If you said your policy provided replacement cost coverage for all your stuff, it might not stop conversation at a cocktail party, but it would give you a warm and fuzzy feeling.  After all, it certainly sounds better than actual cash value (ACV).  Let’s check a few things and then get back to that feeling.

The HO3 policy Section I Conditions, #3 Loss Settlement clause says personal property, awnings, carpet, household appliances (even if built in), outdoor antennas and equipment, and structures that are not buildings are covered for the least of (1) actual cash value (subtracting depreciation) or (2) amount needed to repair or replace. To find out what are “structures that are not buildings,” read all about The Often Neglected Coverage B.

Buildings under Coverages A and B are covered at replacement cost without deduction for depreciation. If we want to amend the policy to get replacement cost for these other items, we can add ISO’s endorsement HO 0490 or a company equivalent.   But if all that is needed is an endorsement to switch coverage from ACV to RC, it wouldn’t take an entire page to say that . . . so let’s take a closer look.

The endorsement starts out switching the ACV valuation to RC for personal property, awnings, carpet, household appliances, outdoor antennas, and equipment. Notice the absence of structures that are not buildings—they remain at ACV.   Then the endorsement specifies that it provides RC for scheduled jewelry, furs, cameras, musical instruments, silverware, and golfer’s equipment. It doesn’t make sense to provide a lesser loss settlement (ACV) for scheduled items other than your other contents, so HO 0490 extends RC to these categories of scheduled property.

Wait a minute . . . if we schedule stuff, doesn’t it get replacement cost from that endorsement? Well, no.  ISO’s HO 0461 (or company equivalent) says its loss settlement is the least of (1) actual cash value (subtracting depreciation), (2) the amount required to repair, (3) the amount the article could be replaced with one substantially identical, or (4) the limit of insurance for that article. There’s an exception to this clause that provides Agreed Amount coverage for Fine Arts.  Fine Arts are covered for the amount they are scheduled for because they can’t be repaired or replaced.  They’re an original work of art.

Back to the Replacement Cost endorsement. . . . Notice that it has another section titled Property Not Eligible. That doesn’t sound good!  Unscheduled items still paid at ACV, up to the amount needed to repair or replace are:

  1. Antiques, fine arts, paintings, or similar articles of rarity or antiquity which cannot be replaced.
  2. Memorabilia, souvenirs, collectors’ items, and similar articles whose age or history contributes to their value.
  3. Articles not maintained in good or workable condition.
  4. Articles that are outdated or obsolete and are stored or not being used.

The lesson here is to beware of telling clients, “Buy the HO 0490 Endorsement so all your stuff is now covered for replacement cost.” They’ve gained that warm and fuzzy for a lot of their items, but not all of them.