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Depreciation of Labor
Actual Cash Value is not defined in most policies, but adjusters are taught it means Replacement Cost less Depreciation equals Actual Cash Value (ACV). Courts have begun to expand on this definition.
Actual Cash Value Determination
Actual Cash Value is not actually defined in most policies, but adjusters are taught it means Replacement Cost less Depreciation equals Actual Cash Value (ACV). Courts have begun to expand on this definition.
The reason it is important to know the definition of ACV is that the definition also is a part of the depreciation of labor, taxes, and overhead and profit. The most common ACV definition today is the “broad evidence rule.”
Broad Evidence Rule
To determine the ACV of property according to this rule, the adjuster will use the value of the property which includes the replacement cost less depreciation and fair market value taking into account the location, datedness, value of the property in the current market conditions, and any potential income from the property if it is a rental property.
The broad evidence rule gives a lot of latitude to an adjuster to determine ACV. There is not a set method for measuring obsolescence such as straight-line depreciation. McAnarney v. Newark Fire Ins. Co., 159 N.E. 902 (N.Y. App. 1928) is the seminal case for the broad evidence rule stating that the surrounding neighborhood, the property’s use, obsolescence, and other factors play into the determination of ACV.
Fair Market Value
This valuation method has the drawback of including land as part of the valuation of the property. Land is generally not covered in insurance policies. The best way to think of this valuation is the price a buyer would purchase the item in normal circumstances. See Butler v. Aetna Ins. Co. of Hartford, 256 N.W. 214 (ND 1934). Fair market value is similar to the broad evidence rule in that the purchase price already takes into account the location of the property and depreciation or outdatedness of the item.
Replacement Cost Less Depreciation
Replacement Cost Value (RCV) less depreciation is the general rule of thumb adjusters are taught from their beginning case files. The depreciation is from age, wear and tear, and deterioration. It is not the depreciation used by accountants and businesses.
Scroll to the bottom of the chart for more information.
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This chart is current as of the date I wrote it, but adjusters should be familiar with their state’s rules. I cannot guarantee the accuracy of the list. Because laws and regulations can change without notice, an attorney should be contacted if there are any questions regarding this chart. These materials are provided for informational and educational purposes only and do not constitute legal advice or legal opinions because I am not an attorney.
State | ACV Defined | ACV Rule |
|---|---|---|
Alabama | Yes | Fair Market Value |
Alaska | No | RCV less Depreciation |
Arizona | Yes | RCV less Depreciation |
Arkansas | Yes | RCV less Depreciation |
California | Yes | Fair Market Value |
Colorado | No | Broad Evidence |
Connecticut | Yes | Broad Evidence |
Delaware | No | Fair Market Value |
District of Columbia | No | Ask Counsel |
Florida | No | Broad Evidence |
Georgia | No | Fair Market Value |
Hawaii | No | Ask Counsel |
Idaho | No | Broad Evidence |
Illinois | No | RCV less Depreciation |
Indiana | No | Broad Evidence |
Iowa | No | Broad Evidence |
Kansas | Yes | See Below |
Kentucky | No | Broad Evidence |
Louisiana | No | RCV less Depreciation |
Maine | Yes | Fair Market Value |
Maryland | No | Broad Evidence |
Massachusetts | No | Broad Evidence |
Michigan | No | Broad Evidence |
Minnesota | No | Broad Evidence |
Mississippi | No | Ask Counsel |
Missouri | No | Fair Market Value |
Montana | No | Broad Evidence |
Nebraska | Yes | Fair Market Value |
Nevada | No | Ask Counsel |
New Hampshire | No | Broad Evidence |
New Jersey | No | Broad Evidence |
New Mexico | No | Fair Market Value |
New York | No | Broad Evidence |
North Carolina | No | Broad Evidence |
North Dakota | No | Fair Market Value |
Ohio | No | RCV less Depreciation |
Oklahoma | No | Broad Evidence |
Oregon | No | RCV less Depreciation |
Pennsylvania | Yes | Ask Counsel |
Rhode Island | No | Broad Evidence |
South Carolina | No | Broad Evidence |
South Dakota | No | Broad Evidence |
Tennessee | No | Broad Evidence |
Texas | Yes | Fair Market Value |
Utah | No | RCV less Depreciation |
Vermont | No | Broad Evidence |
Virginia | No | Broad Evidence |
Washington | Yes | Fair Market Value |
West Virginia | Yes | Undecided |
Wisconsin | No | Ask Counsel |
Wyoming | No | Ask Counsel |
Alabama
The Capital Assets Program Coverage Part, Commercial Inland Marine Coverage Part, Commercial Property Coverage Part, Crime and Fidelity Coverage Part, Equipment Breakdown Coverage Part, and Farm Coverage Part endorsement HO 01 01 04 15, Special Provisions – Alabama and Alabama Changes – Actual Cash Value define ACV. Alabama uses the Fair Market Value to determine ACV.
