Agreed Value Clause Guide

Agreed value is an optional commercial property coverage that suspends coinsurance for the property listed in the declarations. It does not set the amount of a covered loss, remove the deductible, increase the policy limit, or convert actual cash value coverage to replacement cost.

The declarations identify the property, agreed value, and expiration date. If a loss occurs after the agreed value option expires, the coinsurance condition applies again. If the limit is lower than the agreed value while the option is active, a separate proportional limitation can reduce the payment.

The first questions are therefore simple: Does agreed value apply to the damaged property? Was it active on the date of loss? What limit and agreed value are shown? Which valuation method applies?

This guide focuses on ISO CP 00 10 10 12 and the related business-income forms. Other editions and proprietary policies may use different language.

How agreed value works

In ISO CP 00 10, Agreed Value is Optional Coverage G.1. The option applies only when the declarations show that it has been selected for particular covered property.

While it is active, the Additional Condition—Coinsurance does not apply to that property. Instead, the form limits payment to the proportion that the applicable limit bears to the agreed value shown in the declarations.

If the limit equals or exceeds the agreed value, that proportion does not reduce the loss. The loss is still subject to the applicable limit, deductible, valuation condition, covered cause of loss, and every other policy term.

If the limit is below the agreed value, the basic proportional calculation is:

Applicable limit ÷ agreed value × amount of loss

The result remains subject to the limit, deductible, and other policy provisions. Although this resembles a coinsurance calculation, it uses the agreed value selected before the loss rather than the property’s value at the time of loss.

The option is commonly supported by a Statement of Values, such as ISO CP 16 15. The form and declarations—not the label used in an email or worksheet—determine whether the option was actually activated.

The expiration date

Agreed value applies to loss or damage that occurs on or after its effective date and before the agreed value expiration date shown in the declarations or the policy expiration date, whichever comes first.

If the agreed value expiration date is not extended, the coinsurance condition is reinstated and the optional coverage expires. CP 00 10 does not say that the option automatically renews with the policy. The current declarations and any endorsement extending the date must be reviewed for each policy term.

The source form does not replace the declarations date with a universal 12-month period. Some underwriting programs may use annual statements or dates that track a 12-month policy term, but the entered expiration date controls under the reviewed language.

Active and expired coverage example

Assume a warehouse has:

• replacement cost at the time of loss: $2,000,000;
• building limit: $1,200,000;
• agreed value: $1,200,000;
• coinsurance requirement when applicable: 80%;
• covered fire damage: $400,000; and
• deductible: $5,000.

Scenario A: agreed value is active

The $1.2 million limit equals the $1.2 million agreed value, so the agreed-value proportion is 100%. Coinsurance is suspended.

$400,000 − $5,000 = $395,000

Scenario B: agreed value expired before the fire

Coinsurance applies. The required amount of insurance is:

$2,000,000 × 80% = $1,600,000

The policy carries 75% of the required amount:

$1,200,000 ÷ $1,600,000 = 0.75

The loss calculation is:

$400,000 × 0.75 = $300,000
$300,000 − $5,000 = $295,000

Under these assumptions, the difference is $100,000. The comparison illustrates what the expiration date changes; it does not establish that every expired option produces the same penalty.

Agreed value and the policy limit

Agreed value is not extra insurance. A loss cannot exceed the applicable limit simply because the insurer accepted an agreed value.

It also does not guarantee payment of the agreed-value amount after a total loss. The policy still applies the valuation condition, replacement-cost requirements if selected, amount-spent limitation, deductible, sublimits, exclusions, and other terms.

If the applicable limit is reduced below the agreed value during the option period, CP 00 10’s proportional limitation can apply even though the ordinary coinsurance condition remains suspended.

For example, assume the declarations show a $1 million agreed value but the applicable limit is reduced to $800,000. A covered $200,000 loss is multiplied by 80%:

$800,000 ÷ $1,000,000 × $200,000 = $160,000, before the deductible and other terms.

Replacement cost and actual cash value

Agreed value and valuation answer different questions:

• Agreed value determines whether coinsurance applies and supplies the denominator for its own proportional limitation.
• Replacement cost values eligible damaged property without a deduction for depreciation, subject to its conditions.
• Actual cash value is the default basis for much property under CP 00 10 unless another valuation provision applies.

A policy can combine agreed value with replacement cost or agreed value with ACV. With ACV, agreed value does not remove depreciation. With replacement cost, agreed value does not remove the form’s repair-or-replacement and amount-spent requirements.

Assume a retail building has a $3 million replacement cost, a $2 million limit, 90% coinsurance, $500,000 in covered roof damage, and a $10,000 deductible.

If agreed value is active at $2 million, the limit equals the agreed value and the coinsurance condition is suspended. Assuming the claim otherwise qualifies for replacement-cost settlement, the calculation is $500,000 − $10,000 = $490,000.

Without agreed value, the coinsurance calculation is:

$2,000,000 ÷ ($3,000,000 × 90%) × $500,000 = $370,370 (rounded)
$370,370 − $10,000 = $360,370

The difference is approximately $129,630 under the stated assumptions.

Agreed value and stated value

“Stated value” is not a reliable synonym for agreed value. The term appears more often in auto, inland marine, and proprietary coverage, and its effect depends on the loss-settlement language.

A stated amount may operate as a limit while the insurer still pays the lesser of that amount and another valuation measure. Other policies may use “stated amount” differently. Do not assume that a number labeled “stated value” suspends coinsurance or guarantees payment of that amount.

The practical comparison is the contract:

• Does the policy expressly suspend coinsurance?
• Is the amount a limit, a valuation agreement, or one factor in a lesser-of calculation?
• Does depreciation apply?
• What conditions govern repair or replacement?

