I was recently discussing the application of coinsurance with an independent adjuster friend of mine. We were discussing the fact that the insured would be better off claiming the loss at actual cash value (ACV) versus replacement cost. The policy coverage afforded a replacement cost coverage option and an 80 percent coinsurance policy requirement. The insured in this case was way underinsured. I demonstrated to my friend that the policy limit would be achieved at ACV, using a theoretical Fair Market Value/ACV as the basis for the coinsurance calculation of the ACV amount required to be carried. My friend mentioned later that he reviewed the policy and there was nothing to be found in the policy that required a coinsurance calculation to comply with the requirement if the insured elected to take ACV only. Does the coinsurance clause in a policy that affords a loss measure at replacement cost become inactive when the claim is made at ACV only or should the coinsurance clause still be applied using ACV values? Is the coinsurance clause waived at ACV?

California Subscriber

Unless wording in the policy states otherwise, generally, the coinsurance clause applies whether ACV or replacement cost valuation is chosen. The ISO CP 00 10 states that if a coinsurance percentage is shown in the Declarations, the clause applies.