Margin Clauses Making Agreed Value Options Extinct!

Adjusters International Disaster Recovery Consulting

Margin Clauses Making Agreed Value Options Extinct!

By Donald S. Malecki, CPCU

The first sign that the tide was turning in the popularity of com- mercial property insurance written on a blanket, agreed amount basis, came in the late ’90s when some property policies—primarily for municipalities and other govern- mental agencies—were made subject to a “margin clause.”

Put simply, the margin clause dilutes the advantage of the agreed value option. Consequently, the maximum an insured will receive in a loss situation, given sufficient blanket limits, is likely to be more than the amount declared on the statement of values for that location, but less than the amount needed to replace the property.

Review of the Mechanics

Understanding the full implications of the margin clause requires a


As disasters and their ramifications have dominated property insurance headlines in recent years, a less-publicized development has been the gradual implementation of the “margin clause” on commercial property insurance policies.

Essentially, the margin clause nullifies the benefits of purchasing blanket coverage written on an agreed amount basis. Many have seen it as a move by insurers to reduce or restrict coverage—and do so quietly.

In this issue of Adjusting Today, insurance expert Donald Malecki examines how margin clauses work, how they can work against the policyholder, and how and why today’s business manager and insurance broker must be on the alert for the growing use of this provision.

—Sheila E. Salvatore, Editor