Market Value Clause

Walking around your local arts and crafts show one Sunday, you see a painting you like. Just a bunch of swirly colors and what looks like an out-of-focus disembodied goat head on one side. You buy it for $175.

Fast-forward 15 years. The goat-head artist becomes a major sensation. Your painting is now worth $6.7 million.

Unfortunately, around this time, your den catches fire and the painting is destroyed. You file an insurance claim. The insurance company wants to pay you $175 for the painting, since that’s what you paid for it originally.

Luckily, you have a market value clause. This stipulation says that the insurer must pay the market price of the property destroyed, rather than the amount you originally paid for it. In effect, the clause says the item is worth what it's worth now, not what you happened to pay for it way back when.

It comes up a lot in business insurance, especially manufacturers. For a living, these companies buy a bunch of raw materials and turn them into finished products. If those finished products get destroyed, the manufacturer doesn't want the value of the raw materials. It wants the market value of the finished products. Thus, a market value clause makes sense for them.