for what adequate premium has been paid.

2. We cannot think of a practical reason for the scenario you state.

3. We believe that the situation you describe sets up a moral hazard and cannot see an underwriter agreeing to write it.

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