What is Replacement Cost for Contractor’s Equipment?
| Seems like an easy question to answer but is it? NO. There are no standardized valuation definitions of Replacement Cost across the insurance industry. What Your Client Needs to Tell You When placing insurance for contractor’s equipment what you need to know is what your client expects to be paid in the event of a loss. The simplest question to ask your client is just that, what do you expect to be paid by your insurer in the event of a loss to your insured equipment. The answer to this question may surprise you. What may really surprise you is the disconnect between what your client believes is replacement cost, what you think it means and ultimately what the insurance carrier pays based upon the policy language. What is Replacement Cost? Is it the cost of replacing the lost or damaged equipment with brand new equipment? Do you have the equipment insured for the cost of that new equipment? Is it replacing with like, kind and quality? What does that exactly mean? Does it mean replacing with equipment of the same approximate age and condition? Replacement Cost for Contractors’ Equipment — What You Need to Know Contractors’ Equipment forms offer various valuation options. Making the right choice is important to your customer! Understanding the meaning of the valuation clause is critical! Berkley Fire & Marine defines Replacement Cost the Contractors Equipment form as follows; Replacement Cost — The value of covered property will be based on the replacement cost without any deduction for depreciation unless actual cash value is indicated on the “schedule of coverages”. Replacement Cost Limitation — The replacement cost is limited to the cost of repair or replacement with similar materials, used for the same purpose and the same approximate age. The payment will not exceed the amount “you” spend to repair or replace the loss or damaged property. Replacement Cost Does Not Apply Until Repair or Replacement — Replacement cost valuation does not apply until the loss or damaged property is repaired or replaced. Time Limitation — “You” may make a claim for actual cash value before repair or replacement takes place, and later for the replacement cost if “you” notify “us” of “your” intent within 180 days after the loss. If Coinsurance is indicated on the schedule of coverages, the coinsurance calculation is then applied to the loss amount. Replacement cost can apply to all equipment or you can schedule equipment and select a valuation for each item. This means you need to consider several issues when you are scheduling equipment – Based on the age, value and criticality of the equipment to the insured – what valuation is appropriate? One valuation may not be appropriate for all items on the schedule. Newer items may need replacement cost and older items are at actual cash value. Now you must consider the dollar values you are using for the equipment. The values must be consistent with the valuation you select for the equipment. Many contractors use an asset log for tracking equipment and the values of this asset log may be depreciated values used for taxes and accounting purposes. If the risk requires replacement costs, the values should reflect the replacement cost for the equipment. Not having values that support the valuation selected can create a co-insurance issue at time of loss or you may have a limit for that item that is less than the replacement cost. Both AAIS and ISO offer schedules that allow you to select the valuation terms for each item. This requires a careful review of the schedule and changing valuation options as equipment ages. The BFM Solution BFM can offer you an easier way to manage this process. Our Proprietary Contractors’ Equipment form offers superior coverages and flexible valuation provisions. |
To address the need to change valuation with equipment age, BFM has created an endorsement to automatically change the valuation for equipment newer than 5 years in age to replacement cost. This means your customers get the best protection from their insurance program. You get peace of mind that the newest equipment has the most coverage.
Valuation
| The Actual Cash Value Valuation provision is deleted and replaced by the following: Actual Cash Value — The value of the covered property more than 5 years old will be based on the actual cash value at the time of the loss (with a deduction for depreciation). The Replacement Cost Valuation provision is deleted and replaced by the following: Replacement Cost — The value of covered property 5 years old and newer will be based on the replacement cost without any deduction or depreciation. Replacement Cost Limitation — The replacement cost is limited to the cost of the repair or replacement with similar materials and used for the same purpose. The payment will not exceed the amount “you” spend to repair or replace the damaged or destroyed property. Replacement Cost Does Not Apply Until Repair or Replacement — Replacement cost valuation does not apply until the damaged or destroyed property is repaired or replaced. Time Limitation — “You” may make a claim for actual cash value before repair or replacement takes place and later for the replacement cost if “you” notify “us” or “your” intent within 180 days after the loss. |
Contractors Equipment was last modified: July 20th, 2021 by
