What is included in the settlement for loss to one part of a multi-part property?

The correct answer is based on the principle of indemnity, which ensures that an insured party is compensated for their loss in a way that restores them to the economic position they were in prior to the loss. When dealing with a multi-part property, the settlement for loss to one part includes both the value of the lost part and the installation cost.

This approach takes into consideration not just the replacement cost of the lost part itself but also the expenses that are incurred in properly installing that replacement. Installation costs are necessary so that the new part can function as intended within the whole property, thus reflecting the full cost to the policyholder to replace the lost component and restore the property to its pre-loss condition.

In contrast, options that imply only the replacement cost, the total value of the property, or just labor costs are inadequate because they do not cover all necessary expenses associated with the loss. Focusing solely on one aspect ignores the comprehensive financial impact the loss has on the insured party. Thus, including both the value of the lost part and the installation cost ensures a more complete and fair settlement.