This week in my series on calculating actual cash value, we will look at the Green Mountain State, Vermont. It is the second smallest by population and the sixth smallest by area of the fifty states.1

For purposes of calculating actual cash value, Vermont follows the Broad Evidence Rule. The case on point is Eagle Square Mfg. Company v. Vermont Mutual Fire Insurance Company.2 In that case, the policy provided that the carrier was to indemnify for “actual cash value of the property at the time of loss.”3 “Actual cash value” was not a defined term. Because it was not defined, and only because it was not defined, was the Supreme Court of Vermont able to refer to multiple methods of valuation and multiple factors to be considered such as market value, replacement cost, and functional obsolescence.4 The insured and the insurer are allowed to use any evidence “which logically aids in the formation of a correct estimate of the value of the property . . . before the damage occurred.”

Vermont is also one of the states that has issued an insurance bulletin addressing depreciation of labor when adjusting property loss claims. The bulletin by the Vermont Commissioner of Insurance, dated May 1, 2015, provides in part:5

Depreciation is a decline in a property’s value because of use, wear, obsolescence, or age. Labor, unlike physical materials, does not break down or lose value over time.

It is the Department’s position that depreciation of labor costs is prohibited by 8 V.S.A. § 4724(9)(F) and therefore is an unfair claim settlement practice in violation of 8 V.S.A. § 4723 (the Vermont Insurance Trade Practices Act) when committed or performed with such frequency as to indicate a business practice. While the value of the property as a whole may be considered in order to put a claimant in the same position as the claimant was before the loss occurred, labor of any kind related to the repair, rebuilding or replacement of covered property should not be subject to depreciation.

2 Eagle Square Mfg. Co. v. Vermont Mut. Fire Ins. Co., 212 A. 2d 636, 638 (Vt. 1965), citing Citizens’ Bank v. Fitchburg Fire Ins. Co., 84 A. 970, 972 (Vt. 1912).
3 Eagle Square, at 637.
4 Id. at 638.
5 Insurance Bulletin No. 184.