Valuation Issues in Florida, Part 4: Actual Cash Value and The Broad Evidence Rule
(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the fourth in a series she is writing on valued policy laws).
“Actual Cash Value = Replacement Cost – Depreciation” is one of the most common insurance valuation mantras. However, when dealing with Actual Cash Value (ACV) provisions, insurance professionals should keep in mind that that, in Florida, this formula is more fluid and lenient than it sounds.
In New York Central Mutual Fire Ins. Co. v. Dikis, Fla. 69 So.2d 786 (Fla. 1954), the Supreme Court of Florida adopted the broad evidence rule and established that in determining the ACV of a damaged or destroyed property at the time of the loss, courts should consider any evidence that logically tends to establish a correct estimate of the value of the property. Therefore, under the broad evidence rule, valuation will go beyond mere price points and recovery will not be barred because the damages are difficult to ascertain. Of course, mere speculation or conjectures will not suffice, but evidence that logically tends to establish the correct valuation of a damaged property will be admitted.
A few examples are of rigor. In attempting to determine the ACV of stolen goods from an antique dealer, the insurer argued that the ACV was the equivalent to the price at which the insured could have sold the property at the time of the loss. Under the broad evidence rule, however, consideration may be given to the original cost, the cost of replacement and expert opinions on the value and gainful uses of the property to determine the ACV. Mew v. J&C Galleries, Inc., 554 S.W. 2d 249 (Tex Civ App. 1977). In a claim to recover the value of a herd of pedigreed and registered chinchillas the insured’s contract to sell and deliver 12 pairs of chinchillas was admissible even though the demand for chinchillas at the time was falling and the contract was solicited by an inexperienced buyer. Pinet v. New Hampshire Fire Ins. Co., 100 N.E. 346 (1956).
In Florida, Courts have held that under the broad evidence rule, replacement value and wholesale value are factors, not shackles, by which to determine ACV. J&H Auto Trim Co., Inc. v. Bellefonte Ins. Co., 677 F.d 1365 (11th Cir. 1982). Courts in Florida have also held that a sworn statement in proof of loss and a contractor’s estimate can constitute probative evidence from which a jury can make an ACV determination. Barret v. Prudential Prop. Casualty Ins. Co., 790 F.2d 842 (11th Cir, 1986).
While the broad evidence rule applies to any claim, its use and practice is particularly crucial in business interruption claims since courts will admit any evidence that tends to shed any light to the actual value of the insured property at the time of the loss, including self-serving testimony and opinions as to any gainful uses to which the property may have been put, but not otherwise incurred. However, like any other evidence rule, the opponent will be free to offer rebuttal evidence to challenge the weight and credibility of the conflicting evidence before a jury. Join me next week to discuss Replacement Cost Coverage and more valuation topics.
From: Digitory
To: Insurer Appraiser
Sent: Monday, November 30, 2009 10:46 PM
Subject:Fwd:
Dear Mr. Insurer Appraiser:
Attached are my findings on the DOE loss, with regard to the depreciation and additional costs associated with replacement.
Depreciation was calculated using the Broad Evidence Rule, as New Jersey law requires consideration of a broad spectrum of evidence to determine actual cash value. Elberon Bathing Co. v. Ambassador, 88 N.J. 1, 389 A.2d 439 (1978).
Evidence supporting these findings will be available upon discovery, which is available during 3-panel hearing, if umpire is needed.
With regard to additional costs, shipping costs have been calculated by standard shipping per pound/density rates, which is also available during discovery. Manual costs, such as mileage to recover, as not been included, as I am inviting you to appraise, in your opinion, the costs associated with Mr. and Mrs. Insured costs to transport the personal property from the retail establishment of origin to insured location, set-up in pre-loss condition. As appraisers, we must follow the simply instructed appraisal clause, which states that the appraisers and umpire are to determine the amount of loss. We do not have the authority to decide questions of coverage of liability, so we must act in compliance to the Appraisal Clause by only determining the amount of loss.
I suggest using the IRS standard mileage rate of $.45, which is a formulated value to be deducted with regard to property losses.
