The International Risk Management Institute (IRMI) web site provides an wealth of information for those who work in the insurance industry. This week, since I am discussing the calculation of actual cash value in Iowa, which is one of the states that follows the Best Evidence Rule to calculate actual cash value, I thought I would share with all readers IRMI’s definition of the Best Evidence Rule:
A valuation rule that has evolved in some states and does not adhere to the principle that the traditional measure of actual cash value (ACV) (replacement cost less depreciation) is the sole measure of value at the time of loss. This rule provides for the examination of every standard of value having a bearing on the property under consideration, such as the age of the property, the profit likely to accrue on the property, and the property’s tax value. Ultimately, it calls for the selection of that "value," which, in the event of a total loss, will provide complete indemnification and no more.1
The Iowa case that discusses the Best Evidence Rule in calculating actual cash value is Britven v. Occidental Insurance Company of California.2 In this case, the insured’s building was damaged by a fire. The court looked at the increase in construction costs from the time the building was first constructed to the date it was damaged by the fire.
Even though the principle factors in determining the actual cash value of a building are usually the original cost, replacement cost, and proper allowance for depreciation from use, age, and other factors, the court determined that it was proper to bring to the aid of the jury all facts and circumstances which fairly tended to prove actual value, such as the size and dimension of the building, the kind and quality of material of which it was constructed, its age, the manner of wear and tear to which it had been subjected, its state of repair, and other pertinent matters, as well as the original cost of the building. Therefore, the Iowa Supreme Court, following the Best Evidence Rule held that actual cash value may be determined by reference to market value.
2 Britven v. Occidental Ins. Co. of Cal., 13 N.W.2d 791 (Iowa 1944).