Standard replacement-cost provisions on Commercial Propertyforms often offer the insured the option to accept settlement on anactual-cash-value (ACV) basis, but the insured can later opt toreceive the replacement-cost amount.

This can cause some confusion.

The policy usually provides a time period for notifying thecarrier that the insured intends to make a claim for thereplacement cost. The insured must actually make the repairs beforethe replacement-cost amount is paid. But the amount of time givento make the repairs is generally some variation on “as soon asreasonably possible” after the loss or damage.

How soon is that?

There is no absolute answer to how long it should take to makethe repairs. The only set time limit is how long the insured has tonotify the insurer of the replacement-cost claim. “Couch onInsurance 3d” states that the reasonable time “turns upon thecircumstances of the case and is ordinarily a question for thejury.” So, the answer is a subjective one.

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Sometimes what seems like a straightforward answer to a questionleads to more complex issues. For example, an FC&Ssubscriber recently asked us the following regarding a claim on aBusinessowners form:

“Our insured is considering acceptingan ACV settlement on some of the soft-metal hail-damaged fascia andgutters on his building. If the policy continues as written withreplacement cost and the building sustains damage that necessitatesreplacement of these same items, will the company, under thelanguage of the policy, still be required to pay for the fullreplacement cost of the materials that have already been paid forunder this prior loss?”

Our immediate response was that if the insured experiences asubsequent, separate loss, then the full replacement cost of thedamaged property should be paid.

As we continued discussing the scenario, though, another issuearose that threatened to make the solution a little morecomplicated. The ISO Businessowners form contains the followinglanguage in the loss-payment section:

“You may make a claim for loss ordamage covered by this insurance on an actual-cash-valuebasis instead of on a replacement-cost basis. In the eventyou elect to have loss or damage settled on an actual-cash-valuebasis, you may still make a claim on a replacement-cost basis ifyou notify us of your intent to do so within 180 days after theloss or damage.”

It seems pretty clear that, in the situation that our subscriberpresented, a separate loss the insured wants to adjust on areplacement-cost basis after the 180-day time limit outlined in theloss-payment section would receive the full replacement cost.

But what if the insured suffers hail damage and accepts an ACVsettlement and thirty days later suffers hail damage again to thesame property? If the insured submits a claim for replacement-costcoverage at that point, would the carrier consider it within the180-day period and pay only the difference between the ACVsettlement already received and the replacement cost?

Our first reaction is that our original answer to the questionstands, regardless of the 180-day time period. However, we arecurious if anyone has run into this situation—and if so, how it washandled? The fact that our subscriber was concerned that theinsured would not receive full replacement-cost coverage for adifferent loss implies that someone may have experienced similarsituations before.