Actual Cash Value and Replacement Cost Value in Insurance Contracts
Insurance contracts can provide the insured party the option to have any loss paid at Actual Cash Value (“ACV”) or Replacement Cost Value (“RCV”). This article examines the distinction between ACV and RCV in the context of insurance contracts.
“The expression ‘actual cash value’ is an often-used appraisal term, generally synonymous with ‘market value’ or ‘fair market value.’” Am. Reliance Ins. Co. v. Perez, 689 So. 2d 290, 291 (Fla. 3d DCA 1997) (citations omitted).
[W]hen the policy provides for “actual cash value” it means “fair market value,” which appraisal term is uniformly defined as “the amount of money which a purchaser willing but not obliged to buy the property would pay to an owner willing but not obliged to sell it, taking into consideration all uses to which the property is adapted and might in reason be applied.
Id. (quotation omitted). Conversely, “[r]eplacement cost insurance [RCV] is designed to cover the difference between what property is actually worth and what it would cost to rebuild or repair that property.” Trinidad v. Fla. Peninsula Ins. Co., 121 So. 3d 433, 438 (Fla. 2013) (quotation omitted).
“Replacement cost ‘is measured by what it would cost to replace the damaged structure on the same premises.’” Trinidad, 121 So. 3d at 438 (quotation omitted). “In contrast to a replacement cost policy, actual cash value is generally defined as ‘fair market value’ or ‘[r]eplacement cost minus normal depreciation,’ where depreciation is defined as a ‘decline in an asset’s value because of use, wear, obsolescence, or age.’” Id. (quotations omitted).
“In other words, replacement cost policies provide greater coverage than actual cash value policies because depreciation is not excluded from replacement cost coverage, whereas it generally is excluded from actual cash value.” Trinidad, 121 So. 3d at 438 (emphasis added). “As replacement cost policies are intended to operate, following a loss, both actual cash value and the full replacement cost are determined.” Goff v. State Farm Fla. Ins. Co., 999 So. 2d 684, 690 (Fla. 2d DCA 2008) (quotation omitted). “The difference between those figures is withheld as depreciation until the insured actually repairs or replaces the damaged structure.” Id.
Illustrative Cases
Not surprisingly, insurance companies will resort to the distinction between ACV and RCV to deny coverage for losses. The followings cases illustrate this point where the insured fought to get compensation for their losses.
In Garden Apartments, Inc. v. Chubb Custom Ins. Co., No. 20-CV-23116, 2021 U.S. Dist. LEXIS 138379, 2021 WL 3173251 (S.D. Fla. July 26, 2021), the court addressed an insurer’s motion for summary judgment as to RCV for damages caused by water intrusions because the insured had not completed any repairs. “In response, the Plaintiff does not dispute that it has failed to complete all of the repairs it claims are necessary on its property.” Id. at *12. “The Plaintiff concedes this fact.” Id. “Nor does the Plaintiff make any legal argument to refute the authority cited and discussed above.” Id.
“Instead, the Plaintiff disavows any intent to seek replacement cost damages and instead contends that its claim in this case is for the actual cash value of its loss, not replacement cost.” Garden Apartments, Inc., 2021 U.S. Dist. LEXIS 138379 at *12. “But the Defendant did not move for summary judgment on the issue of actual cash value damages.” Id. As such, the Court granted summary judgment only “insofar as the Court agrees with the Defendant that the Plaintiff may not seek replacement cost damages without first effectuating repairs.” Id. at *12–13.
Similarly, in Breakwater Commons Ass’n v. Empire Indem. Ins. Co., No. 2:20-cv-31, 2021 U.S. Dist. LEXIS 62730, 2021 WL 1214888 (M.D. Fla. Mar. 31, 2021), the court addressed an insurer’s argument that an insured who sustained damages from Hurricane Irma only sought RCV, not ACV, which it could not recover because repairs had not been completed. Id. at *9–10. The court rejected the argument on several grounds, some of which are not applicable to the facts of this case. Id. at 9–11. Among those that are applicable, the court found “this argument ignores the … Sworn Statement in Proof of Loss, in which Breakwater provided an underlying calculation in support of its claim for $23,419,193.02 in ACV benefits.” Id. at *10.
Moreover, the Court found that the insurer’s argument “ignores the fact that ACV equals RCV minus depreciation, and so an RCV calculation must be made to arrive at ACV.” Breakwater Commons Ass’n, 2021 U.S. Dist. LEXIS 62730, at *10 (emphasis added). “And to the extent that Empire suggests than an insured cannot initiate an action to recover both ACV and RCV benefits until it completes the repairs, this must be rejected as well.” Id. at *11. “An ACV award does not hinge on how much is actually spent to complete the repairs, and an array of case-management tools are available to ensure that an RCV judgment is not entered until the repairs are complete.” Id.
In Buckley Towers Condo., Inc v. QBE Ins. Corp., 395 F. App’x 659, 662 (11th Cir. 2010), a jury found that an insured had made a claim for both RCV and ACV for damages caused by Hurricane Wilma and that the insurer had breached the contract by failing to pay for the loss. On appeal, the Eleventh Circuit reversed the denial of the insurer’s motion for judgment as a matter of law as to RCV damages because the insured had not completed the repairs. Id. at 664. However, the Court also affirmed the denial of the insurer’s motion for judgment as a matter of law as to ACV damages. Id. at 666.
On that point, the insured’s “paperwork showed that they were actually claiming RCV damage.” Buckley Towers Condo., Inc, 395 F. App’x at 666. Nevertheless, the Court noted, “[a]lthough QBE has shown that Buckley Towers may have submitted an inartfully drafted claim for damages, we think the jury could have found on this record that Buckley Towers sought ACV damages.” Id. (emphasis added). “In the first place, even if we read the letter to be a demand for ‘advance’ RCV damages, the jury was not precluded from finding that the second Sworn Proof of Loss—the legally operative document—was a demand for ACV damages.” Id.
Finally, in Save Money & Retain Temperature, LLC v. Lexington Ins. Co., No. 18-61714-CIV, 2019 U.S. Dist. LEXIS 79797 (S.D. Fla. Mar. 13, 2019), an insured sustained damages caused by Hurricane Irma. The insurance policy at issue contained a nearly identical provision to the Contract, which allowed the insured to “make a claim … on an actual cash value basis instead of on a replacement cost basis. In the event [the policyholder] elect[s] to have loss or damage settled on an actual cash value basis [it] may still make a claim for the additional [RCV] coverage … within 180 days after the loss or damage.” Id. at *11–12. See R. at 154. Examining the provision, the Court noted, “a claim made prior to performing the repairs/replacements does not preclude a later claim for RCV.” Id. at *12.
The Court further noted, “[t]hus, Save Money was entitled to make an initial claim for loss calculated at ACV, and the fact that it had not yet performed the repairs/replacements would not afford Lexington a defense to a breach of contract cause of action premised on Lexington’s refusal to pay the ACV loss.” Save Money & Retain Temperature, LLC, 2019 U.S. Dist. LEXIS 79797, at *12 (emphasis added). “Lexington is correct … that the Policy only requires payment of RCV after repairs/replacements have been performed.” Id. “Therefore, Lexington cannot be held to have breached the Policy by refusing to pay RCV for buildings that have not yet been repaired/replaced, as it has not yet incurred that payment obligation.” Id.