Michigan Subscriber

A

The insured may adjust the loss on an actual cash value basis. The full reporting clause in ISO's value reporting form endorsement CP 13 10 04 02 replaces the coinsurance clause in the building and personal property form CP 00 10. Therefore, anything in form CP 00 10 that applies to the word “value” in the coinsurance clause applies equally to the word “value ” in the full reporting clause of the value reporting form endorsement.

The replacement cost option in CP 00 10, if selected by the insured, causes the term “actual cash value” to be replaced by the term “replacement cost” wherever it is used in the policy. This, in turn, makes the “value” referred to in the policy's coinsurance clause equal replacement cost. The effect of the coinsurance clause is then calculated on the basis of replacement cost instead of actual cash value.

However, the replacement cost option gives the insured a second chance to choose the basis for valuing a loss. Paragraph c of the replacement cost option allows the insured to settle a claim at actual cash value in spite of having chosen the replacement cost option. If the insured exercises this option and selects actual cash value at the time of loss adjustment, the term “value” in the insurance to value clause of value reporting form endorsement and in the policy's coinsurance clause reverts back to meaning actual cash value. Thus, the insured can choose to avoid the coinsurance penalty, even if replacement cost had originally been selected.

This choice was not possible under ISO's old replacement cost endorsement, CF 04 20. That endorsement contained its own coinsurance clause and it specifically based the coinsurance calculation on replacement cost. Under that form, a coinsurance penalty would have applied to your insured.