ADJUSTERSINTERNATIONAL.COM 5 A. Receive the cost for the actual repair or replacement at the same site (materials of like size, kind and quality). This option requires the actual repairs to be made by the policyholder, its buyer, or any other party (as long as they are made). B. Receive the same RCV but with the proceeds applied to another site, obviously not to exceed the costs that would have applied to the damaged site. In other words, use the same money to fix up another policyholder property. C. Receive RCV applied neither to the same nor another site, if the proceeds of such loss settlement are expended on other capital expenditures related to the Insured’s operations “within two years from the date of the loss.” The usual condition is that any such expenditure must not have been planned as of the date of the loss and must be made at a location insured under the policy. D. Receive Actual Cash Value (ACV). Many policies make this the default option if none of the above approaches are selected within a “reasonable” time period or at least two years from the date of the loss. Thus, by the express terms of a typical policy, if there are repair or replacement costs yet to be expended at the actual site, they remain collectible after a sale from the insurer. Option one requires someone to make the actual repairs to the damaged site. Option two requires actual expenditure of the equivalent RCV at another site. Option three requires only application of the equivalent RCV to “other capital expenditures,” as described. At a minimum, ACV would be the measure for any losses if repair or replacement does not take place and there is no application of proceeds to another site or to other capital expenditures. Under some policies, ACV is defined as “cost to repair or replace insured property, on the date of loss, with material of like kind and quality, with proper deduction for obsolescence and physical depreciation.”Under other policies, the definition of ACV can differ.15 Most recently, this issue was considered by the Seventh Circuit in Edgewood Manor Apartment Homes, LLC v. RSUI Indemnity Co., 733 F.3d 761 (7th Cir. 2013). There, the policyholder sold an apartment complex damaged by Katrina but before repairs had been completed. It did not assign the insurance claim to the buyer. The court addressed the question: “Does a claim for ‘replacement cost’ proceeds under a property-insurance policy survive the insured’s sale of the damaged property in its unrepaired state?” The court said yes, the policyholder seller could still collect RCV even though it was the buyer who completed the actual repairs. That is because “insurable interest” is measured at the “time of loss” and the seller need not hold the property through the completion of all repairs to qualify for receipt of full RCV proceeds. Such a formal requirement, said the court, “would be hard to justify” as it would artificially constrain policyholders to keep damaged property until fully repaired. Instead, a policyholder can sell a damaged property — and take a hit in the sale price — and If there are certain permanent or other repairs estimated but yet to be made, those estimated costs remain recoverable notwithstanding a sale.
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