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Damage insurance: reconstruction or depreciated value?


Real estate and construction, Civil and commercial litigation

Property owners often spend substantial sums of money to insure their real-estate investments and we would like to address the concepts of reconstruction value and depreciated value which are, more often than not, very important issues in insurance claims, which insured parties do not always understand.

Obviously a reconstruction-value policy comes at a higher premium however, for our purposes, we will consider the following: An insurance policy covering damages was contracted for a building that caught fire and the insurer, after receiving the insurance claim from the insured, considers the various possibilities of compensation.

In the above situation, and to the extent that the insurance policy provides for full reconstruction 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 a 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 roof compared to the value of a roof a certain age. It is quite clear that both roofs cannot have the same market value. The situation is somewhat harder to conceptualize with assets that appreciate in value over time, but 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 from 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, Attorney-at-Law
Alepin Gauthier Avocats inc.

This text contains legal information of a general nature and should not replace legal advice with a lawyer or notary who will take into account the particularities of your situation.

Damage insurance: reconstruction or depreciated value?
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