It was an exciting down to the wire finish on Monday night for the NCAA basketball championship. Congratulation to Villanova! This week my blog in the series on calculating actual cash value will focus on Pennsylvania.

In Pennsylvania, actual cash value has consistently been interpreted to mean repair or replacement costs less depreciation.1

In Gilderman v. State Farm Insurance Company,2 the Superior Court held that where an insurance policy provides that the insurer will pay repair and replacement costs and that it will pay actual cash value in advance of actual repair or replacement of a covered loss, the insurer may not automatically withhold both depreciation and a flat 20% representing contractor overhead and profit from its advance payment.

Another issue that comes up when discussing ACV is whether labor can be depreciated. In Pennsylvania, for partial losses, the answer is no:

[I]n partial loss situations, in the absence of clear language to the contrary, an insurer may not deduct depreciation from the replacement cost of a policy and that the phrase ‘actual cash value’ may not be interpreted as including a depreciation deduction, where such deduction would thwart the insured’s expectation to be made whole.3

We are nearing the halfway point in the number of states covered in this series. Feel free to send me an email or leave a comment below with a request for the next state I will address in this blog series.

1 Gilderman v. State Farm Ins. Co., 649 A.2d.941, 945 (Pa. Super Ct. 1994).
2 Id.
3 Kane v. State Farm Fire & Cas. Co., 2003 PA Super 502, ¶ 19, 841 A.2d 1038, 1047 (Pa. Super. 2003).

  • Steven Liguori

    This is an issue that is very important to me. I am in charge of all policy wording for the Property Practice. I would really like to read the 18 previous issues on this subject. How do I obtain them?

  • Roger Poe

    Steven – Enter into Google’s word search box >> “Calculating Actual Cash Value, Part 1”. And continue the search by adding Part 2, Part 3, and ect. accordingly.

  • P. Gilbreath

    Correct me if I am wrong, but I read this as; I will continue to pay the highly inflated premiums, with little or no guarantees that my insurance will actually cover the loss. So if I live in a 40 year home that is destroyed by fire, or natural disaster. I pay a premium based on a value of $250,000,but I will have everything depreciated and end up only getting monies to what STATE FARM determines to be it’s value or useful life. Will that mean my house would only be useful for another 20 years, therefore it was 60% used up and they will only pay me 40% of the insured value? What can be done about this? This is absurd, besides it should be illegal. They don’t offer to reduce premiums at a depreciated rate.

  • D. Graves

    “This change could potentially reduce or eliminate coverage depending on how it is interpreted, and in that regard should viewed as an actual or potential reduction in or elimination of coverage.”

    Same state; same insurer. Will they offer a “Kelly Blue Book” to rate our property with a depreciated value Before we renew our policies?
    Fraudulent Legalese.

    Seriously, I’m am requesting the next state you address is Illinois. The quote is directly from my policy renewal.

    Thank you for your time and any help you provide.

  • Shane Smith

    Thank you for your comment. I previously addressed Illinois. Here is a link to the blog post:

  • Delia Jones

    I just got my renewal from State Farm with FE 3650
    I live in Missouri.
    It also stated “if you wish to secure coverages from another insurance carrier, contact your insurance producer immediately..
    I think they are trying to drop all homeowners insurance like they did in California after the earth Quake, they dropped earthquake insurance.