Would the 80% minimum required insurance be based on the ACV of the property since it is an ACV policy? In that case, $179,988 would be the minimum required insurance. Therefore, according to those numbers he would be approximately 2% underinsured. But I'm unsure if that is a proper assessment and then how that penalty would be assessed.

Please let your thoughts so that I can better help the insured. I've attached the redacted policy for your review.

Since the policy is written on an actual cash value basis, then the valuation of the building at the time of the loss will be its actual cash value, with application of the 80% coinsurance – your calculation of $179,988. The replacement cost value at time of loss should not have an impact on this loss, since the policy was written to apply on an actual cash value basis.

In explanation, the way we read the policy is that if replacement cost is not added (it replaces acv), then it would not apply even in a case of underinsurance. The valuation method used for covered property to drive the coinsurance penalty should be consistent with the valuation method of the loss, so if the declarations shows a limit of insurance, shows its valuation as acv, and coinsurance of 80%, then the way we read the policy the loss would be adjusted based on the property's acv, regardless of what it costs to replace.

You can also refer to the following:

Coinsurance