I eagerly await your findings, and look forward to establishing the amount of loss in a timely manner.
Warmest Regards,
Digitory
Responce:
Please enlighten me on what other specific evidence was reviewed to calculate the amount of depreciation taken in your appraisal. If there is evidence supporting your findings, it’s time to share it.
Unless you can support your appraisal and depreciation levels that have no current supported basis in fact, we cannot agree with your findings.
MY responce:
I must apologise, I wrote my last letter with out asking you how your Thanksgiving was! I surely hope you enjoyed that day off, as we need it!
With respect to your responding letter, do not worry, I have no problem with you stating your humble opinions and feedback, as I actually encourage it! I do not expect you to "agree" to my findings, that would be a selfish and unrealistic expectation by myself. Kindly provide the line items that you do not agree with the applied depreciation, and I will provide a factual based statement, supporting the contested findings, at the appropriate time in compliance with the appraisal clause.
The Broad Evidence Rule is defined as "A rule outlining the guidelines insurers must go about determining the value of lost, stolen or damaged property. The broad evidence rule does not specify any one method to value any one piece of property, only that the means which most accurately displays the true cash value of the property will be used."
(Citation sources available upon request)
To clarify this to you Sir, "The broad evidence rule is used by insurance companies to determine the cash value to be paid out to the insured in the event of a claim."
(Citation sources available upon request)
We must remember, that as opposed to using the traditional cash value (replacement cost minus depreciation), the broad evidence rule can take into account such factors as the age of the personal property, history, usage, profile's of owners, protection methods, ect."
As I humbly quote your elegant statement of opinion, "Unless you can support your appraisal and depreciation levels that have no current supported basis in fact, we cannot agree with your findings.", I must expand on this issue.
Kind Sir, as the "Broad Evidence Rule" states that there are no standard or fixed compliance requirments to determine the amount of recovery in the case of loss, I must remind you that the useage of a "depreciation schedule" is wholy without merit, both factually and legally. So, I must assume that you have done your due dilligence by factoring in other aspects that may have had an influence on the Actual Cash Value. Of course, age could not have been the only aspect of your findings. Kindly submit your analyisis of the personal property of the Insured, so that we may in fact, compare our findings together, to be in compliance with the policy, the courts, and our own moral obligations as appraisers. We must remember that the standard RCV-Depreciation=ACV is merely a guide, and are not to be the sole determination of the actual cash value of loss. I can also enlighten you with my supporting documentation with regard to the methods used, case law citeation and the legal procedure of the appraisal panel, but would like to minimize the documentation and presentation aspects, unless we have to go to umpire.
Mr. Insurer Appraiser, as it has been a true pleasure working with you, I feel that this email was required to confirm that we are all now on the same page. I am confident that you will adjust your findings to be in compliance with the laws of New Jersey, as well as our obligation of due diligence. I truly look forward to your analysis of findings, as well as the professional discussion, in letter form, that will allow us to property evaluate the amount of loss, and provide input to each others opinions and findings. This is why the appraisal clause was written, to encourage this type of analytical discussion and investigation by two impartial professionals such as our selves. It has been an honor Sir, and I look forward to your response.
Have a great week, and please take care.
HIS RESPONCE:
I know what the broad evidence rule is. What you fail to present is what evidence you refer to in your evaluation that reduces depreciation from the norm. We have only a list of property and ages. If you have another source of information, I don’t have it, so please send it or define it. Examples are 1. Photographs 2. Property appraisals 3. Condition report or statement.
I have provided a resource guide that can be footnoted from accepted sources and general accounting practice. Without another source or specific evidence, your method of depreciation is without basis.
MY RESPONCE:
Thank you for your timely responce. We can do one of two things, we can attempt to review all of the information that has factored into valuation, and once I have provided you the information that validates the findings, on a line by line basis, we can then agree on this and sign the appraisal documentation. Alternatively, if you feel very strongly with your findings, or you feel that the time consuming valuation, on a line by line basis may be to intense, we can request that the umpire decides the ACV, as we have already agreed on the RCV. I am fine with either method, as we have already agreed on 2 out of 3 of the main issues pertaining to this loss dispute.
