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180 Days and Replacement Cost: Dazed and Confused

Within ISO’s Building and Personal Property Coverage Form (CP 00 10), a 180-day limitation applies to three situations:

• Within the Additional Coverage – Debris Removal. Simply stated, debris removal expenses, up to the eligible limit, are paid only if they are reported within 180 days of the direct physical loss.
• Within the Additional Coverage – Pollutant Clean-up and Removal. Like coverage for debris removal, the forms states that is pays for eligible expenses only if reported in writing to the carrier within 180 days of the date of the Covered Loss.
• As part of the requirements of the Optional Coverage – Replacement Cost. This use of the 180 day “limitation” within the ISO form is the subject of this article.

ISO Coverage Form Language

To begin this discussion, let’s review the relevant “180-day” wording found within the Replacement Cost provision of ISO’s CP 00 10:

c. You may make a claim for loss or damage covered by this insurance on an actual cash value basis instead of on a replacement cost basis. In the event you elect to have loss or damage settled on an actual cash value basis, you may still make a claim for the additional coverage this Optional Coverage provides if you notify us of your intent to do so within 180 days after the loss or damage.

Key terms and conditions within this language must be reviewed to understand how this provision applies:

• “You…“: The very first word of this provision points to WHO gets to make what decision. The “you” is the named insured. From the beginning it is clear that the named insured is making a decision.
• “…actual cash value basis…“: What does the “you” or the named insured get to decide? The named insured is given the option to make a claim on an actual cash value (ACV) basis rather than on a replacement cost basis as allowed when the insured choses this optional coverage.
• “In the event…“: Means, “If.”
• “…you may still…“: The you/named insured has the option to change his/her/its mind.
• “…notify us…“: If the you/named insured changes his/her/its mind, the insurance carrier must be notified.
• “…within 180 days after the loss or damage.“: Although the you/named insured has a right to change his/her/its mind regarding ACV versus Replacement Cost, that right expires 180 days after the loss.

What does this mean? Simply, the INSURED (not the insurance carrier) has the option to settle the property loss on an ACV basis rather than a replacement cost basis when the replacement cost optional coverage is chosen. However, this provision gives the INSURED (not the insurance carrier) the right to change its mind and seek recovery on a replacement cost basis – provided the insurance carrier is notified of such intention within 180 days of the loss.

All decisions within this provision are those of the INSURED. None of these decisions are given to the insurance carrier.

What This Does NOT Allow

Insurance carriers misapply this provision regularly, and in many unique ways. This provision does NOT allow:

• The insurance carrier to deny replacement cost if the damage is not discovered until more than 180 days after the loss occurred. Note again that all the decisions within this provision lie with the insured and NOT the insurance carrier. If, upon discovery of the damage, the named insured makes it known that repair or replacement is desired, the insurance carrier owes replacement cost. The only caveat to this may be if the insured initially states they have no intention to repair or replace and changes their mind later. Past the 180 days, the insured does not have the ability to flip-flop on the ACV vs. Replacement Cost decision. But again, if it’s stated up front that replacement cost is desired, it doesn’t matter how long after the loss the damage is discovered, replacement cost is owed. (See “Replacement Cost and the 180 Day Limitation Myth“)
• The insurance carrier to deny replacement cost because repairs or replacement took longer than 180 days. Nowhere in this provision is there a specified time limit for repairs. The only requirements for payment on a replacement cost basis are: 1) adequate coverage amounts; 2) the Replacement Cost optional coverage has been chosen; and 3) actual repair or replacement of the damaged property. While the policy does state that repair or replacement must be completed “as soon as reasonably possible,” the policy does not place a time limit on what this phrase means and how long it can be.

There are times when a damage may not be discovered for more than 180 days (i.e., hail damage). Nothing in this provision allows the carrier to avoid paying replacement cost. Time to repair or rebuild often takes more than 180 days, especially for a major loss. If the carrier was able to deny replacement cost simply because the repair/replacement took more than 180 days, replacement cost coverage in the commercial property policy would be almost illusory (sometimes it takes longer than 180 days just to dig the first hole for the replacement building).

Proper Application of the 180-Day “Limitation” for Replacement Cost

First, note who gets to make what decision. The named insured (not the insurance carrier) gets to decide whether or not he/she/it wants coverage on an ACV or replacement cost basis. Second, IF the “you” initially chooses ACV rather than replacement cost, that same “you” has the ability to change its mind and chose replacement cost – if such choice is made within 180 days of the loss. Lastly, if the named insured chooses replacement cost within the specified time period, there are adequate coverage limits, and repairs or replacement actually occurs, the insurance carrier owes replacement cost.

Nothing within the 180-day “limitation” allows the insurance carrier to make any decisions or take any action; it only allows the insurance carrier to respond to decisions made by the insured.

All this provision does is allow the insured to change its mind!