Alaska
There is no policy definition specifically discussing this point. Alaska uses the RCV less Depreciation method to determine ACV.
Arizona
The HO 01 02 11 18 Special Provisions – Arizona defines ACV. There is no mention of commercial policies. The Arizona Department of Insurance and Financial Institutions also defines ACV. Arizona uses the RCV less Depreciation method to determine ACV.
Arkansas
Arkansas law § 23-88-106 is reinforced by HO 01 03 10 17 Special Provisions – Arkansas which does not define ACV but states depreciation will be deducted from the loss. There is no mention of commercial policies. Arkansas uses the RCV less Depreciation method to determine ACV.
California
The Crime and Fidelity Coverage Part and Equipment Breakdown Coverage Part endorsements for the HO 01 04 07 20 Special Provisions – California, and IL 01 03 09 07 California Changes – Actual Cash Value define ACV. California uses Fair Market Value to determine ACV.
Colorado
There is no policy definition specifically discussing this point. Colorado uses the Broad Evidence Rule to determine ACV.
Connecticut
The HO 01 06 01 19 Special Provisions – Connecticut Defines ACV. There is no mention of commercial policies. Connecticut uses the Broad Evidence Rule to determine ACV.
Delaware
There is no policy definition specifically discussing this point. Delaware uses Fair Market Value to determine ACV.
District of Columbia
There is no policy definition specifically discussing this point. D.C. is undetermined on how to figure ACV. It is best to seek advice from counsel.
Florida
There is no policy definition specifically discussing this point. Florida uses the Broad Evidence Rule to determine ACV.
Georgia
There is no policy definition specifically discussing this point. Georgia uses Fair Market Value to determine ACV.
Hawaii
There is no policy definition specifically discussing this point. Hawaii is undetermined on how to figure ACV. It is best to seek advice from counsel.
Idaho
There is no policy definition specifically discussing this point. Idaho uses the Broad Evidence Rule to determine ACV.
Illinois
There is no policy definition specifically discussing this point. Illinois uses the RCV less Depreciation method to determine ACV.
Indiana
There is no policy definition specifically discussing this point. Indiana uses the Broad Evidence Rule to determine ACV.
Iowa
There is no policy definition specifically discussing this point. Iowa uses the Broad Evidence Rule to determine ACV.
Kansas
The HO 01 15 06 19 Special Provisions, – Kansas defines ACV. There is no mention of commercial policies. Otherwise, courts have held that for partial losses only, ACV is the same as RCV. This means settlement should occur without deduction of depreciation. Kansas statute, K.S.A. § 40-905(a), determines “actual cash value” for whole losses to be the policy limit.
Kentucky
There is no policy definition specifically discussing this point. Kentucky uses the Broad Evidence Rule to determine ACV.
Louisiana
There is no policy definition specifically discussing this point. Louisiana uses the RCV less Depreciation method to determine ACV.
Maine
The HO 01 18 08 17 Special Provisions – Maine defines ACV. There is no mention of commercial policies. Maine uses Fair Market Value to determine ACV.
Maryland
There is no policy definition specifically discussing this point. The Maryland Court of Appeals opined replacement cost less depreciation was only one of the determining factors for ACV. Maryland uses the Broad Evidence Rule to determine ACV.
Massachusetts
There is no policy definition specifically discussing this point. North Carolina uses the Broad Evidence Rule to determine ACV.
Michigan
There is no policy definition specifically discussing this point. North Carolina uses the Broad Evidence Rule to determine ACV.
Minnesota
There is no policy definition specifically discussing this point. North Carolina uses the Broad Evidence Rule to determine ACV.
Mississippi
There is no policy definition specifically discussing this point. Unknown how ACV is determined. It is best to seek advice of counsel.
Missouri
There is no policy definition specifically discussing this point. Missouri uses the Fair Market Value method to determine ACV.
Montana
There is no policy definition specifically discussing this point. Montana uses the Broad Evidence Rule to determine ACV.
