(a) All covered property, unless otherwise provided in this section, shall be insured for no more than its replacement cost and shall be insured for no less than 80 percent of its actual cash value. Replacement cost coverage may be provided with an amount of insurance as agreed upon by the proper insuring authority and the risk manager based upon a written statement of values. Replacement cost shall be the cost to repair or replace property with comparable materials of like kind and quality by generally accepted construction methods or technology to serve the same function as the lost or damaged property. No payment for a loss shall exceed the limit of the policy.

(b) The officer or person having charge by law of insuring any public building, contents, machinery, and equipment shall annually certify to the Department of Finance the description and the value of all buildings, contents, machinery, and equipment under the supervision or control of the officer or person on forms prescribed by the department for the purpose of showing the character of the risk and determining the rate of premium. No coverage shall be issued unless such certificate is on file in the office of the Department of Finance or the director has waived, in writing, the filing of the same.

(c) Buildings, contents, machinery, and equipment owned by any county, city, or school district and used for school purposes, or under control of a board of education, or owned or under the control of the Alabama Community College System may be insured under this chapter. The risk manager, upon review and approval by the Finance Director, shall develop a program of coverage under the State Insurance Fund which provides, within reasonable limitations, for the use of gap coverage and gap plus coverage, to provide proceeds sufficient to allow a school building that has suffered an 80 percent or greater loss as a result of a covered peril to be reconstructed with materials superior to its original construction and in an increased size, if appropriate, based upon current construction standards and occupancy. The risk manager shall draft rules, guidelines, limitations, and coverage endorsements under which this program shall operate, and shall determine actuarially sound premiums to assess covered entities.

Additional premiums required for gap and gap plus coverage for participating systems shall be paid annually from the Public School Fund to the Department of Finance, Division of Risk Management. Distribution of the remaining Public School funds shall be pursuant to Section 16-13-234.

Gap coverage and gap plus coverage shall be mandatory for K-12 systems and public two-year institutions of postsecondary education with buildings that qualify under the terms of this program.

(1) For the purposes of this subsection, gap coverage is coverage that allows for improved construction type from an ISO of 1, 2, or 3 to an ISO of 4; allows for additional square footage in preapproved incremental amounts; and requires that building damages must exceed 80 percent or greater of the insured school building value as determined by State Insurance Fund adjusters, engineers, and other experts. For purposes of this subsection, the following construction ISO designations apply:

a. An ISO of 1 is a frame.

b. An ISO of 2 is masonry and wood roof supports or trusses, or both.

c. An ISO of 3 is pre-engineered metal.

d. An ISO of 4 is a steel frame and roof supports with a masonry exterior.

e. An ISO of 5 is a protected steel frame with a masonry exterior.

f. An ISO of 6 is a reinforced concrete.

(2) For the purposes of this subsection, gap plus coverage is coverage that allows the insured to select amounts of insurance for normally uncovered expenses including, but not limited to, a new preparation site if the building is not rebuilt on the same foundation, underground wiring, plumbing, paving, and other expenses. Gap plus coverage requires that building damages must exceed 80 percent of the insured school building value as determined by State Insurance Fund adjusters, engineers, and other experts. Gap plus coverage also requires that the maximum amount of coverage allowed for gap plus is 10 percent of the insured value of the destroyed building.

(d) The Department of Finance may cause to be surveyed, annually, if practicable, all public property coming within the provisions of this chapter, and the officer or person in charge of the public property shall receive a copy of such report. A survey shall be an examination of property for physical discrepancies, construction characteristics, usage, or occupancy.

(e) Notwithstanding any law to the contrary, the Department of Finance in adjusting a loss, at its option, may assume title, ownership, and possession of any insured item, including building materials, fixtures, furniture, machinery, and equipment, for which insured value has been paid, and may arrange for the salvage and sale thereof in whatever manner is deemed most advantageous to the State Insurance Fund, to which all sale proceeds shall be deposited. Alternatively, the Department of Finance may deduct the salvage value of the insured item from the payment to the owner of insurance proceeds arising from the loss of the insured item.