Here are some references that may help:
Provisions Limiting Insurance Company's Liability
More often than not, the insurance company does not enact its option to repair and a cash settlement is in order payable to the policyholder. Naturally the mortgage company and any other parties who have an interest in the property will also be named as payee. The pertinent policy language provides: "To an amount not exceeding $______does insurer________and legal representatives to the extent of actual cash value of the property at the time of the loss but not exceeding the amount which it would cost to repair or replace the property with materials of like kind and quality within a reasonable time after such loss, without allowance for any increased cost of repair or reconstruction by means of any ordinance of law regulating construction or repair and without compensation for loss resulting from interruption of business or manufacture, nor in any event, for more than the interest of the insured..."
In simpler language, the specific limitations on recovery by the policyholder are as follows:
1. The Actual Cash Value of the insured property immediately prior to the loss
2. The cost to repair or replace the property with material of like kind and quality within a reasonable period of time after the loss
3. Face amount of the insurance policy
4. Interest of the policyholder
It is the insurance company's obligation to pay only the smallest of these four amounts under a policy that provides payment of Actual Cash Value.
Under a Replacement Cost Policy, the very same four limitations (shown previously) apply up until, and unless, replacement is made. The property in question must actually be replaced before the cost of replacement is owing. The replacement cost feature of the policy applies even if the damaged structure is not replaced on the same premises: Blanchette v. York Mutual Insurance, 455 A. 2d 426 (Me. 1983).
The amount owing on replacement is open for negotiation. The company may argue that the item could have been replaced for less through some other source. If on the other hand, the company takes its option to replace with "like kind and quality," the policyholder may argue that the item is not of the same quality or value.
Most company adjusters hesitate to enforce their option of replacement with "like kind and quality." It may become an act of futility in trying to convince a policyholder of satisfaction. Under these circumstances the insurance company takes on the added responsibility of guarantor (in which one person promises to make another secure in the possession, continued enjoyment, or the like, of something). Many policyholders mistakenly believe that this is the definition of what insurance owes, even without this option being enforced, thanks to companies' advertising.
A policyholder can waive the Replacement Cost provisions in favor of an Actual Cash Value settlement by giving written notice.
Full article in the book, "Policy Ensurance."
LAW ASSISTS THE WAKEFUL, NOT THE SLEEPING (Law Maxim)