A fire totally destroyed your client I.M. Broke's building with an actual cash value of $400,000. The building was insured for $350,000. What is the amount of settlement I.M. Broke is entitled to?

In this scenario, the settlement amount for I.M. Broke would be determined by the principle of Actual Cash Value (ACV) and the policy limit. The actual cash value of the building was $400,000, but it was insured for only $350,000.

Insurance typically operates under the principle of indemnity, which means that the insured should not profit from the loss but should be restored to the financial position they were in before the loss occurred. Since the building was insured for $350,000, that is the maximum amount that will be paid out, even though the actual cash value was higher at $400,000.

The settlement amount would not be dependent on the differences between the cash value and the insured amount; rather, it caps at the insured limit. However, a common misunderstanding arises in relation to depreciation and the underinsurance principle, which can lead to confusion about the final payout. Given the facts, I.M. Broke would receive the policy limit of $350,000.

Therefore, recognizing that the insured amount is less than the actual value, the correct answer would reflect the insured limit, which aligns with the principles of insurance payouts.