...deductions for depreciation. The reference to a “proper deduction for depreciation” was eliminated in the 1943 revision of the New York Standard Fire Insurance Policy (SFP) — it had appeared in the 1918 version and prior iterations. Because those words are no longer used, the judge ruled that depreciation could not be deducted in calculating actual cash value.
Most current forms don’t include the depreciation wording and even if they do, many states require the insurer to provide at least as much coverage as that afforded by the 1943 SFP wording no matter what the current policy says. Insureds in those states can claim the advantage of the SFP wording. 2 There are 28 states that mandate coverage at least equal to the 1943 Standard Fire Policy. They are:
We sometimes think that all policies are written on a replacement cost basis and that ACV is only of academic interest, but that’s not correct. Right off the bat you have Fair Plan policies that, in most states, call for ACV valuation. Furthermore, replacement cost coverage is only an option in the Insurance Services Office (ISO) commercial property forms used by most insurers. Many insureds don’t elect replacement cost coverage because they don’t want to spend the additional premium, 4 the insurance company won’t provide the coverage, or they weren’t informed that the option was available.
Homeowners policies provide replacement cost, but only if the amount of insurance equals 80 percent of the replacement cost. If it doesn’t, recovery is the higher of the ACV of the loss or a coinsured payment based on dividing the amount carried by 80 percent of the replacement cost. Many business owners policies provide replacement cost coverage as the standard, but such ISO policies follow the homeowners model. The result: numerous losses are settled on an ACV basis.