This blog is the beginning of a state-by-state series on how actual cash value of property is calculated in all 50 states.
An insurance policy may contain an express provision that limits the insurer’s liability in the event of a loss to the actual cash value of the insured property. However, the policy will not provide a specific formula upon which to base a determination of the value of the property. Therefore, states have adopted different rules or tests to determine the value of the insured property. Actual cash value (ACV) is typically calculated in one of three ways:
- The cost to repair or replace the damaged property, minus depreciation;
- The damaged property’s "Fair Market Value"; or
- The "Broad Evidence Rule" – considering all relevant evidence of the value of the damaged property such as age of the property, the profit likely to accrue on the property, and the property’s tax value.
Florida courts are split on how ACV is calculated. Some courts follow the Broad Evidence Rule in determining the actual cash value of destroyed property.1 However, where the policy language is silent regarding the definition of “actual cash value,” Florida courts have noted that “actual cash value” is synonymous with “fair market value.”2
In Trinidad v. Florida Peninsula Insurance Company,3 the Florida Supreme Court held that costs such as overhead, profit and labor are depreciable under actual cash value policies:
In contrast to a replacement cost policy, actual cash value is generally defined as “fair market value” or “[r]eplacement cost minus normal depreciation,” where depreciation is defined as a “decline in an asset’s value because of use, wear, obsolescence, or age.” Black’s Law Dictionary 506, 1690 (9th ed. 2009); see also Goff, 999 So.2d at 689. In other words, replacement cost policies provide greater coverage than actual cash value policies because depreciation is not excluded from replacement cost coverage, whereas it generally is excluded from actual cash value. See Goff, 999 So.2d at 689.
In Goff, the Second District concluded that overhead and profit are included in the scope of an actual cash value policy “where the insured is reasonably likely to need a general contractor for repairs.” Id. The Second District correctly determined, in essence, that overhead and profit are like all other costs of a repair, such as labor and materials, the insured is reasonably likely to incur. See id. at 689–90 (citing Branch v. Farmers Ins. Co., 55 P.3d 1023, 1027 (Okla.2002)). The Second District therefore held that a portion of overhead and profit, like a portion of all other costs, was included but could be depreciated in an actual cash value policy. Id. at 690.
1 Barrett v. Prudential Prop. & Cas. Ins. Co., 790 F.2d 842, 844 (11th Cir. 1986), citing Worcester Mut. Fire Ins. Co. v. Eisenberg, 147 So. 2d 575, 576 (Fla. 3d DCA 1962).
2 Goff v. State Farm Fla. Ins. Co., 999 So. 2d 684, 689 (Fla. 2d DCA 2008), citing Black’s Law Dictionary 53 (4th ed. 1968). See also Trinidad v. Fla. Peninsula Ins. Co., 121 So. 3d 433, 438 (Fla. 2013) and Am. Reliance Ins. Co. v. Perez, 689 So. 2d 290, 291 (Fla. 3d DCA 1997).
3 Trinidad v. Fla. Peninsula Ins. Co., 121 So. 3d 433, 438 (Fla. 2008).