Mr Xavier Has an HO-3 Contract with $100,000 Dwelling Coverage

Mr. Xavier has an HO-3 contract with $100,000 dwelling coverage, $50,000 personal property coverage, and a $500 deductible. The dwelling is 50% depreciated. Sewage backs up into the basement and destroys the furnace, which will cost $8,000 to replace. The policy will pay:

A) nothing because of the water damage exclusion
B) nothing because the property is not covered
C) $7,500 because of replacement cost coverage
D) $3,500 because of actual cash value and the deductible