An HO-3 dwelling has a replacement cost of $500,000. The insured carries only $300,000 of Coverage A. After a $50,000 partial fire loss, how does the loss settlement provision generally apply?
Explanation
The HO-3 loss settlement clause pays replacement cost on the dwelling only if the insured carries at least 80% of the full replacement cost at the time of loss. Here 80% of $500,000 is $400,000 but the limit is only $300,000, so the insurer pays the greater of actual cash value or the proportion (300,000/400,000 = 75%) of the loss, which results in a reduced settlement on the $50,000 loss.
Law Reference: ISO Homeowners — Loss Settlement / 80% coinsuranceThis topic, taught in full in the California Property & Casualty Broker-Agent guide. California Property & Casualty Broker-Agent Study Guide — 2026 Edition — PDF + EPUB, $24.99 · 14-day refund →
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