Property insurance policies are generally classified as either “open” or “valued” policies. Indemnity measures are different depending on whether the policy is open or valued. An open policy does not state the value of the subject matter but leaves it to be determined at the time of loss, whereas a valued policy expresses on its face that the property insured is valued at a specific sum. Whether an insured’s policy is open or closed will affect the payment that an insured receives for her loss. The majority of California policies are open. Section 2051 of the California Insurance Code sets indemnity measures for open policies.
Under an open policy in California, the measure of indemnity in fire insurance is the expense to the insured of replacing the thing lost or injured in its condition at the time of the injury. That expense is computed as of the time the fire started. Further, if the open policy requires payment of actual cash value, the measure of the actual cash value recovery is determined depending on whether the loss is total or partial.
In case of total loss to the structure, the policy limit or the fair market value of the structure, whichever is less, is the actual cash value recovery. In the event of partial loss, a deduction for physical depreciation will apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure.
It is important to note that the “actual cash value” amount listed in the declarations does not create a “valued” property policy.