Replacement cost cover
Cover that restores the depreciation deducted, within a cap and subject to actual rebuilding, as a deliberate departure from the indemnity principle.
Article L. 121-1 of the French Insurance Code, carried over from the law of July 13, 1930, bars compensation above the value of the property on the day of the loss. Replacement cost cover pays the policyholder a supplement equal to the depreciation that was deducted, so they can actually replace what they lost. It departs, on purpose, from the indemnity principle, which in principle bars compensation exceeding the loss. The law accepts it only with two safeguards. The first is a cap, usually expressed as a percentage of the actual cash value indemnity, which stops anyone rebuilding as new a building three quarters written down. The second is a condition of actual reinstatement within a set period, often two years, checked against invoices. The supplement is paid only if the property is genuinely restored, so the policyholder cannot pocket the difference and rebuild nothing. The cover gets around a practical dead end. Applied alone, the indemnity principle leaves a claimant unable to regain the use of their property with the money they receive, since the market offers no equivalent secondhand.
The indemnity principle was laid down in France by the insurance contract act of July 13, 1930, now article L. 121-1 of the Insurance Code: compensation may not exceed the value of the thing at the time of the loss. Replacement cost cover departs from it within a contractual limit, commonly set at 25% of the actual cash value indemnity, and only if the property is rebuilt within two years.
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