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September 28, 2022
What is Actual Cash Value

Insurers, working without legislative or judicial direction, created a working definition of the term “actual cash value.”

Barry Zalma

Read the full article at https://lnkd.in/gAe9qn3B and see the full video at https://lnkd.in/g4gqfKXW and at https://lnkd.in/gU4TfmFX and at https://zalma.com/blog plus more than 4300 posts.

Posted on September 28, 2022 by Barry Zalma

Insurers, working without legislative or judicial direction, created a working definition of the term “actual cash value.”

See the full video at https://rumble.com/v1lqhqf-what-is-actual-cash-value.html and at

Insurers recognized that ACV in a fire insurance policy was designed to establish a dollar value for items of destroyed property that were not new at the time of loss. Since the insurers had no easy means to establish the used value of property, they selected the following as their working definition of “actual cash value”: “Actual cash value is the cost to replace with like kind and quality less physical depreciation.” [Jefferson Insurance Company of N.Y. v. Superior Court, 3 Cal. 3d 398 (1970).]

The working definition, although it did not always provide the complete indemnity contemplated by the insureds and by the various legislatures, was eminently practical.

A burned-out shell of a house only leaves clues as to what its actual cash value was before the fire. With minimal investigation the cost of rebuilding can be readily ascertained. If the insurer paid to its insured the full cost of replacement (since the number was easy to compute) it would violate the traditional concept of indemnity.

Payment of replacement cost puts the insured in a better position than he was in before the fire. Deducting from the replacement cost a reasonable percentage representing the physical depreciation, comes as close as possible to providing the insured with true indemnity for the loss.

Over time, courts have developed three primary tests to measure the actual cash value of property. They are:

1. Fair market value, usually described as the price a willing buyer would pay to buy property from a willing seller in a free market.

2. Replacement cost less depreciation, generally accepted to mean the cost to replace property at the time of the loss, minus its physical depreciation.

3. The Broad Evidence Rule. A judicious application of either 1 or 2 to the unique circumstance of the claim, whichever is more favorable to the insured.

Some insurers have taken the hint first expressed in 1970 in Jefferson Insurance Company v. The Superior Court of Alameda County, 3 Cal. 3d 398, and now define the term in most policies issued in California and across the country. Depending on the insurer any one of the three options chosen by the courts across the country has now been incorporated into the policy.

Some insurers elected to calculate ACV by deducting 20% from the full cost of repair or replacement. Since the basic charge had no relation to obtaining true ACV, the practice was widely condemned. For example, the Court of Appeals of Michigan went even further in decrying the practice of withholding 20% for a contractor’s overhead and profit. In Salesin v. State Farm 581 N.W.2d 781, (1998) the court said this about the calculation of actual cash value: “State Farm’s insurance Policy in this case does not contain a definition of “actual cash value,” nor does it set out the basis on which State Farm determines actual cash value. The process by which actual cash value would be determined was contained in State Farm’s Operation Guide. In accordance with the provisions of that document, State Farm routinely deducts contractor’s overhead and profit as well as depreciation when it makes an “actual cash value of the damage” payment under section I.c.(l) of its insurance policy. There was deposition testimony that this procedure is contrary to industry norms and practices.”

In Bradley v. Allstate Ins. Co., USCA, Fifth Circuit, 620 F.3d 509 (2010) the court found Under Louisiana law, actual cash value owed by property insurer is determined by calculating the cost of duplicating the damaged property with new materials of like kind and quality, less allowance for physical deterioration and depreciation. ACV is not, in the Fifth Circuit, necessarily synonymous with market value at the time of the loss.

The touchstone for determining ACV is the basic principle that an adequately insured person should incur neither economic gain nor loss when his property is destroyed.

The term obsolescence appears within the contract definition of “actual cash value,” which is one of several methods insurers use to value a property in the event of a loss. Other methods are market value, reproduction value, and replacement value.

Many courts, including those in Michigan, adopted what is known as the “broad evidence” rule to determine the actual cash value when the term is undefined in a contract. [Davis v. Nat’l Am. Ins. Co., 78 Mich.App. 225, 259 N.W.2d 433, 438 (1977)]. Under the rule, fact finders or appraisers may consider “any evidence logically tending to the formation of a correct estimate” of the value of the property, including “market or reproduction or replacement values.”

The Standard Fire Insurance Policy has provided, in essentially the same language since 1909:”In consideration of the provisions and stipulations herein … this company does insure the above-named insured … to the extent of the actual cash value of the property at the time of the loss.”

