Seeking Clarity on Earthquake Insurance in California: RCV vs. ACV
I’m reaching out for some guidance on earthquake insurance in California, specifically the differences between Actual Cash Value (ACV) and Replacement Cost Value (RCV).
Recently, I received a quote through the California Fair Plan with an assigned insurance broker for earthquake insurance for our home. I made it abundantly clear that I wanted RCV in case we chose not to rebuild, mainly for two reasons: 1) In the event of a significant earthquake that devastates Los Angeles, the likelihood of being able to rebuild within a year seems unrealistic given the expected surge in demand and potential tariffs; and 2) We’re considering moving away anyway, as my husband isn’t keen on staying here long-term.
I texted my broker: “I’d like to see comparisons for other deductible options for earthquake insurance. The current quote is for a 25% deductible, but we also want to compare 10%, 15%, and 20%. Additionally, can you confirm if the payout is RCV or ACV if we opt not to rebuild? A massive earthquake would likely hinder rebuilding efforts, so a cash payout could be more practical for us.”
She assured me it would be RCV. I responded, “If it’s RCV, let’s proceed with the 25% deductible.”
We proceeded with uploading photos, signing initial documents, setting up payment, and agreeing to the 25% deductible.
Today, I received the finalized documents for signing. Throughout this process, I’ve consistently confirmed via email and text, “Is this RCV if we don’t rebuild? Yes? Okay!”
However, the language in the document raises some concerns. It states:
F. LOSSES WILL BE SETTLED AS FOLLOWS:
- DWELLING AND OTHER STRUCTURES
a. Loss to property will be settled at “replacement cost” for the amount actually and necessarily incurred to repair or replace such property, subject to the applicable limits. If the dwelling is rebuilt or replaced at a different location, settlement will be limited to the costs that would have been incurred at the original premises.
b. The insurer will pay costs to repair or replace, after applying the deductible, up to the lesser of:
(1) The applicable limit of insurance;
(2) The “replacement cost” for damaged parts if rebuilt on the same premises; or
(3) The actual costs incurred for repair or rebuilding. Payments will not exceed the actual cash value unless:
(a) Repair/replacement occurs on the same premises; or
(b) Replacement is at a different location.
c. You can choose to claim on an “actual cash value” basis instead of “replacement cost,” if you notify within 180 days of loss. However, you must complete repairs within 365 days to claim RCV.
(1) To collect RCV, you must prove actual repairs/replacements have been made.
I emailed the broker for clarification about whether we’d really receive RCV if we choose not to rebuild. She replied:
- Yes, I confirm that in the event of a total loss, you’re eligible for RCV even if you choose a cash payout instead of rebuilding.
- There are no hidden depreciation clauses that would reduce the payout amount in a total loss situation where RCV applies.
- In a total loss, the entire $849,000 dwelling coverage, minus your deductible, will be available based on RCV.
I then revised my concerns regarding RCV versus ACV—particularly in Section F of the policy:
- Is RCV only available if we rebuild on the same premises or relocate?
- If we decide not to rebuild, will we still get the full RCV instead of ACV?
- Is the 365-day repair proof requirement flexible due to potential delays and the current housing situation?
I’m awaiting her response.
It certainly sounds like you have valid concerns about the language in the insurance policy and how it relates to your needs regarding replacement cost value (RCV) versus actual cash value (ACV) in the event of a total loss. Here’s a breakdown of your questions based on the excerpts you’ve provided and what’s common in insurance policy language:
RCV Only Paid if Rebuilt: The language in the policy does indicate that RCV applies primarily when repairs or replacements are performed on the same premises. If you choose not to rebuild, it does seem that the settlement would default to ACV unless there’s a specific clause stating otherwise.
Proof of Repair/Replacement: The requirement to provide proof of repair or replacement within 365 days typically reflects the insurer’s intent to ensure timely rebuilding. If you relocate and are not rebuilding, it’s critical to clarify if that voids your eligibility for the full RCV amount. Based on how the policy is written, it appears that if you do not submit proof of repairs or a rebuild, you might be restricted to ACV.
Cash Payout Without Rebuilding: Your concern is valid—if the policy does not provide clear language indicating that you would receive a full RCV payout if you choose to take a cash settlement without rebuilding, this is a significant issue. The contract’s language about ACV being the fallback suggests that you could indeed only get ACV unless there’s express language supporting your broker’s interpretation.
It seems like you are right to seek clarification, especially if your intention is to relocate rather than rebuild. It’s important to get written confirmation that reflects your understanding or the broker’s assurance of the policy coverage, particularly the conditions under which RCV applies.
In essence, keep pressing for clarity on these points until you feel fully confident in your coverage. If the responses you receive don’t align with your understanding, or if they remain ambiguous, consider consulting with an independent insurance advisor or attorney who can help clarify the implications of the policy thoroughly.