Q

I'm adjusting a claim that is covered by an ISO businessowners policy form BP 00 02 01 96. The Loss Payment section of the form states that, if the limit of insurance applicable to the loss is less than 80 percent of full replacement cost, the policy will pay the greater of actual cash value, replacement cost decreased by an 80 percent coinsurance penalty, or “the amount that you actually spend to repair or replace the lost of damaged property.”

In contrast, the 1997 ISO businessowners form states that, under the same circumstances, it will pay the greater of ACV or replacement cost decreased by an 80 percent coinsurance penalty.

Since the claim we're adjusting is covered by the 1996 form, it appears that we will end up paying full replacement cost because of the third provision in the form even though the property was under insured. This doesn't seem right. Do we have to pay the full RC?

Rhode Island Subscriber

A

You must abide by the terms of the policy and pay the full cost to repair or replace the damaged property. It does appear that there may be an error in the 1996 businessowners policy form, but you still must abide by the policy covering the property at the time of the loss. This may be one of the reasons that, even though there is a 1996 edition of the BOP form, ISO issued a revised businessowners form BP 00 02 in 1997.