Personal Lines Loss Settlements

Bulletin 1-96

PERSONAL LINES LOSS SETTLEMENTS

March 1, 1996

This Bulletin is intended to supersede Bulletins 9-94 and 9A-94.

As a result of recent disasters in California and Florida and increased pressure from reinsurers, property insurers are

proposing further limitations on the amount of Replacement Cost for dwellings. The definitions of “Guaranteed

Replacement Cost,” “Excess Dwelling Coverage,” “Replacement Cost” and “Actual Cash Value as used by the

Arkansas Insurance Department are as follows:

GUARANTEED REPLACEMENT COST—In the event of a covered loss to the dwelling, the insurance company

will pay the full amount needed to repair or replace the damaged or destroyed dwelling with like or equivalent

construction without regard to the policy limit and without depreciation.

EXCESS DWELLING COVERAGE—In the event of a covered loss to the dwelling, the insurance company will

pay the full amount needed to repair or replace the damaged or destroyed dwelling with like or equivalent

construction without depreciation, and without regard to the policy limit, up to an additional amount separately

specified in the policy contract.

REPLACEMENT COST—In the event of a covered loss to the dwelling, the insurance company will pay the full

amount needed to repair or replace the damaged or destroyed dwelling with like or equivalent construction without

depreciation up to the policy limit.

ACTUAL CASH VALUE (ACV)—Replacement Cost less depreciation. In addition to Guaranteed Replacement

Cost, Replacement Cost and Actual Cash Value policies, an insurer may offer policies covering a residential

dwelling with amounts in excess of Replacement Cost (referred to as Excess Dwelling Coverage). Excess Dwelling

Coverage, if offered, may not be less than 25% above the dwelling limit

it.

ACTUAL CASH VALUE (ACV)—Replacement Cost less depreciation. In addition to Guaranteed Replacement

Cost, Replacement Cost and Actual Cash Value policies, an insurer may offer policies covering a residential

dwelling with amounts in excess of Replacement Cost (referred to as Excess Dwelling Coverage). Excess Dwelling

Coverage, if offered, may not be less than 25% above the dwelling limit. Insurers no longer wishing to offer

Guaranteed Replacement Cost must file for approval and offer to all current Guaranteed Replacement Cost insurers

an endorsement providing EXCESS Dwelling Coverage. It shall be the insured’s decision which amount to elect if

multiple excess limits are offered.

A disclosure, which must be pre-approved by the Department, must accompany all policies reducing coverage from

Guaranteed Replacement Cost to Excess Dwelling Coverage. Such notice must clearly and concisely state that

Replacement Cost is no longer an unlimited amount.

Questions concerning this Bulletin may be directed to Becky Harrington, Senior Analyst, Property and Casualty

Division of this Department, at (501) 686-2975.

Lee Douglass

INSURANCE COMMISSIONER

ARKANSAS INSURANCE DEPARTMENT

LEGAL DIVISION

1200 West Third Street

Little Rock, AR 72201-1904

501-371-2820

FAX 501-371-2629