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Insurance coverage: replacement or depreciated value?

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Civil and commercial litigation

Although the concept of insurance is nothing new, we would like to address, the concepts of replacement value and depreciated value which are, more often than not, a very important issue in insurance claims.

It is sufficient for the purposes of this article to consider the following situation: An insurance policy covering damages was taken on a property that has caught fire and the insurer, after receiving an insurance claim from the insured, considers the various possibilities of compensation.

Two Forms of Compensation: Replacement Value and Depreciated Value

In the aforementioned fact pattern and to the extent that the insurance policy provided for full replacement value compensation, the insured would generally receive an amount sufficient to replace the damaged immovable or building in its entirety. However, the situation is quite different when the insurance policy only provides for compensation on the basis of depreciated value. In such a case, the amount paid by the insurer would not, in principle, be sufficient to replace the damaged property since it would be equivalent to its depreciated replacement value.

For example, consider the value of a new car compared to the value of a car of a certain age. It is quite clear that both cars cannot have the same market value. Similarly, when it comes to an insurance policy with depreciated replacement value, the insurer will only pay the value of the property at the time of loss, that is to say, at a moment in time where the property in question will not be new but rather, will be used.

That said, it is always very important to read the documents received by insurance companies and to consult one’s broker or attorney so as to obtain more precise information and potentially avoid preventable damages in the event of an insurable loss.

Harry Karavitis, Lawyer
Alepin Gauthier avocats inc.

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