While I often argue that depreciating labor simply does not make sense, insurers continue to push the question of whether the depreciation of labor costs in Actual Cash Value policies is acceptable. Though several jurisdictions have rejected the depreciation of labor, surprisingly, the recent trend of jurisdictions touching upon the subject has been to allow for the depreciation of labor.
Continue Reading Colorado Joins a Growing List of Jurisdictions Allowing Depreciation of Labor Costs When Determining Actual Cash Value

What is an insured, who has an “actual cash value” property insurance policy, entitled to recover when their property is damaged, but not a total loss? Is the insured entitled to the cost to repair/replace the property minus depreciation? Or is the insured’s recovery limited to the property’s fair market value? What if the property’s fair market value of the property at the time of the loss is far less than the amount of money it will take to repair the property minus depreciation?
Continue Reading Does Actual Cash Value Mean Fair Market Value or Replacement Cost minus Depreciation?

I often hear the same complaint from clients: They feel the insurance company has undervalued their personal property after a loss and are frustrated by the insurance company’s valuation and rate of depreciation. The reality is that even when an insured has a “replacement cost” policy, the insurance company can depreciate personal property values because the majority of insurance policies contain language allowing insurers to depreciate the value and first pay out the “actual cost value,” which includes depreciation.
Continue Reading Personal Property Depreciation by the Insurance Company After a Loss Should be Scrutinized by Policyholders

Depreciation tables were first introduced to me when studying accounting at the University of Florida. The tables were based on tax schedules and other accounting methods which usually had nothing to do with the actual depreciation of an item. Indeed, if you used tax depreciation tables, some items could be written off immediately despite little use, change in value, or change in condition.

Continue Reading Calculating Depreciation: Are Generic Tables Reliable or Based on Any Scientific Study?

In yesterday’s post, Determining Depreciation–Are Policyholders Getting Ripped Off, I promised to discuss issues of actual cash value and depreciation. The article I am critiquing giving rise to this discussion cited California law regarding actual cash value and then made this statement:

In states in which condition is not included in the definition of actual cash value, actual cash value is generally defined as replacement cost less depreciation.

Is this true?

Continue Reading Determining Depreciation: The Definition of Actual Cash Value Varies Widely Between States

Many property insurance company adjusters are required by their companies to determine the amount of depreciation to be taken when arriving at amounts of actual cash value. Many are told to determine this amount by determining the replacement cost and then subtracting depreciation. The question is: How are property insurance adjusters trained to determine depreciation so the insurance customer is not “ripped off” by taking too much depreciation?

Continue Reading Determining Depreciation–Are Policyholders Getting Ripped Off?

In Lains v. American Family Mutual Insurance Company,1 a federal district court in Washington considered two issues involving actual cash value:

  1. whether American Family improperly considered age in depreciating the insureds’ personal property loss, and
  2. whether American Family improperly depreciated labor costs as applied to the insureds’ dwelling loss. The American Family policy defined “actual cash value” as “the amount it costs to repair or replace property with property of like kind and quality less depreciation for physical deterioration and obsolescence.”

The policy did not define the term depreciation.

Continue Reading Age as a Factor in Determining Depreciation Used to Calulate Actual Cash Value

In researching an issue for a Public Adjuster, I came upon this gem of a case. In Missouri, the argument has always been that when calculating actual cash value you must use fair market value. This is not a good thing for most insureds, especially in big losses. It usually means a meager payment up front before repairs are made. However, the court has concluded that while this may be the calculation for fire losses, it does not apply to other losses, rather replacement cost minus depreciation is used to calculate ACV (when it is not defined in the policy). This is great news for hail, wind, water and other non-fire losses! Here is a summary of the case:1

Continue Reading 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

When Hurricanes hit, residential and commercial property are commonly considered when you think of the insurance losses. But in coastal states hurricanes can also have a devastating impact on commercial and recreational marine losses.

As with residential and commercial property, you need to be sure you review and understand your boat’s insurance policy. It is likely that a boat owner or captain has taken special consideration with a Hurricane or Tropical Storm because part of the application requires a written plan for the boat when a Hurricane comes to town.

Continue Reading Commercial Marine Insurance and Depreciation on Engines