How are Optional Coverages Applied?

Policies may include many different optional coverages, such as, but not limited to, “Agreed Value,” “Actual Cash Value,” and “Replacement Cost” coverages. These coverages can be applied depending on the type or amount of damages. To understand better these types of optional coverages, one must read and verify the policy.

This is the issue the Puerto Rico Court of Appeals discussed in Asociacion de Titulares Condominio Rincon Ocean Club LI v. Multinational Insurance Company,1 where the trial court granted partial summary judgment in favor of the Defendant and applied Actual Cash Value coverage instead of the Agreed Value coverage, which the Plaintiff alleged applied.

In this case, the Condominium’s policy as a general rule stated that the insurer had the option to determine the value, including but not limited to the “Actual Cash Value,” of the property. However, the policy also stated that “Optional Coverages” existed and could be agreed upon between the parties. The referred “Optional Coverages” included “Agreed Value” and “Replacement Cost,” therefore, the insured could select the optional coverage and pact the value with the insurer, but this had to be stated in a clause of the policy. The parties had selected the coverage option of “Agreed Value,” and they argued that the only effect it had was that the “Coinsurance” did not apply to the property. After reviewing the clauses, the appellate court held that per the policy, there was no such limitation.

The appellate court held that the parties did agree to the value of the property even though it wasn’t clear the value method agreed on. Therefore, the court had erred in granting summary judgment because the intention of the parties had to be considered in an evidentiary hearing. The court of appeals determined that the redaction of the policy was “obscured,” and it was important to consider the intention of the parties to understand which optional coverage applied and reversed the trial court’s partial summary judgment.
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1 Asociacion de Titulares Condominio Rincon Ocean Club LI v. Multinational Ins. Co., 2021 PR App. Lexis 2690 (P.R. App. Oct. 22, 2021).