Our insured owned a building that was destroyed by fire. The building was insured on an ISO form CP 00 10 10 90. The actual cash value (ACV) of the building was $190,000, but the insured had it covered at replacement cost for $300,000. Rather than replacing the building at the same location, the insured got a good deal and bought another building at another location.
The new building was one third larger than the destroyed building, yet it cost less. It cost $230,000 and the insured put $20,000 into it to make it usable for a total of $250,000. Since the building is one third larger than the old building, the insurer wants to pay only 75 percent of the cost of the new building, or $187,500. This figure is less than the ACV on the old building. The insurer claims that the extra square footage in the new building is betterment and should not be paid for by them.
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