Agreed Value Coverage in Texas
In commercial property insurance, agreed value coverage is an optional provision that suspends coinsurance for designated property during a specified period, subject to the policy’s agreed-value conditions.
Definition
An agreed value is an amount accepted by the insurer and insured for purposes of the selected commercial property option. In Texas commercial property insurance, the option changes the application of coinsurance, a condition that can reduce payments when insurance falls below a required proportion of property value. Separate policy provisions determine the value of an actual covered loss.
Structural Components
- Designated property: The buildings or business personal property to which the option applies.
- Agreed amount: The accepted value recorded for that property in the declarations.
- Insurance limit: The separate maximum amount of coverage carried.
- Effective period: The dates during which the coinsurance suspension operates.
- Value documentation: A statement of values or other information supporting insurer acceptance.
Parameters & Conditions
The policy must show that the option applies; submitting property values alone does not establish activation.
Under the Agreed Value option in ISO’s Building and Personal Property Coverage Form, a loss must occur on or after the option takes effect and before the earlier of its expiration or the policy’s expiration. If the option is not extended, its expiration reinstates coinsurance.
The form also limits payment using the ratio of the applicable insurance limit to the agreed value. A limit below the agreed value can therefore produce a proportional reduction even while coinsurance is suspended.
An operative margin clause can separately cap recovery by reference to reported values; agreed value does not itself remove that restriction.
Topic Relationships
- Commercial Property Insurance: The coverage context for the agreed value coinsurance option.
- Coinsurance: The insurance-to-value condition suspended while the option applies.
- Insurance Limits: Amounts that remain distinct from the agreed value and constrain payment.
- Declarations Page: Policy information identifying the selected option, agreed amounts, and applicable dates.
- Loss Settlement Provision: Terms governing how a covered loss is valued and paid.
- Replacement Cost Value (RCV): A valuation basis that must apply separately from the agreed value option.
- Actual Cash Value (ACV): A valuation basis that may remain applicable when coinsurance is suspended.
- Endorsements: Policy amendments that may modify agreed value terms or other coverage restrictions.
Exceptions, Limitations & Boundaries
- No automatic fixed settlement: The commercial property option does not independently promise payment of the agreed value following a total loss.
- Valuation remains separate: Replacement cost and actual cash value depend on the policy’s valuation provisions; selecting agreed value does not select either basis.
- Other coverage terms: Deductibles, exclusions, sublimits, and covered-loss requirements remain applicable unless modified.
- Other uses: Collector vehicle policies may use agreed value as a specified total-loss valuation. That meaning is distinct from the commercial property coinsurance option.