Functional Replacement Cost: Its Origin, Evolution and Application

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This situation comes up more often when antique farm structures sustain severe damage. In the 18th and 19th centuries, farm buildings were commonly constructed with large supporting beams and no load-bearing walls. Today, following a loss, it can be more cost-effective to use smaller supports and shift some of the building weight onto the walls.

As often as not, the latter type of construction is functionally equivalent for the current use of such buildings, many of which have become residences, small shops, or bed & breakfast facilities. Yet to forgo restoration of large beams seems to some to be a step too far in violating the architectural integrity of the building. It becomes a matter for negotiation.

In light of the limits of functional cost replacement, agents, insureds and adjusters should strive to see that policyholders are credited for the maximum amount of actual cash value they can legitimately claim for damaged property before considering what it would take to replace it with functionally equivalent features.



Joseph S. Harrington, CPCU, ARP

Mr. Harrington is an independent insurance writer and communications specialist. He served for over 20 years as communications director for the American Association of Insurance Services (AAIS). His work has been published in Best’s Review, Rough Notes, publications of The Institutes, and elsewhere.

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Ronald A. Cuccaro, SPPA


Sheila E. Salvatore

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