A recent case involving replacement cost value and actual cash value was recently decided—wrongly.1 The case involved an automobile, and GEICO ripped off its customer by successfully arguing that various items should not be included in actual cash value unless the car is actually replaced. Theoretically, replacement cost and actual cash value are the exact same when an item is brand new. But not if you are insured by GEICO in Illinois.

To show the illogic of the decision, GEICO’s claims department wrongful claims conduct, and why you should not be insured by GEICO unless you want to be ripped off, I provide you the following hypothetical:

You want to buy your dream car. You have shopped three different places and have bids which list the “total cost” to purchase the brand-new auto. These vary in the car price, the shipping, the tax and permit—the tag. But they all equal within $15 the same bottom amount of $XXX.

You reach a deal contingent on 100% financing. You call your bank. They ask what is the total cost? You say $XXX and they agree to finance at 100% but you have to have proof of auto property damage insurance. You call your agent and tell them about the bank’s requirement of obtaining proof of insurance. The agent looks up the car value and then asks you what you paid for the car, you say $XXX. The agent says they can insure the car and you pay the premium with your credit card.

You walk out to the car and just before you put your keys in the door, a large drone is heard buzzing and coming right at you. You jump away harming yourself severely, but it strikes your dream car and destroys it in a fireball of molten steel and rubber.

You get out of the hospital. You are shaken, have a huge cast on one foot and the doctor says you cannot expect to drive any car for a year or two until your leg surgeries are complete and you regain your senses. You cannot drive yourself. You call your agent. He says ‘thank God you did not die, I might have had to make a claim on your life insurance. I read in the paper that you did not even get to drive the car. But, thank goodness you called me and got auto insurance on the car just before it was destroyed! You are fully insured. I will call the insurance company claims department and get this taken care of.’

The bank calls and says they are happy you survived. They say they read about the accident in the paper and that they got a notice that the car was insured. You tell them about being harmed, that nobody can find nor determine the owner of the drone and that you are going to keep away from driving anything for a long time.

The insurance company adjuster reviews everything and agrees the car was never used and in new, mint condition and that the bottom-line purchase of $XXX was a reasonable price.

Question to answer—what is the RCV and ACV of the car that is paid to you and the bank?

1. XXX

2. XXX less sales tax and permits

3. XXX less sales tax, permits, shipping

4. XXX les sales tax, permits, shipping and prep

5. Nothing because you never intend to purchase another car and therefore will never incur a cost.

6. Either 1-4 and you have to get anything more than xxx from the unknown and missing drone owner.

7. Not 1, and either 2-4, if you file suit in the federal court in Illinois. They are far to smart to rule it is 5 or 6.

The correct answer taught to every property adjuster is xxx. It includes everything and is what I wrote about in, All Acquisition Costs Should Be Included For Replacement Cost Values. To determine actual cash value, you first have to consider the replacement cost value. Even for a car where market values are considered, a brand-new, mint car’s replacement cost and actual cash value are going to be the same.

The Illinois Supreme Court was faced with a class action suit involving these same concepts. GEICO was faced with them as well. The prospect of big money payments sometimes makes insurance claims departments have their lawyers try to argue out of coverage benefits normally paid for, or at least considered in the calculation of actual cash value.

How do we know the Illinois Supreme Court blew this decision? Their answer to the question would be numbers 2, 3 and 4. Just an illogical result.

Please join me at 2 p.m. today for a Friday at 2 With Chip, where we will go over the current events in property insurance claims and follow up questions for the week. Here is the link.

Thought For The Day

When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion.
—Dale Carnegie
1 Sigler v. GEICO Casualty Co., No. 19-2272, 2020 WL 4251699 (7th Cir. July 24, 2020).