Loss adjustment and valuation
Domain 4: Loss Adjustment and Valuation
This domain tests how the adjuster measures and prices the loss. Expect questions on replacement cost versus actual cash value (ACV), depreciation, the 80% replacement-cost threshold, and substantial-damage determinations that trigger ICC.
Core rules
- Under the Dwelling Form, the building is settled at replacement cost when the amount of insurance at the time of loss is at least 80% of the building's full replacement cost. If not, the building is settled at ACV. Personal property is settled at ACV.
- ACV is replacement cost less depreciation. Depreciation must reflect age, condition, and useful life; it is not a flat percentage applied without support.
- The adjuster writes a scope of damage that is neither better nor worse than pre-loss condition. Flood-damaged drywall, flooring, insulation, cabinets, and mechanicals are evaluated by height of water and material susceptibility.
- Substantial damage exists when repair cost equals or exceeds 50% of the building's market value. That determination can make ICC available and can trigger community floodplain requirements.
- RCBAP building losses are settled on a replacement-cost basis under that form, subject to its limit.
Worked example
A dwelling has a replacement cost of $400,000 and $250,000 of building coverage. Because $250,000 is less than 80% of $400,000 ($320,000), the building loss is settled at ACV. If the damaged scope has a replacement cost of $80,000 and supported depreciation of $20,000, the ACV loss is $60,000, subject to the deductible and policy limit. If the same building were insured at $320,000 or more, the building loss would be settled at replacement cost.
Traps
Do not apply replacement cost to contents. Do not apply the 80% test to the policy limit alone without comparing it to replacement cost. Do not treat depreciation as arbitrary. Do not ignore the substantial-damage threshold when ICC may apply.