While I am a Florida native and reside in Florida now, I spent 3 years living in Lansing, Michigan, when I attended Thomas M. Cooley Law School.

This week I will discuss calculating actual cash value in Michigan.

If the policy does not define actual cash value, in Michigan, “all evidence relevant to an accurate determination of the Property’s value must be considered.”1

However, Michigan courts have also held that actual cash value means replacement cost less depreciation.2

A consideration is whether ACV can be depreciated. In Michigan, the answer is maybe.

In Salesin v. State Farm Fire & Caualty Company,3 the court held that the replacement cost used to ascertain ACV is an estimate of all costs likely and reasonably expected to be incurred in repairing or replacing damaged property and general contractor expenses cannot be deducted from replacement cost unless such services are not likely to be required.

The Salasin court cited to Gilderman v. State Farm Insurance Company,4 where the issue before the court was whether an insurer could withhold both depreciation and an amount representing contractors’ overhead and profit from the actual cash value that had to be paid before actual repair or replacement under the provisions of a replacement cost policy. In Gilderman, the court ruled that ACV is calculated as RCV less depreciation.5 The Gilderman court suggested that the proper way to determine actual cash value is to engage in an objective analysis of what is “reasonable to expect” at the time of the loss:

In the present case, State Farm clearly agreed to pay to its insureds the ‘actual cash value’ of a covered loss whether or not repairs or replacement actually occur. Actual cash value has consistently been interpreted to mean repair or replacement cost less depreciation. Repair or replacement costs logically and necessarily include any costs that an insured reasonably would be expected to incur in repairing or replacing the covered loss. In some instances, this will include use of a general contractor and his twenty percent overhead and profit.

Therefore, Gilderman specifically recognizes that withholding of overhead and profit is acceptable when that expense will not be incurred.

If you are looking for some additional information on overhead and profit, check out a great video on this subject by Merlin Law Group attorney Kelly Kubiak, another Cooley graduate.


1 Evanston Ins. Co. v. Congswell Properties, LLC, 683 F.3d 684, 688 (6th Cir. 2012). See also Commodity Res., Inc. v. Certain Underwriters at Lloyds, London, No. 2:12 ‐cv‐10173, 2013 U.S. Dist. LEXIS 21963, at *16 (E.D. Mich. Feb. 19, 2013) (holding that the Sixth Circuit’s Evanston decision required the use of the broad evidence rule when actual cash value is not defined).
2 Smith v. Mich. Basic Property Ins. Ass’n, 490 N.W. 2d 864, 870 fn 28 (Mich. 1992).
3 Salesin v. State Farm Fire & Cas. Co., 581 N.W. 2d, 781, 791, (Mich. Ct. App 1998).
4 Gilderman v. State Farm Insurance Co., 649 A 2d 941 (Pa. Super. 1994)
5 Id. at 945.