The intent of the legislature of the various states that have enacted a statutory fire policy, by enacting a mandatory form of fire insurance policy, was to codify and implement the traditional concept of fire insurance. Insurance exists to indemnify or compensate the insured for the actual loss he has sustained, without necessarily placing him in a better position than he was at the time of the fire. [Breshears v. Indiana Lumbermans Mutual Ins. Co., 256 Cal. App. 2d 245, 63 Cal. Rptr. 879 (1967).]

Appellate courts have rarely been called upon to explain this basic purpose of fire insurance, as codified. When called upon, the courts have limited their decisions to the fact situations presented to them. They have always confirmed that the purpose of insurance is to provide indemnity. It was only the methods by which such indemnity was to be achieved that was subject to interpretation.

Perhaps to ease the burden on the courts, the state legislatures provided a means by which the traditional concept of indemnity could be measured. For example, the California Legislature stated: “The measure of indemnity in fire insurance is the expense to the insured of replacing the thing lost or injured in its condition at the time of the injury, such expense being computed as of the time of the commencement of the fire”. [California Insurance Code § 2051.]

The legislature failed, however, to explain how one was to compute the cost of replacing a 30-year-old building. There is almost no supply of 30-year-old plumbing or lumber for the insured to purchase. A carpenter cannot construct a 30-year-old dwelling, he can only construct a new dwelling. It is physically impossible to put an insured exactly as he was before the fire.

It took 30 years of hard weather to pit the siding; many windstorms to wear and loosen the shingles, an earthquake or two to tilt the foundation, and four growing children to beat it up mercilessly. The problem of creating old with new, the legislature left to the courts, litigants, and the agile minds of adjusters and lawyers.
Analysis

Courts have touched the issue, gingerly. They have paid lip service to the statutory mandate that the insured is only entitled to recover under the policy such loss as he has actually sustained. [Whitney Estate Co. v. Northern Insurance Co. of London, 155 Cal 521, 101 P. 911 (1909).] Sometimes, the courts simply reduced an award to a sum less than full

replacement cost with no explanation as to why the deduction was made. [Koyer v. Detroit F & M Ins. Co., 9 Cal. 2d 340 (1937).]

The question of how the actual cash value of Covered Property should be determined when calculating the value of any applicable premium is essential. Three different tests exist to determine the actual cash value of property when the policy is silent on the definition. Those tests are:

1. the fair market value test;

2. the replacement costs minus depreciation test; and

3. the broad evidence rule.

This article came from my newest book, “How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” Now Available as a Kindle book here, paperback here and as a hardcover here

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.co

m and [email protected].

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma

Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover and a new book on Commercial Property Insurance purchase and claims that is now available as a Kindle book here, paperback here and as a hardcover here.

00:11:53
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4 hours ago
Zalma’s Insurance Fraud Letter – January 15, 2026

ZIFL Volume 30, Number 2

THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL

Post number 5260

Read the full article at https://lnkd.in/gzCr4jkF, see the video at https://lnkd.in/g432fs3q and at https://lnkd.in/gcNuT84h, https://zalma.com/blog, and at https://lnkd.in/gKVa6r9B.

Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ This issue contains the following articles about insurance fraud:

Read the full 19 page issue of ZIFL at https://zalma.com/blog/wp-content/uploads/2026/01/ZIFL-01-15-2026.pdf.

The Contents of the January 15, 2026 Issue of ZIFL Includes:

Use of the Examination Under Oath to Defeat Fraud

The insurance Examination Under Oath (“EUO”) is a condition precedent to indemnity under a first party property insurance policy that allows an insurer ...

00:09:20
January 14, 2026
USDC Must Follow the Finding of the Administrator of the ERISA Plan

ERISA Life Policy Requires Active Employment to Order Increase in Benefits

Post 5259

Read the full article at https://lnkd.in/gXJqus8t, see the full video at https://lnkd.in/g7qT3y_y and at https://lnkd.in/gUduPkn4, and at https://zalma.com/blog plus more than 5250 posts.

In Katherine Crow Albert Guidry, Individually And On Behalf Of The Estate Of Jason Paul Guidry v. Metropolitan Life Insurance Company, et al, Civil Action No. 25-18-SDD-RLB, United States District Court, M.D. Louisiana (January 7, 2026) Guidry brought suit to recover life insurance proceeds she alleges were wrongfully withheld following her husband’s death on January 9, 2024.

