RCBAP – Limit of Recovery Example

A small condominium building has a replacement cost value (RCV) of $187,500.

80% of the RCV equals $150,000 (the insurance required). The building carries only $130,000 in flood insurance, with a $500 deductible. It sustains a $120,000 flood loss.

What is the limit of recovery?

Insurance carried ($130,000) divided by insurance required ($150,000) times the amount of the loss ($120,000) equals $104,000. After subtracting the $500 deductible, the limit of recovery is $103,500.

Two coinsurance calculation examples are shown. In the first example, the Insurance Carried ($130,000) is divided by the Insurance Required ($150,000) and the result is .866666667. An explanatory note states, "When this value is less than one the insurance carried is less than the insurance required by the quotient %." In the second example, the Insurance Carried ($150,000) is divided by the Insurance Required ($150,000) and the result is 1. An explanatory note states, "When this value is one or greater than one it only means the coinsurance clause will not apply. There can be no loss payable that is greater than 100%."