Nebraska
The Capital Assets Program Coverage Part, Commercial Inland Marine Coverage Part, Commercial Property Coverage Part, Crime and Fidelity Coverage Part, Equipment Breakdown Coverage Part, Farm Coverage Part, and Standard Property Policy HO 01 26 12 17, Special Provisions – Nebraska, and IL 01 22 09 07, Nebraska Changes – Actual Cash Value, defines ACV. Nebraska uses the Fair Market Value method to determine ACV.
Nevada
Unknown. Seek advice from counsel.
New Hampshire
There is no policy definition specifically discussing this point. North Carolina uses the Broad Evidence Rule to determine ACV.
New Jersey
There is no policy definition specifically discussing this point. New Jersey uses the Broad Evidence Rule to determine ACV.
New Mexico
There is no policy definition specifically discussing this point. New Mexico uses the Fair Market Value method to determine ACV.
New York
There is no policy definition specifically discussing this point. New York uses the Broad Evidence Rule to determine ACV.
North Carolina
There is no policy definition specifically discussing this point. North Carolina uses the Broad Evidence Rule to determine ACV.
North Dakota
There is no policy definition specifically discussing this point. North Dakota uses the Fair Market Value method to determine ACV.
Ohio
There is no policy definition specifically discussing this point. Ohio uses the RCV less Depreciation method to determine ACV.
Oklahoma
There is no policy definition specifically discussing this point. Oklahoma uses the Broad Evidence Rule to determine ACV.
Oregon
There is no policy definition specifically discussing this point. Oregon uses the RCV less Depreciation method to determine ACV.
Pennsylvania
The Capital Assets Program Coverage Part, Commercial Inland Marine Coverage Part, Commercial Property Coverage Part, Crime and Fidelity Coverage Part, Equipment Breakdown Coverage Part, Farm Coverage Part, and Standard Property Policy endorsement HO 01 37 06 07, Special Provisions – Pennsylvania, and IL 01 66 09 07, Pennsylvania Changes – Actual Cash Value define ACV. Pennsylvania has two methods for determining ACV which depends on if the property is repairable or if it is a total loss. It is best to seek advice from counsel.
Rhode Island
There is no policy definition specifically discussing this point. Rhode Island uses the Broad Evidence Rule to determine ACV.
South Carolina
There is no policy definition specifically discussing this point. South Carolina uses the Broad Evidence Rule to determine ACV.
South Dakota
There is no policy definition specifically discussing this point. South Dakota uses the Broad Evidence Rule to determine ACV.
Tennessee
There is no policy definition specifically discussing this point. Tennessee uses the Broad Evidence Rule to determine ACV.
Texas
The loss settlement provision in the HO 01 42 02 17 Special Provisions – Texas does not define ACV but states how settlement is determined. There is no mention of a definition for commercial policies. Texas uses the Fair Market Value to determine ACV.
Utah
There is no policy definition specifically discussing this point. Utah uses the RCV less Depreciation method to determine ACV.
Vermont
There is no policy definition specifically discussing this point. Vermont uses the Broad Evidence Rule to determine ACV.
Virginia
There is no policy definition specifically discussing this point. Applying Virginia law in a 1961 case, the court believed that only using one type of valuation to determine ACV would not be beneficial. See Harper v. Penn Mut. Fire Ins. Co., 199 F. Supp. 663, 665 (E.D. Va. 1961).
Washington
The Capital Assets Program Coverage Part and Commercial Property Coverage Part endorsement ILI 01 57 07 02 Washington Changes – Actual Cash Value defines ACV. There is no mention of a definition for homeowner policies. Washington uses the Fair Market Value to determine ACV.
West Virginia
The HO 01 47 11 14 Special Provisions – West Virginia endorsement defines ACV. There is no mention of a definition for commercial policies. West Virginia does not have a decision regarding the ACV determination type. It is best to seek advice of counsel.
Wisconsin
There is no policy definition specifically discussing this point. Wisconsin uses the RCV Less Depreciation Rule. The Wisconsin Commissioner of Insurance defined ACV as “taking the replacement cost and subtracting depreciation.” See Coppins, et al. v. Allstate Indemnity Company. This is a 2014 case; there are later sources which state Wisconsin adheres to the Broad Evidence Rule. It is best to seek advice of counsel.
Wyoming
There is no policy definition specifically discussing this point. Wyoming is undetermined on how to figure ACV. It is best to seek advice of counsel.