How are covered losses settled under a typical Equipment Breakdown Protection Coverage Form?

Covered losses under a typical Equipment Breakdown Protection Coverage Form are settled using replacement cost. This means that in the event of a covered loss, the insurer will pay for the cost to repair or replace the damaged equipment without deducting for depreciation. This approach is beneficial for policyholders because it allows them to receive compensation that accurately reflects the current market price for new equipment, ensuring they can replace their damaged assets without financial loss.

Replacement cost coverage is typically established to encourage policyholders to maintain and repair their equipment rather than allowing it to become outdated or potentially unusable. This method provides a more equitable settlement, especially in industries where equipment malfunction can lead to significant operational disruptions.

Other options like actual cash value would involve deducting depreciation from the replacement cost, which can result in lower payouts that might not fully cover the costs of replacement or repair. While "agreed value" applies in some insurance contexts, it is not standard for equipment breakdown coverage, focusing instead on pre-set values rather than the actual cost of repair or replacement. Incidental loss analysis does not represent a standard method for settling covered losses either, as it focuses on the analysis of additional losses rather than the core settlement of the damaged equipment itself.