AAA Homeowners Insurance Refuse to pay claim Madison Wisconsin Nationwide

 Good afternoon,

I'm sorry to hear of your misfortunes, however consumers need to be educated on insurance and how it works.
Replacement cost means  the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the limit of insurance or the cost actually spent to repair or replace the damaged property is less. Refer to your policy for the exact definition and explanation of replacement cost. This is up to the limits of your policy.  So, as you stated, your policy limits was $2500 for jewelry. 
This means that your insurance company would replace the jewelry, up to a limit of $2500.
This is exactly what you paid you.
When your policy is first "written" you receive a declarations page, this would have included the following :

• Name and Address of the Policy Holder and Insurance Company
• Information on How to Contact the Insurance Company for Questions or a Claim
• What the Insurance Policy is For and How Much Coverage
• How Long the Insurance Policy is Valid
• Any Endorsements, Additions, Changes or Discounts on the Policy

This packet would have contained your contract as well (which you said you filed away,then shredded)  This contract defines what is and what is not covered.  Definitions of such words as "replacement cost" and "named insured" etc.

The only wrong-doing perhaps was your agent not listening to you, when/if you told him you had over $20,000 in jewelry.  There can be additional endorsements or stand-alone policies (inland marine/floater, personal articles policy) that would have covered your additional jewelry. 
I would highly recommend getting your contract and reading it.  This would have clearly explained what your policy covered, from what perils, and up to what limits. 

Yes they did send me paperwork. Filed away in a drawer for a number of years and then shredded.

After your change in policy, didn't they send you new paperwork with the coverage and deductible information?  Wouldn't that show the change you are referring to?  I'm not an insurance person, just a curious homeowner.