A homeowner has a replacement cost policy for the dwelling but has an ACV endorsement for the roof. The roofing material that is currently installed is not allowed per local building code to be installed. A synthetic material is available and allowed and meets like kind and quality. How do you calculate the deprecation but then properly account for the increased cost of construction costs?

Ohio Subscriber

Actual cash value of the existing roof includes the depreciation; that's why the ACV is automatically less than replacement cost, so the ACV is what is owed. If the insured has ordinance or law coverage then that will account for the increased costs between replacement with the old roofing material and the new material that meets the code. Couch on Insurance 178:5 states that "the amount of damage or depreciation, if any, to the actual and reasonable market value of the goods not destroyed or rendered worthless, as considered in relation to the purpose for which such goods are owned or kept, should be considered, as such depreciation is a factor which enters into the mode of ascertainment of damages."(emphasis added). The depreciation is how the acv is determined; once that is established, then you know what amount can be paid towards the repair of the roof.