Agreed value and margin clauses

Agreed value can suspend coinsurance while a margin clause separately caps payment for one building or category of contents. The two provisions can operate at the same time.

For example, a building may have a $1 million reported value and a 120% margin percentage, producing a $1.2 million maximum under the margin clause. Even with agreed value active and a much larger blanket limit, that $1.2 million maximum may still control.

Review the agreed value entry, statement of values, margin-clause schedule, and blanket limit together. Eliminating a coinsurance penalty does not eliminate a reported-value cap.

Business income agreed value

Property agreed value does not automatically suspend business-income coinsurance. ISO CP 00 30 and CP 00 32 contain a separate Business Income Agreed Value option. It is activated through the declarations and a Business Income Report/Worksheet, CP 15 15.

Assume a restaurant has:

• projected net income plus operating expenses: $800,000;
• business-income coinsurance: 50%;
• business-income limit: $300,000;
• covered business-income loss: $350,000; and
• no active business-income agreed value.

Required insurance is:

$800,000 × 50% = $400,000

The coinsurance ratio and loss calculation are:

$300,000 ÷ $400,000 = 0.75
$350,000 × 0.75 = $262,500

The difference between the $350,000 loss and that result is $87,500, subject to all other business-income terms.

If business-income agreed value is active at $300,000 and the limit is also $300,000, the proportional reduction does not apply. The $300,000 limit would still cap the $350,000 loss, leaving a $50,000 limit gap. Period of restoration, covered suspension, waiting periods, and other business-income provisions remain relevant.

Under the reviewed CP 00 30/CP 00 32 language, Business Income Agreed Value suspends coinsurance for 12 months after the option’s effective date or until policy expiration, whichever comes first. If no new worksheet is filed and the agreed value is not amended, coinsurance is reinstated automatically. This timing is separate from the declarations-based expiration mechanic for building and personal-property agreed value.

What the case law shows

Buddy Bean Lumber Co. v. Axis Surplus Insurance Co. did not involve active agreed value, but it illustrates why valuation and coinsurance should not be collapsed. The insured had replacement-cost optional coverage but submitted an ACV claim for stolen wire. Applying Arkansas law to standard policy language, the Eighth Circuit held that ACV—not replacement cost—was the correct property value for the coinsurance calculation on that ACV claim.

The decision does not establish a nationwide rule or alter an agreed-value entry. It shows that the full policy and the type of valuation claimed can affect the coinsurance denominator.

FAQ

Does agreed value mean the insurer and policyholder fixed the amount of every loss?

No. Under CP 00 10, agreed value suspends coinsurance and supplies a denominator if the limit is lower than the agreed value. Other provisions still determine the covered amount of loss.

Does agreed value automatically last for the full policy term?

For building and personal-property agreed value, not necessarily. It applies before the agreed value expiration date shown in the declarations or the policy expiration date, whichever occurs first. Business Income Agreed Value uses a separate 12-month-or-policy-expiration rule under the forms reviewed here.

Does agreed value provide replacement cost coverage?

No. Replacement cost is a separate optional coverage. A policy may have one, both, or neither.

Can agreed value and a margin clause both apply?

Yes. Agreed value can suspend coinsurance while the margin clause limits payment based on reported values.

Does building agreed value apply to business income?

No. Business income has a separate agreed-value option and worksheet under the standard forms.

For Policyholder Representatives

At intake, identify the agreed-value entry for each affected category of property and compare the loss date with the option’s effective and expiration dates. Do not infer current status from a prior policy, binder, statement of values, or renewal proposal.

Obtain the statement or worksheet submitted for the applicable term, but keep it distinct from the issued declarations. The statement supports underwriting; the declarations show whether the option, amount, and date were entered into the policy.

If the insurer applies coinsurance, reproduce its property value, valuation basis, required-insurance amount, ratio, loss amount, and deductible. Buddy Bean demonstrates why the property valuation used in that calculation can be disputed. Any issue involving a missing endorsement, renewal mismatch, reformation, broker responsibility, waiver, or estoppel should be reviewed with coverage counsel.

Claim Intake Checklist for Policyholder Representatives

Agreed value and Frontera

Frontera’s Coverage Analysis can help locate agreed-value entries, dates, applicable property, coinsurance terms, valuation provisions, and related margin clauses and link the findings to source policy pages. That gives the reviewer a faster way to assemble the inputs before applying the calculation.

Frontera’s Estimating tools can organize the building and contents evidence used to determine the amount of loss. They do not decide whether an omitted or expired agreed-value option should be reformed, waived, or enforced. Those questions depend on the policy, underwriting record, and governing law.

References

• ISO CP 00 10 10 12, Building and Personal Property Coverage Form — Optional Coverage G.1 and Additional Condition F.1
• ISO CP 00 30 10 12, Business Income (and Extra Expense) Coverage Form — Business Income Agreed Value
• ISO CP 00 32 10 12, Business Income (without Extra Expense) Coverage Form — Business Income Agreed Value
• ISO CP 15 15, Business Income Report/Worksheet
• ISO CP 16 15, Statement of Values
• Buddy Bean Lumber Co. v. Axis Surplus Insurance Co., 715 F.3d 695 (8th Cir. 2013)
• Paul O. Dudey, Agreed Value Clause: Friend? Or Sometimes Foe?, Adjusting Today
• Kevin Kuntz and Elizabeth Casas Leano, Three Attributes of Commercial Properties That Underwriters Shouldn’t Take for Granted, Verisk (August 2020)

This article is for educational purposes and does not constitute legal advice. Consult coverage counsel on specific claims and disputed policy interpretations.