What is agreed value in commercial property insurance?

Agreed value is an optional provision in a commercial property insurance policy that establishes the insured value of the building at the beginning of the policy period, based on a statement of values submitted by the owner and accepted by the insurer. When agreed value is in effect, the coinsurance clause is suspended, meaning the owner will not face a coinsurance penalty if a partial loss occurs. The ISO Agreed Value endorsement (CP 12 11) is the standard form that implements this provision by suspending the coinsurance condition for the policy period.

Under a standard coinsurance provision, if the building is insured for less than the required percentage of its replacement cost (typically 80% or 90%), the claim payout is reduced proportionally. Agreed value eliminates this risk because both parties have agreed on the appropriate insured value at the start of the policy.

To obtain agreed value, the apartment owner typically submits a signed statement of values that includes the current replacement cost of the building. The insurer reviews this statement and, if acceptable, endorses the policy with the agreed value provision. The statement of values must be updated at each renewal to maintain the agreed value status.

Agreed value is especially beneficial for apartment owners with older or unique buildings where replacement cost can be difficult to determine precisely. It provides certainty that a partial loss claim will not be reduced by a coinsurance penalty, provided the insured value reflects the statement of values accepted by the insurer. Fannie Mae's Multifamily Selling and Servicing Guide (Part III, Chapter 6) requires either an agreed amount endorsement or the elimination of the coinsurance clause on all DUS-financed properties, making the agreed value endorsement a standard requirement for agency-financed apartment buildings.