Merlin Law Group attorney Drew Houghton is licensed in Missouri. We were discussing a Missouri hail case he was working on while at the International Roofing Expo. I mentioned that Missouri has the weirdest rules for determining actual cash value in the country and how difficult it makes Missouri hail claims, which always involve roofs.
Drew forwarded me a blog I wrote five years ago, In Missouri, ACV For Fire Losses Looks To Fair Market Value, But For Other Losses ACV Is Replacement Cost Minus Depreciation; Plus, Labor Costs Are Not Subject To Depreciation. There also is a blog, In Missouri, Determining Fair Market Value Can Be a Unique Challenge, which I suggest is worth reading as well if you have a loss in Missouri.
The first case updating the discussion of how Missouri determines actual cash value was a federal class action case, which stated Missouri actual cash value law as follows:
In a standard property insurance policy, ‘damages are to be measured by the difference between the reasonable values of the property immediately before and immediately after the casualty.’ Wells v. Mo. Prop. Ins. Placement Facility, 653 S.W.2d 207, 210 (Mo. 1983). ‘The value of the property … immediately before the loss is, of course, equivalent to the actual value of the property at the time of the loss.’…. ‘Thus, the insured bears the share of the loss resulting from deterioration, obsolescence, and similar depreciation of the property’s value at the time of the loss.’…Under Missouri law, ‘[a]ctual cash value means a depreciated sum, i.e., the difference between the reasonable value of the property immediately before and immediately after the loss.’….
While the term ‘actual cash value’ has an unambiguous meaning under Missouri law—the difference in the fair market value of the damaged property immediately before and after the loss—it is a value that must be estimated.1
This class action was uncertified, and the remainder of the case is classically wrong reasoning. It is judicial logic which erroneously assumes that how the insurance industry works can be determined by reading prior insurance law cases and insurance law treatises. Many of the older cases predate the advent of the modern replacement cost policy. Rather than relying upon industry practices, the judges keep following precedent that is not how the insurance industry sells its product or teaches its adjusters.
Standard property insurance policies for buildings are not written on fair market value concepts except in rare instances. Modern property insurance policies are written on a replacement cost value for underwriting purposes. For much of personal property underwriting, replacement or reproduction cost is considered and that is often at fair market value if there is a market for the personal property. But there is no market for a portion of a building and there often is no market for our used personal property. I told Drew that even his beautiful wife would not give a price for his used underwear and nobody else would want it at any price except to get paid to take it away.
A month after this ruling, another federal appellate court ruled on a matter involving a fire loss with a replacement cost policy, but the repair had not been done. The court stated Missouri property insurance law in this situation as follows:
Because they did not seek to repair or replace their property, Allstate was required to pay for ‘damage done on the property.’ See Wells v. Missouri Prop. Ins. Placement Facility, 653 S.W.2d 207, 209 (Mo. banc 1983) (‘Whenever there is a partial destruction or damage to property covered by insurance, it shall be the duty of the party writing the policies to pay the assured a sum of money equal to the damage done on the property, or repair the same to the extent of such damage, not exceeding the amount written in the policy.’), quoting § 379.150 RSMo. Under the policy and under Missouri law, damage is measured by the ‘actual cash value,’ of the property, meaning ‘the difference in value of the property immediately before and immediately after the loss.’ Cincinnati Ins. Co. v. Bluewood, Inc., 560 F.3d 798, 802 (8th Cir. 2009) (‘The Missouri Supreme Court has held that the amount of a cash payment ‘equal to the damage done to the property’ is ‘to be determined by the difference in value of the property immediately before and immediately after the loss.’)2
The policyholders lost their claim for actual cash value on their home because they filed no evidence of the fair market value before the fire, versus the fair market value after the fire. This seems harsh, but the amount of the damages is the policyholder’s burden to prove.
The tricky part is the damages for the personal property. To determine this correctly under Missouri law where there has not been a repair or replacement, the policyholder has to value the fair market value of the used property just before the loss and then after the loss. It is not the replacement cost minus the value in a damaged condition, but fair market value in the condition before the loss minus the value in the damaged condition after the loss. The policyholders lost this part of their case as well:
The Azizes could have submitted an estimate of the personal property’s value immediately before the fire, but they did not. Exhibit M is insufficient to establish damages…(‘The value of the property at the point immediately before the loss is, of course, equivalent to the actual value of the property at the time of the loss. Cost of repair is admissible as evidence of damage, but of itself it is insufficient to establish the amount of damage.’).
In the field, most Missouri insurance company adjusters do not follow these fair market value rules. When fair market value was the test in California, adjusters did not follow that rule in the field either. Instead, the adjusters all use replacement cost less depreciation to determinate actual cash value. But what goes on in the field is not what happens if the Missouri policyholder challenges the matter in court.
In a 2018 case,3 the Missouri adjuster made determinations of actual cash value based on replacement costs less depreciation. After some payment, the case went to appraisal but, for other reasons, the appraisal stopped. After the policyholder failed to provide the right type of evidence for fair market value at trial, the court held for the insurance company and stated:
Section 379.150 governs the measure of damages for real and personal property in the case of a partial loss….It provides:
Whenever there is a partial destruction or damage to property covered by insurance, it shall be the duty of the party writing the policies to pay the assured a sum of money equal to the damage done to the property, or repair the same to the extent of such damage, not exceeding the amount written in the policy, so that said property shall be in as good condition as before the fire, at the option of the insured.
The statute allows the insured to either take a cash payment or to have the insurer repair her property…..In this case, Ms. Nelson elected a cash payment rather than have Farm Bureau repair her property.
The court further held that just because the insurance company adjusted the claim in the field differently, it was not stopped from demanding the legal fair market value standard in court. Ms. Nelson would have been better off demanding the repair by the insurer!
For my public adjuster friends, you may want to consider getting a stipulation in writing from the insurer about how both parties will value property if you are in Missouri. Otherwise, the Missouri methodology is complex where estimates of repair along with fair market appraisals are often done by numerous experts which simply drives up the cost of adjustment to both parties.
Thought For The Day
When you see something that is not right, not fair, not just, you have to speak up. You have to say something; you have to do something.
1 In re State Farm Fire & Cas. Co., 872 F.3d 567 (8th Cir. 2017).
2 Aziz v. Allstate Ins. Co., 875 F.3d 865 (8th 2017).
3 Nelson v. Farm Bureau Town & Country Ins. Co. of Missouri, 560 S.W.3d 81 (Mo. App. 2018).