130.4-2 

CP 00 10–BUILDING AND PERSONAL PROPERTY COVERAGE FORM ANALYSIS 

(December 2008) 

G. OPTIONAL COVERAGES 

This form includes provisions for four optional coverages. The coverage applies only if the selection is indicated on the declarations. The selection must identify each type of covered property to which it applies. For example, an optional coverage can apply to buildings but not to business personal property. It is also possible to have an optional coverage apply to some buildings but not to others. 

3. Replacement Cost 

a. The Valuation Loss Condition is amended by replacing Actual Cash Value with Replacement Cost. This means that a deduction for depreciation of property is not taken when determining payment for property damaged or destroyed by a covered cause of loss. 

b. Replacement cost valuation does not apply to: 

• Personal property of others 
• Contents of a residence 
• Works or art, antiques or rare articles, including etchings, pictures, statuary, marbles, bronzes, porcelains and bric-a-brac 
• Stock, unless stock is included as covered property by an entry on the declarations 

c. The insurance company does not force the insured to accept replacement cost valuation. The insured can accept an actual cash value settlement. The insured can even change its mind and make a claim based on replacement cost as long as it notifies the insurance company within 180 days after the date of loss that it desires the replacement cost option. The reason to accept an actual cash value settlement and then reverting to replacement cost is to obtain initial funds to begin the process. 

Example: Connie's Feed and Grain has a $225,000 limit, including replacement cost optional coverage. When her store is destroyed by fire, she decides to take the actual cash value settlement of $150,000 instead of rebuilding. When members of the community beg her to reconsider her decision, she changes her mind and notifies the insurance company on the 179^th day of her intent to rebuild. She uses the $150,000 settlement to start rebuilding. After construction is complete, she receives the remaining $75,000. 

d. The insurance company does not pay on a replacement cost basis until: 

• The property damaged or destroyed is actually repaired or replaced, and 
• Arrangements are made for repairs or replacement as soon as possible after the date of loss 

Note: The longer the insured takes to begin making repairs, the more expensive the loss becomes because of deterioration and general exposure to the elements. Water damage is always a particular concern, especially in warm climates. 

Tenant's improvements or betterments are not considered property of others but losses involving them are settled differently than other personal property. If the insured does not meet the conditions outlined above, meaning that replacement cost valuation is not available, the valuation reverts to the method explained under the Valuation Condition. In addition, and to prevent double dipping, the insurance company pays the named insured only if it actually pays for the repairs. The named insured receives nothing if the landlord or another party pays for the repairs. 

e. The insurance company is obligated to pay only the least of the following amounts: 

• The limit of insurance that applies to the damaged or destroyed property 
• The cost of replacing the damaged or destroyed property with comparable property used for the same purpose 
• The actual cost to repair or replace the damaged or destroyed property 

Note: The named insured can decide to rebuild at a different location but the amount paid for the loss is limited to the amount equal to the cost to rebuild at the original site. 

f. The cost of repair or replacement does not include any increase caused by the enforcement of any ordinance or law applying to the construction, use or repair of the property. 

4. Extension Of Replacement Cost To Personal Property Of Others 

This extension is used only when the Replacement Cost Optional Coverage is selected because it is simply a modification of it. It removes the exclusion for personal property of others from the Replacement Cost Optional Coverage. 

There is one limitation. If personal property of others is subject to a written contract that establishes the named insured's liability for loss or damage to it, valuation of that property is based on the lesser of: 

• The amount stated in the contract 
• The replacement cost of the property 
• The limit of insurance for the property 

Example: Mary has a contract for leased equipment in her office. The contract states that if a loss occurs she is responsible for no more than $40,000. A loss occurs and the replacement cost value for the equipment is determined to be $60,000. The most the insurance company pays is $40,000 due to the language of the contract.