The insured is a hospital covered under the attached Electronic Data Processing Equipment Policy form PD20 (4/07). The hospital sustained water damage to a piece of equipment - CATH Lab #4. The estimated RCV new is $1,000,000.00. The estimated RCV New (refurbished) LKQ is $300,000.00. The insured has the optional coverage for Replacement Cost on its policy.
Question:
The insurer has located a new, refurbished CATH Lab #4 in good condition that is the same age and model as the one that was damaged. Is this an adequate replacement, or is the insured entitled to a new CATH Lab #4? Please see page 3 of the policy, Rules for Loss Adjustment.
Our thoughts are that since the policy has Replacement Cost coverage for the DP equipment, the insured would generally be entitled to receive the cost to replace the lost or damaged property with new property of comparable material and quality, without deduction for depreciation—not a used equivalent. Do you agree?
South Carolina Subscriber
The policy reads as follows for the replacement cost coverage:
Replacement Cost. We will pay the cost of repairing or replacing the damaged property without deduction for depreciation.
However, we will not pay more than the smallest of the following:
1. The limit of coverage that applies to the computer.
2. The amount you actually spend in repairing the damage, or the amount it would cost to replace the damaged property at the time of the loss with new property of equal performance, capacity or function.
3. If replacement with new property of equal performance, capacity or function is not possible, its replacement by property having the nearest higher performance, capacity or function to the property lost, destroyed or damaged.
Even though the term 'new' is added to the description of the refurbished equipment, it is not a new product but rather a used product that has been restored to its former function; thus the lower pricepoint. Even though the refurbished equipment has the same performance, capacity or function it is not the same as a new product as described in the replacement cost provision. While it is common for electronic equipment to be available as refurbished, if the carrier wanted the option to replace with a refurbished product, this should have been clearly stated in the policy language, which it was not. Therefore, the insured is entitled to a new CATH lab.