In which situation would the insurer settle on an Actual Cash Value basis?

When an insurer settles on an Actual Cash Value (ACV) basis, it determines the amount to be paid to the policyholder by assessing the current market value of the insured property at the time of loss, rather than the cost to replace the item or restore it to its original condition. Actual Cash Value takes into account depreciation of the item since its purchase, which means the insurer considers factors like age, wear and tear, and market conditions.

In the situation involving the antique dollhouse, the ACV is particularly relevant. Antique items often have unique value that can be significantly less than the replacement cost reflects. As such, the insurer would calculate what the dollhouse is worth in its pre-loss condition, factoring in its age, originality, and collectible value. This aligns with the ACV settlement approach since the dollhouse's market value can differ substantially from the cost of replacing a modern, mass-produced item.

In contrast, other scenarios involve items that can be easily replaced or restored. For example, reconstructing a home or replacing a hardwood floor typically reflects replacement cost policies, where the insurer would cover the full cost of restoring the property rather than its depreciated value. Therefore, the correct selection focuses on a distinctive item whose valuation is closely tied to