FACTUAL BACKGROUND

Jason Guidry was employed by Waste Management, which provided life insurance coverage through Metropolitan Life Insurance Company (“MetLife”). Plaintiff contends that after Jason’s death, the defendants (MetLife, Waste Management, and Life Insurance Company of North America (“LINA”)) engaged in conduct intended to confuse and ultimately deny her entitlement to...

00:07:30
January 13, 2026
Mediation in State Court Resolves Action in USDC

Failure to Respond to Motion to Dismiss is Agreement to the Motion
Post 5259

Read the full article at https://lnkd.in/gP52fU5s, see the video at https://lnkd.in/gR8HMUpp and at https://lnkd.in/gh7dNA99, and at https://zalma.com/blog plus more than 5250 posts.

In Mercury Casualty Company v. Haiyan Xu, et al., No. 2:23-CV-2082 JCM (EJY), United States District Court, D. Nevada (January 6, 2026) Plaintiff Mercury Casualty Company (“plaintiff”) moved to dismiss. Defendant Haiyan Xu and Victoria Harbor Investments, LLC (collectively, “defendants”) did not respond.

This case revolves around an insurance coverage dispute when the parties could not be privately resolved, litigation was initiated in the Eighth Judicial District Court of Nevada. Plaintiff subsequently filed for a declaratory judgment in this court.

On or about April 15, 2025, the state court action was dismissed with prejudice pursuant to a stipulation following mediation. Plaintiff states that the state court dismissal renders its ...

00:04:26
December 31, 2025
“Sudden” is the Opposite of “Gradual”

Court Must Follow Judicial Precedent
Post 5252

Read the full article at https://www.linkedin.com/pulse/sudden-opposite-gradual-barry-zalma-esq-cfe-h7qmc, see the video at and at and at https://zalma.com/blog plus more than 5250 posts.

Insurance Policy Interpretation Requires Application of the Judicial Construction Doctrine

In Montrose Chemical Corporation Of California v. The Superior Court Of Los Angeles County, Canadian Universal Insurance Company, Inc., et al., B335073, Court of Appeal, 337 Cal.Rptr.3d 222 (9/30/2025) the Court of Appeal refused to allow extrinsic evidence to interpret the word “sudden” in qualified pollution exclusions (QPEs) as including gradual but unexpected pollution. The court held that, under controlling California appellate precedent, the term “sudden” in these standard-form exclusions unambiguously includes a temporal element (abruptness) and cannot reasonably be construed to mean ...

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December 29, 2025
Doctor Accused of Insurance Fraud Sues Insurer Who Accused Him

Lack of Jurisdiction Defeats Suit for Defamation

Post 5250

Posted on December 29, 2025 by Barry Zalma

See the video at and at

He Who Represents Himself in a Lawsuit has a Fool for a Client

In Pankaj Merchia v. United Healthcare Services, Inc., Civil Action No. 24-2700 (RC), United States District Court, District of Columbia (December 22, 2025)

FACTUAL BACKGROUND
Parties & Claims:

The plaintiff, Pankaj Merchia, is a physician, scientist, engineer, and entrepreneur, proceeding pro se. Merchia sued United Healthcare Services, Inc., a Minnesota-based medical insurance company, for defamation and related claims. The core allegation is that United Healthcare falsely accused Merchia of healthcare fraud, which led to his indictment and arrest in Massachusetts, causing reputational and business harm in the District of Columbia and nationwide.

Underlying Events:

The alleged defamation occurred when United ...

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December 15, 2025
Zalma’s Insurance Fraud Letter – December 15, 2025

Zalma’s Insurance Fraud Letter

Read the full article at https://lnkd.in/dG829BF6; see the video at https://lnkd.in/dyCggZMZ and at https://lnkd.in/d6a9QdDd.

ZIFL Volume 29, Issue 24

Subscribe to the e-mail Version of ZIFL, it’s Free! https://visitor.r20.constantcontact.com/manage/optin?v=001Gb86hroKqEYVdo-PWnMUkcitKvwMc3HNWiyrn6jw8ERzpnmgU_oNjTrm1U1YGZ7_ay4AZ7_mCLQBKsXokYWFyD_Xo_zMFYUMovVTCgTAs7liC1eR4LsDBrk2zBNDMBPp7Bq0VeAA-SNvk6xgrgl8dNR0BjCMTm_gE7bAycDEHwRXFAoyVjSABkXPPaG2Jb3SEvkeZXRXPDs%3D

Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/

Zalma’s Insurance Fraud Letter

Merry Christmas & Happy Hannukah

Read the following Articles from the December 15, 2025 issue:

Read the full 19 page issue of ZIFL at ...

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