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The wildfires that recently decimated thousands of acres, homes, businesses and vineyards in California have caused billions of dolllars in property damage.
When the smoke clears, policyholders will be faced with the challenge of filing insurance claims, which are likely to be complicated by California’s status as a "valued policy" state. For these policyholders, the difference between actual cash value or replacement cost may be enormous.
Actual cash value means replacement cost of the property at the time of loss, less depreciation. The determination of the actual cash value of any property would include all relevant evidence that an expert would use to set the value of the property.
Replacement cost means that the insurer will pay the cost to repair or replace after application of the deductible and without a deduction for depreciation.
In valued policy states, generally, insurance law requires that in case of a total loss to an insured building by a peril specified in the law, the amount stated in the policy declarations is considered the value of the structure at the time of the loss and is payable in full. If the value of the property at the time of loss happens to be less than the insurance coverage, the carrier can’t argue that the recovery should only be for the actual cash value.
As the residents of Tennessee learned in November 2016, the adjusting for the value of the property destroyed in Gatlinburg and Sevier County is much different than in a non-valued policy state.
With the increasing threat of wildfire across the United States, it's important to know how your property — whether it's for your home or your business — will be valued in case of a total loss. The map below identifies valued policy states and their requirements.
Editor's Note: Green states on the map below indicate those with relevant "valued policy" laws. Scroll over each state for details.