I have “Replacement Cost” coverage on my commercial property insurance but my insurance company is withholding money on a recent claim?
In commercial property insurance policies, the Replacement Cost (RC) settlement basis is a common feature that allows policyholders to recover the cost of repairing or replacing damaged property without deduction for depreciation. However, many policies include an important clause known as the Actual Cash Value (ACV) holdback.
Here’s how it works:
Initially, the insurer pays only the ACV of the damaged property — that is, the replacement cost minus depreciation. The remaining amount — the holdback — is only paid once the insured actually repairs or replaces the property and provides proof of the incurred costs.
This holdback serves two purposes:
1. Provides incentive for the repairs / replacement to be made.
2. Encourages timely repairs or replacement, aligning with the insurer’s goal to restore the insured’s property as intended under RC coverage.
Policyholders should review their policy language carefully to understand the conditions and timelines tied to the RC settlement and ACV holdback, as failure to comply can result in a lower payout.
The details of Replacement Cost and ACV holdbacks can be tricky, but that’s where we come in. At Gallen Insurance, we’re here to help you make sense of your policy and ensure you’re fully protected when it matters most.