Sir, you also should note that I myself was present on site, and have conducted a visual inspection of the items, as well as investigating the other information we have been provided, such as the "age of the insured" (Senior Citizen), the amount of occupants with in the house, calculation of the person per square foot ratio, ect. All of this has been provided to both of us, above and beyond the list and ages.
As you quoted, "Without another source or specific evidence, your method of depreciation is without basis."
It is of my opinion, that with regard to the fact that I have independently annualized the information presented to us, as well as my pre-existing knowledge from being on site shortly after damages have occurred, only substantiates my methods as well as supports my basis. It is also of my opinion, that your comment regarding my findings had "no current supported basis in fact", fails to separate the difference of myself not having a basis and yourself not understanding the basis of the presented findings. I also am of the opinion that your repeated statements in this formal medium with regard to my professional presentation and valuation of the disputed "value of loss", is generally concerning. I have invested much time to evaluate this dispute, with proper compliance to procedure and method. On the contrary, you have produced a single paged, "depreciation schedule", and have contested, that you have based your formal estimate of loss solely on the age of an item. It is of my opinion that this method seems to be without basis...
"In New Jersey, the broad evidence rule requires the appraiser to consider every fact and circumstance which would logically tend to the formation of a correct estimate of the insured loss so as to effectuate complete indemnity." Ward v. Merrimack Mutual Fire Ins. Co., 332 N.J
I have done my best to consider circumstance when lack of factual information is available, to be in compliance of the aforementioned quote.
My basis of the presented conclusion of the loss valuation has been of the inventory document, the profile of the insured, the ages, the location of the items with in the home, age, as well as my knowledge gained while being at the loss site shortly after the fire, and of course, my skill in valuating property damages stemming from experience. As the courts have stated:
"Appraisers are generally expected to act on their own skill and knowledge. It has been held that they may reach individual conclusions.... They are not obliged to give their rival any formal notice or to hear evidence but may proceed by ex parte investigation so long as the parties are given an opportunity to make statements and explanations with regard to matters in issue." Florida Farm Bureau Cas. Ins. Co. v. Sheaffer, 687 So.2d 1331.
I must disagree with your statement regarding valuation of Actual Cash Value, and the fact that is has some kind of "normal", pre-determined value. "...that reduces depreciation from the norm". It is of my opinion that this concept is erroneous and potentially, could be a noncompliance issue. Furthermore, your full quote, " What you fail to present is what evidence you refer to in your evaluation that reduces depreciation from the norm. We have only a list of property and ages. If you have another source of information, I don’t have it, so please send it or define it. Examples are 1. Photographs 2. Property appraisals 3. Condition report or statement.", in my opinion, is attempting to transfer the burden of proof onto me, as if my method was radical or unheard of. Considering the fact that I have acted in full regard to the court's definition, and the fact that yours was based on an invalid, unaccepted, and baseless "schedule", I must respectively decline this attempt, and further more, request that you submit your evidence that wholly proves and substantiates your "Depreciation Schedule's" accuracy with regard to the uniqueness of the Insured pre-existing condition of claimed items, on a line by line basis.
If this is not possible, then I must respectively state, that I cannot agree with your findings.
So, seems like at this point, we have agreed on scope of loss and Replacement Cost Valuation, with "additional costs" pending your confirmation. The Actual Cost Value is not agreed, at this time. Well, two out of three aint bad! If you do not "agree" to my actual cost findings, please indicate the line item #s which deviate from your estimate, so that we may address these issues on a line by line basis.
I do have a question, though, on another statement you made, "...we cannot agree with your findings." I would like to ask you who "we" is, which eludes that their is another individual that is exercising a capacity of authority, as well as influence, with regard to this 3-panel process. As we have not required the umpire to enter in, at this time, I am concerned with a potential influence that I am not aware of. Please submit the name of the additional person, as well as his/her contact information.
Again, a pleasure as always Kind Sir, please take care...