Many property insurance policies provide that until a policyholder actually repairs or replaces damaged property, they are only entitled to the “actual cash value.” Determining how to calculate the “actual cash value” differs from state to state.
In Lititz Mututual Insurance Company v. Buckley,1 the insureds lost their home and all of their contents as a result of a hurricane. The policy provided a $5,000 limit for the insured’s contents. The insurance company sought to apply market value or actual cash value to the insured’s contents items to substantially reduce the value of their claim to well below the limits of the policy. The Mississippi Supreme Court rejected the insurance company’s attempt to discount the insured’s claim in such a manner, holding:2
Appellant thus urges that we adopt market value as a test of the actual cash value of household furniture, personal effects and the like.
We reject market value as the test of the actual cash value, because it is common knowledge that household furniture and personal effects ordinarily have no well recognized market value except as second hand articles; and that the value of such property to the owner is not limited to the price which could be realized by a sale in the market.
In Fedas v. Insurance Co. of State of Pennsylvania, 300 Pa. 555, 151 A. 285 (1930) the Pennsylvania court held that actual cash value in a policy of insurance means what it would cost to replace a building or a chattel as of the date of the fire. With reference to furniture, the Court stated:
Furniture in use at a home destroyed must be valued at what is was worth in cash, considering the use to which it had been put. What its value might have been to another as second hand furniture furnishes no aid. . .
We hereby construe the policy to mean that actual cash value means replacement cost of household furniture and furnishings insured by the policy in question.
Therefore, in Buckley, where the policy stated that the insured would be paid actual cash value for their contents, the court explicitly construed “actual cash value” to mean replacement costs in the context of insuring one’s personal property.
1 Lititz Mut. Ins. Co. v. Buckley, 261 So. 2d 492 (Miss. 1972).
2 Id. at 494.