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Your insured is involved in an accident and the insured's automobile is heavily damaged. Repairs are estimated at $7,500. The insured calls to advise you that the insurer does not intend to have the vehicle repaired, but will make a cash settlement, as its actual cash value is shown in the ''Red Book'' as $5,000. What should you tell your insured?
The correct answer is B. Under Ontario auto policy wording, the insurer is not required to pay repair costs that exceed the vehicle's actual cash value (ACV.. The OAP 1 states that the insurer will pay the lower of the cost to repair the damage or the automobile's actual cash value at the time of loss, less any deductible. It also says the insurer may choose to repair, replace, rebuild, or pay ACV, and if it pays ACV, it takes ownership of the salvage.
Since the repairs are estimated at $7,500 and the vehicle's ACV is $5,000, the insurer is generally entitled to settle on an ACV basis rather than fund uneconomical repairs. That makes A incorrect. C and D are not appropriate broker guidance and do not reflect proper claims-handling practice or professional conduct.
The practical advice to the insured is that if they disagree with the insurer's valuation, they may pursue the policy's appraisal/arbitration dispute mechanism on value. In standard Ontario insurance practice, each side bears the cost of its own appraiser and shares the umpire cost if one is needed. For exam purposes, the closest and best answer provided is B: the insured can challenge the valuation through appraisal rather than demand the full repair amount.