Determining The Amount Of Your Loss For A Property Damage Insurance Claim

The amount of your loss is a common issue when you seek compensation or coverage for property damage caused by various insured events, including car accidents, motorcycle accidents, and other types of accidents, such as those involving boats, products liability, trucks, trains, drunk driving, or fires or explosions.  Your property insurance policy will commonly allow you to recover compensation for actual cash value or replacement costs of the lost or damaged property, whichever is less.  But how are those numbers determined? 

Courts have recognized various tests to determine actual cash value.  When the property’s market value is easily determined, actual cash value is the equivalent of the property’s market value.  The market value rule pertains to goods, including crops.  Actual cash value of property depends upon the nature of the property insured, the property’s condition, the property’s intrinsic value, and other circumstances existing at the time of the loss.  Under the market value test, the sole consideration is what a willing buyer would give and what a willing seller would take for the property on a cash sale in the free open market.

Another possible test for determining actual cash value is the “broad evidence rule.”  Under that rule the court considers every fact and circumstance relevant to the estimate of the loss.  Any evidence logically tending to establish a correct estimate of the value of the damaged or destroyed property may be considered to determine actual cash value at the time of the loss.  Pertinent factors under the broad evidence rule include the property’s original cost and valuations provided by appraisers or the property owner.  It is enough that the evidence shows the extent of the damages as a matter of just and reasonable inference, if a reasonable basis of computation and the best evidence available under the circumstances will enable the fact finder to arrive at an approximate estimate of the loss.  In applying the broad evidence rule to determine actual cash value, courts do not abandon consideration of market value, but instead use it as a guide in analyzing actual cash value under the broad evidence test. 

Property insurance policies will often include "replacement cost" as an alternative measure of your loss.  Replacement cost will frequently be limited to replacement by "materials of like kind and quality," or something similar.  “Like kind and quality” refers to that which is sufficient to restore the property to its pre-loss condition.  It relates to quality and suitability or fitness for the purpose for which the product was intended.  Typically, repair or replacement costs include any cost that an insured is reasonably likely to incur repairing or replacing a covered loss.  That includes materials and labor needed to repair or replace property.