With the Stanley Cup finals this week and my hometown team the Tampa Bay Lightning facing off against the Chicago Blackhawks, let’s discuss calculating actual cash value in Illinois.
Illinois courts apply the test of replacement cost less depreciation to determine the actual cash value of damaged property.1 In Carey, the insured’s mixed-use building was damaged by a fire. The court determined that the proper measure of benefits under the policy was the actual cash value at the time of the loss, rather than the replacement cost value. The policy unambiguously required that the damage to the building be calculated on an actual cash value basis, and there was no evidence indicating the building was repaired or replaced.
In Gee v. State Farm Fire & Casualty Company,2 the insured argued that State Farm should not have applied depreciation to the sales tax component of the estimated replacement cost for his damaged personal property because sales tax does not decrease in value due to age. The court held that depreciation was properly applied to the full estimated replacement cost, and relied on a Florida case, Goff v. State Farm Florida Insurance Company (“other percentage based elements included in the cost total for purposes of insurance policy ‘replacement costs less depreciation’ provisions have been held to be properly included in the depreciation reduction as well”).3 Therefore, based on the clear intent of the policy, the Gee court held that when calculating the actual cash value of personal property as “replacement cost less depreciation,” the sales tax component of estimated replacement cost is subject to depreciation. Based on this reasoning, it is likely that labor, overhead and profit are also subject to depreciation.