Policy Provisions and Contract Analysis
This domain tests whether you can read a property policy and determine what is covered, how much is payable, and which conditions the insured must satisfy. Start with the declarations, then the insuring agreement, exclusions, and conditions.
Core rules
- ACV pays replacement cost less depreciation; RCV pays repair or replacement after the work is done, often with recoverable depreciation withheld until completion. Deductibles apply before payment.
- Conditions matter: notice, proof of loss, appraisal, suit limitation, and duties after loss. Missing a condition can reduce or bar recovery.
- Common exclusions include earth movement, flood, seepage, mold (often limited), faulty workmanship, and ordinance or law (may be limited or added by endorsement).
- Loss of use or additional living expense, mortgage clauses, and pair-and-set provisions affect the settlement separately.
Worked example
A $50,000 replacement-cost dwelling loss has $35,000 ACV, a $2,000 deductible, and recoverable depreciation. Initial payment is $35,000 − $2,000 = $33,000. After repairs are completed and documented, the insured may recover up to $15,000 in withheld depreciation, subject to policy limits and any shortfall. Reasoning: the deductible is applied once, and depreciation is recoverable only after compliance with the RCV conditions.
Traps
Treating the ACV check as final. Assuming “replacement cost” means new-for-old without conditions. Ignoring deductibles, policy limits, or sublimits. Missing that mold or ordinance and law may be excluded or capped. Advising repair before documenting the pre-loss condition.