The Ontario Court of Appeal clarified the concept of replacement
cost property coverage in the recent decision of Carter v.
Intact Insurance.
Property insurance policies generally provide for the basis of
valuation, which is the manner in which a loss will be quantified.
There are two common types of valuation in property policies:
actual cash value and replacement cost.
Take, for instance, the case of a fire damaging a television
that is four years old. A policy providing only actual cash value
would take the cost of the television when it was new and apply a
reduction (usually a percentage) for depreciation. Therefore, the
policyholder would not receive enough money to buy a new
television. If, on the other hand, the policy provided for
replacement cost coverage, the policyholder would be entitled to
the cost of a new television of the same type and quality as the
damaged one.
