The Broad Evidence Rule has been used in Connecticut to calculate Actual Cash Value (ACV) on property damage cases since 1959.1 That all changed in 2011 when the Connecticut House of Representatives passed Substitute House Bill No. 6238. This bill nullified the Broad Evidence Rule and instead calculated ACV for homeowners and commercial risk insurance properties by taking the Replacement Cost Value and deducting depreciation to obtain ACV.
In 1959, the court in Castoldi, noted three separate methods for calculating ACV, ultimately deciding on the Broad Evidence Rule as the best way to arrive at their goal:
A third method, in order to effectuate more complete indemnity, has been used by the courts and has been described as ‘the broad evidence rule,’ wherein any evidence logically tending to a correct estimate of the value of the property lost may be considered.2
The Broad Evidence Rule is an inclusive valuation method. It allows any evidence that can establish the correct property value to a building or personal property. Given the flexibility of the Broad Evidence Rule, no list can be exhaustive. Many states, including New York and New Jersey still use the Broad Evidence Rule to calculate ACV. For an extensive assessment of how your state calculates ACV, check out the blog series by my colleague Shane Smith.
During the minutes of the Connecticut legislature, Representative Megna described this bill as a pro-insured bill when he stated:
[W]hat this bill does is just really define depreciation under actual cash value under the standard fire policy which is in statute 38a-307. And by doing so, it eliminates the ability of any carrier to use a value less than that of construction – the cost of construction or repair.
Rep. Megna goes on to say,
The reason why this bill is brought before us, Mr. Speaker, is because way back in 1978 there was a Supreme Court case, I believe it was Sullivan versus Liberty Mutual Insurance, where Liberty Mutual was actual at – arguing that the depressed real estate market value of a piece of property was the actual cash value and that – that’s what should be the settlement, not the cost to rebuild this building. And the Supreme Court, more or less, held that the real estate market value could be a factor because we don’t really describe what constitutes actual cash value under statute, nor do we do so in the insurance policies.
The court in Sullivan3 ultimately ruled in favor of Plaintiff’s application of calculating ACV (Replacement Cost Value minus depreciation) but this led to an interesting conversation between Rep. Megna and Rep. Sampson on the legislature floor.
Rep. Sampson—who was in the insurance industry selling insurance for approximately 20 years—argued:
And I spent a few minutes yesterday contacting some insurance agents that I’ve done business with over the years, and it’s been my experience and theirs, as well, that when purchasing an ACV insurance policy the consumer is informed that they’re basing the coverage for that policy on the market value.
Rep. Sampson then gave an example of why market value should play a role in ACV calculations:
So for instance, this same three-family house in Waterbury that might be 500,000 to rebuild, it might be worth 200,000 in the marketplace. So we would insure at the market value of 200,000. And the understanding is that the person, if there’s a lost to this property and it’s an entire loss, there’s a fire, the house burns down, that client is aware they’re only going to receive the benefit up to the maximum that is listed on the policy…they’re going to be able to get enough money so they can go purchase a like-type of property because they’re going to get back, you know, at least the majority of their money.
The one area Rep. Sampson agreed with enacting the bill was for a partial loss. Rep. Megna rejected this notion stating that the Department (of Insurance) rejects policies in the regulated market that would attempt to be sold based on the real estate market value. Rep. Sampson retorted with his own investigation noting that policies are still being sold to landlords, relying on market value, in “depressed areas” so they don’t have to pay exorbitant premiums (or not insure the building at all) on their policies.
There are significant arguments throughout the meeting minutes on both sides. Where do you stand on the right way to calculate ACV? I leave you with another quote from the late Hall of Famer, Yogi Berra (aka Yogiisms) regarding what he valued in life, “Love is the most important thing in the world, but baseball is pretty good too.” With the baseball season upon us, Let’s Go Yankees!
1 Castoldi v. Hartford County Mutual Fire Ins. Co., 21 Conn.Supp. 265, 154 A.2d 247 (1959).
2 Castoldi at 269 (citing Pinet v. New Hampshire Fire Ins. Co., 100 N.H. 346, 349 (1956)).
3 Sullivan v. Liberty Mutual Fire Ins. Co., 174 Conn. 229 (1978).