Replacement Cost Options

June 12, 2018

I'm working with an attorney on a fire claim and the policyholder has a commercial policy in place, the building is deemed a total loss and the insured has been paid the ACV. The insured had a bar/restaurant that burned and now he wants to rebuild a bed and breakfast instead. We have determined by using several contractors that the cost to rebuild a similar sized bar/restaurant with like, kind and quality would exceed the limit of insurance. Now the insured wants to rebuild a bed and breakfast instead again using a similar sized building with the same type of construction. My question is “can the insured collect full replacement cost provided he builds a like kind and quality building even though it would be used for a different type of business?” If you can help me decipher this coverage issue by use of the FC&S please get back to me. 

Trial Subscriber

With respect to the replacement cost option of the ISO commercial property form CP 00 01 10 12, the insurer will not pay more for loss or damage on a replacement cost basis than the least of the below three options. In addition, the cost of repair or replacement will not include any increased cost attributable to enforcement of or compliance with any ordinance or law regulating the construction, use or repair of any property. The replacement cost options are:

 

1. The limit of insurance applicable to the lost or damaged property;

2. The cost to replace the lost or damaged property with other property of comparable material and quality; and used for the same purpose; or

3. The actual amount spent necessary to repair or replace the lost or damaged property.

 

Therefore, replacement cost valuation would not include the cost to replace the bar/restaurant with a building to be used for a different purpose, such as a bed and breakfast.

 

 

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