Deductible Calculation

November 22, 2011

In a settlement for contents with no replacement cost coverage so the contents will be settled at ACV only with a $100 deductible, is the deductible applied to the whole loss before depreciation or after depreciation? See the two examples.

Example 1

$500 contents RC value

-100 20%depreciation

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$400 subtotal less $100 deductible nets an ACV recovery to the insured of $300.

Example 2

$500 contents RC value

-100 policy deductible

————————

$400 subtotal minus 20% depreciation(80.00=20% of $400) nets a slightly higher ACV settlement of $320 to the insured when the deductible is applied first before depreciation is considered.

Which is the correct method? On ACV only settlements should the deductible be applied before depreciation in order to provide a greater benefit to the insured?

Michigan Subscriber

The HO 00 03 states that only that part of the total of all loss payable that exceeds the deductible will be paid. The deductible is applied to the value of the loss; if settlement is ACV, then the deductible is subtracted from the ACV amount.