Actual Cash Value Depreciation Deduction and the Broad Evidence Rule

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...in as good a condition, so far as practicable, as he would have been in if no fire had occurred.

In effect, the court rejected both the insured’s claim that actual cash value equals replacement cost less depreciation and the insurer position that it equaled market value. As a standard for determining the payment that would restore the insured to the same condition that existed before the loss, the Court adopted what’s come to be known as the Broad Evidence Rule. The Broad Evidence Rule says that everything that bears on the value of property should be considered. The list of possible factors is a long one. Here are some of them:

The court in Goorland v. New York Property discussed McAnarney pointing out that it is the “seminal case” on the subject. The strength of the Broad Evidence Rule is its inclusiveness. The problem is that it doesn’t provide a specific method for doing the calculation. Which factors do you consider? How much weight do you give to each of the factors?

What’s Happening in Practice?

Insurance companies did raise the broad evidence issue in the 1970s when arson was ravaging inner cities and real estate values had fallen through the floor. The market value of many buildings was far lower than replacement cost less depreciation. Insurance companies wanted that factored ” into the settlement of large losses. It was not unusual to have a building that was insured for $1 million sustain a loss, on an ACV-equals-replacement-cost-less- depreciation basis, that equaled or exceeded the amount of insurance. At the bottom of the market, buildings in depressed areas were selling for one-times annual...

“The Broad Evidence Rule says that everything that bears on the value of property should be considered. The list of possible factors is a long one.”


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