Valued Policy Law (VPL)

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Valued Policy Law (VPL)

Key takeaways

  • Valued Policy Law (VPL) requires insurers to pay the policy’s stated dollar amount when a covered loss is deemed a total loss, regardless of the property’s actual cash value at the time of loss.
  • The payment basis under VPL may be determined using actual cash value (ACV) or replacement cost, depending on the policy and state law.
  • Only some U.S. states have VPL statutes; in states without VPL, the insured must generally prove the loss value after a claim.
  • VPL can generate disputes over covered perils, mixed causation (covered vs. excluded causes), and offsets from other aid (e.g., flood insurance, FEMA).

What VPL means

A total loss occurs when insured property is destroyed or damaged so severely that it cannot be repaired or reused. In states with a valued policy law, the insurer must pay the dollar amount stated in the policy declarations when a total loss arises from a covered peril. The insurer generally cannot reduce the payout on the ground that the property’s market value at the time of loss was lower than the policy amount, and policy terms inconsistent with the state’s VPL are often treated as void.

How the loss value is determined

Insurance valuation typically follows one of two methods:

  • Actual Cash Value (ACV)

  • ACV is commonly defined as replacement cost at the time of loss minus depreciation. Some jurisdictions apply the “broad evidence rule,” which allows consideration of all relevant evidence (replacement cost less depreciation, fair market value, expert opinion) when determining ACV.

  • Replacement Cost

  • Replacement cost coverage pays the expense to repair or replace the property without deduction for depreciation, subject to the policy deductible and terms.

Under VPL, the dollar amount shown on the policy declarations is the amount payable for a total loss, though whether that amount reflects ACV or replacement cost depends on the policy language and applicable state law.

States with valued policy laws

States that have VPL statutes include: Arkansas, California, Florida, Georgia, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, South Dakota, Tennessee, Texas, West Virginia, and Wisconsin.

Historical note: Wisconsin enacted the first VPL in 1874.

Common controversies and disputes

Valued policy laws often produce litigation and disputes in catastrophic-loss contexts. Typical issues include:

  • Covered vs. excluded perils — Insurers may deny VPL payouts when the loss stems from an excluded peril (for example, flood).
  • Mixed causation — When loss results from a combination of covered and excluded causes (e.g., wind and flood), parties dispute whether VPL applies. Courts analyze the dominant cause and factual evidence.
  • Offsets from other aid — Insurers sometimes argue that payments from federal programs (e.g., National Flood Insurance Program, FEMA grants) or other sources should reduce their liability.
  • Policy interpretation — Differences in policy wording and state case law can determine whether a total loss triggers full VPL payment.

A notable example is litigation after Hurricane Katrina, where disputes over flood vs. wind damage, mixed causation, and offsets led to many contested claims.

Practical implications for policyholders and insurers

  • Policyholders should confirm whether their state has a valued policy law and read declaration pages and exclusions carefully.
  • In VPL states, maintain clear documentation of the insured value and ensure the declarations accurately reflect intended coverage.
  • Consider separate coverages or endorsements for perils commonly excluded from homeowners policies, such as flood insurance.
  • Insurers operating in VPL states should ensure policy forms and disclosures conform to statutory requirements and be prepared to address mixed-causation and offset issues in major-loss events.

Understanding how VPL interacts with policy language and state law is essential for both claimants and insurers in catastrophic-loss situations.