PM 4802─REPLACEMENT COST VALUATION

(May 2023)

AAIS Endorsement PM 4802– Replacement Cost Valuation is used only with the AAIS Personal Property Policy. When attached, it broadens coverage to allow settlement on a replacement cost (RC), rather than on an actual cash value basis. The form excludes several categories of property from RC settlement and has separate provisions for Computer and Non-computer property categories.

Replacement Cost – Non-computers

Loss involving such property may be settled without a reduction due to depreciation. However, the endorsement contains the following limitations:

· Replacement is based upon the cost to either repair or replace the applicable property. Further, the replacement involves providing (or basing valuation on) property that is similar in quality and type of the damaged or destroyed item.

Example: Brady’s cameras are insured under a Personal Property Policy. His Photoklown 240 is destroyed when a visiting friend knocks it off his apartment’s kitchen counter. Brady turns in a claim and then buys a replacement. Since the Photoklown 240 is not available, he pays $1,600 for a Photoklown 310. His insurer determines that he could have found a comparable 240 through E-Pay for $935 and that’s the amount they use to settle the loss.

· Full payment will not occur until and unless the applicable property is actually repaired or replaced.

· The insured is entitled to make a claim based on actual cash value prior to final repair/replacement. However, the named insured must state an intention to repair or replace the property no later than 180 days after the date of the covered property’s loss or destruction.

· Certain property categories, such as business property, non-owned property, described fine arts, and collectibles with appreciating values are not eligible for replacement cost settlement.

· Computer property is not eligible in this section of the endorsement.

Replacement Cost – Computers

The endorsement handles computer and related equipment losses differently from non-computer property. While replacement cost settlement applies, it does so under the following conditions:

Computer Hardware

· When hardware is replaced, that replacement is according to the use of new equipment that is equivalent (functionally) with the damaged/destroyed property. The functional distinction is important since it means that an insurer has more control with providing replacement cost protection. It minimizes the probability of enriching a customer via replacements that are actually upgrades, such as newer models/editions.

· When hardware is neither replaced nor repaired, replacement cost settlement is rendered moot. In such instances, the insurer’s obligation is to settle according to the destroyed/damaged equipment’s pre-loss actual cash value.

Related Article: Actual Cash Value Guide

· When covered hardware suffers a partial loss and may be repaired to restore its functionality, the insurer’s maximum obligation is to pay the reasonable cost necessary to get the equipment to its pre-loss condition.

Computer Software

· Settlement costs involving programs and application are made according to the expense related to either reinstalling the original programs or to the unavailability of such programs. The policy will pay the expense associated with reinstalling programs based on the use of the original, licensed software. If the original software is, for various reasons, unavailable, reimbursement will be made according to the cost of using the most current, available software.

· When there is a loss that involves blank media (tapes, discs, etc.), reimbursement is based on the current replacement or repair cost of such media. Replacement is based upon the cost of comparable kind and quality media.