Although the terms Actual Cash Value and Replacement Cost Value are not commonly used outside of property insurance disputes, they can have a substantial effect on the amount of money you receive from your insurance company after a loss.

After your insurance company determines that your insurance policy provides coverage for your loss, the insurance company has various ways to calculate the value it will pay you for your lost or damaged property.  There are two main methods by which the insurance company calculates the value of your damaged property – Actual Cash Value and Replacement Cost Value – both of which will be discussed in detail below.

Actual Cash Value

Actual Cash Value (“ACV”) represents the actual dollar value of the damaged item in its depreciated, but not damaged, condition.  Replacement Cost Value (“RCV”) represents the cost to actually rebuild or replace the damaged item with a new one. For example, let’s say your five year old 55” television was destroyed by a covered cause of loss. Since television prices are constantly dropping, the television you paid $1,000.00 for five years ago may now have a present “actual cash value” of only $200.00, which represents what you could actually sell a five year old television for today.

Replacement Cash Value

On the other hand, let’s say the cost today to replace your damaged television with a brand new 55” television is $800.00 – which would represent the Replacement Cost Value of the television. Replacement cost insurance is designed to cover the difference between what property is actually worth and what it would cost to rebuild or repair that property. In essence, it is insurance to protect the depreciation of the insured property.

Under current law, most insurance policies provide that the insurance company only has to initially pay the value of the damage on an Actual Cash basis. Later, after the insured has completed the repairs or replaced the damaged item, the insurer then has the obligation to pay the additional amount of money necessary to bring the payments up to the Replacement Cost Value of the loss.

If You Have Questions Regarding Your Property Insurance Claim – Call (800) 451-6786 for Immediate Help.

It is important to note that the replacement or repair of the damaged property must actually occur, otherwise the insurer has no obligation to provide the additional replacement cost reimbursement under the policy.  If the policyholder fails to make the repairs or replace the damaged property, the insurer is only required to pay the actual cash value of the loss.  Similarly, if the policyholder performs the full extent of the repairs for less than the amount of the initial Actual Cash Value payment, the policyholder is not entitled to then seek additional Replacement Cost Value funds (as the initial ACV payment was sufficient to fully repair/replace the item).

Lastly (and perhaps most importantly), the insurance company does not have the unbridled right to determine the Actual Cash Value of your damages – or the Replacement Cost Value, for that matter.  As a policyholder, you have the right to question the insurance company’s damage payment and to determine whether such payment is sufficient to fully compensate you for your loss.  Should you have any questions whatsoever with regard to your insurance claim, contact our office and we would be happy to discuss your claim with you.

 

As part of an ongoing effort to give the shaft to Florida consumers, a bill was recently filed with the Florida Legislature which would greatly restrict – or even eliminate – the rights of property owners attempting to properly repair damage caused to their homes by sinkhole activity.  Senate Bill 416 (blandly titled, “Sinkhole Coverage”) is a blatant attempt to not only force property owners to repair their property in the manner chosen by Citizens Property Insurance Company, but to also relieve Citizens of any further liability if its mandate repairs fail to repair the home.

In order to understand the true malevolent nature this proposed bill, it is necessary to understand the manner by which sinkhole damaged properties are normally repaired.  If a property is deemed to have been damaged by sinkhole activity, the insurance company must then provide coverage for the cost to repair the property.  Usually, the engineering firm which initially found the sinkhole activity would set forth a recommended repair method, but then, per the Florida Statutes, the homeowner would also have a say in the manner by which the property was to be repaired.  Through this statutorily mandated consultation between the insurance company and the property owner, it was hoped that an agreeable resolution could be reached and the property repaired to the satisfaction of all.  Furthermore, the law mandates that, if the homeowner was forced to used the insurance company’s repair method, the insurance company must stand behind these repairs and if any further damage resulted or the mandated plan was not sufficient, the insurance company must come back and provide any additional  repairs necessary.

Citizens Property Insurance is now attempting to “legislate” its way out of this deal – but in an amazingly brazen way.  Per SB 416, Citizens would be able to legislatively mandate that property owners not only repair the property pursuant to Citizens’ method, but that the property owners MUST use one of Citizens’ “chosen” repair companies.  But here comes the real kicker – these repair companies must fix the property on a “fixed price” contract.  In essence, whatever cost estimate Citizens’ engineer thinks up, the third party repair company will only be paid that amount per the contract and, if the cost estimate is not accurate or the job runs over, the third party repair company must continue to repair the property and eat the difference in cost!    But wait, it gets better.  Not only does the repair company have to eat any overages in the repair costs (which almost always occur), the repair company would be legislatively mandated to “guarantee” the repairs down the road!  (Remember, it was Citizens’ engineer who made the cost/repair estimate, not the repair company.)  If the shoddy repairs set forth by Citizens fail and further damage is caused to the home – the third party repair company is stuck with having to pay for the damage – and Citizens gets to walk away with no exposure!   Under the new proposal, despite Citizens being able to force its version of the repairs upon the property owner, Citizens’ only exposure for these repairs – even if the repairs catastropically fail (think Dunedin) – is paying the initial cost estimate set forth by its own engineer.

Now, let’s take this one logical step further.  If Citizens knows that its only exposure is paying the repair cost estimated by its engineer, and Citizens is the entity that pays the engineer….how long will it be before this engineer starts getting pressure to “under-estimate” the repair protocols?  It would be a great deal for Citizens – if its engineer can look at a repair job that should cost $50,000, but instead the engineer gives the opinion that the repair cost should only be $30,000 – that would be all Citizens would have to pay!  And hey, when the expenses hit their true value during the repair of the property, it is the third party repair company that has to pick up the tab – no matter what the cost!  What a deal!  Heck – why not just estimate the cost of repair at a dollar – by law, that is all Citizens would then have to pay!

Clearly, Senate Bill 416 is not good for Florida consumers – or even repair companies for that matter!  During the upcoming legislative session, it is important that all Florida property owners make sure that their elected officials fight for the rights of their constituents and not allow insurance company lobbyists to have their way in Tallahassee.

Over the past year or so, we have been getting an increasing number of calls from property owners who continue to experience sinkhole damage to their property – even after their property has been repaired by the insurance company!  The factual circumstances are almost always the same – the insurance company mandates that the insured repair the sinkhole damage pursuant to the recommendations of the insurance company’s experts and then, after these supposed repairs are completed, the property continues to incur new damage.  Although sometimes this new damage appears immediately after the insurance company’s repairs are completed, many times the damage appears years later.  In almost every scenario, after the insured contacts the insurance company regarding this damage, the insurance company’s expert issues a quick report saying that the damage – if the expert even acknowledges the damage – is not from sinkhole activity and the claim is then summarily denied.

Many property owners do not realize that if the insurance company repairs the property pursuant to the insurance company’s recommended repair method, the insurance company must stand behind that repair method and must continue to repair the property – regardless of the cost – until the property is fully remediated.  The law on this process is clear – if the insurance company mandates that a property owner perform the insurance company’s sinkhole repairs to the property, the insurance company must continue to pay the cost of the repairs until the property is fully remediated or, if the insurance company gives up on repairing the home after beginning the process, the insurance company must issue a check for policy limits to the property owner without deduction for monies already spent towards the repair! 

Always know that you have rights against your insurance company and that you do not have to accept whatever remedy the insurance company may try to force upon you.  Clearly, it is important to have your claim reviewed by an experienced insurance attorney who can explain your options and, if necessary, zealously pursue your claim against the insurance company.