Replacement Cost vs. Actual Cash Value and Homeowner’s Claims in Florida

Homeowner’s insurance policies can be very complex. They may seem even more complicated to individuals who are not used to dealing with insurance policies and homeowner’s claims. As Miami insurance claims attorneys we are well aware of this. Indeed, we often encounter clients who are surprised about what is covered or not covered in their insurance policy. One matter homeowners should pay close attention to is whether their policy covers replacement cost or actual cash value. This can make quite a difference in the value of a claim.

Take a look at the declaratory page of your policy to find out what type of policy you have. The declaratory page states the terms of your policy and contains things such as the policy limits. If you have a replacement cost policy, then it will say something like “replacement cost on contents.” If you have actual cash value policy, then it will say something like “actual cost on contents.” Whether you have actual cash or replacement cost coverage can be usually found under the forms, options, and endorsements section of the declaratory page of your policy. If you have trouble understanding your policy, please call a Miami-Dade homeowner’s insurance attorney to assist you.

Of course, we have yet to define the difference between replacement cost and actual cash value. “[A]ctual cash value’ is an often-used appraisal term, generally synonymous with `market value’ or `fair market value.'” Id. (citing Black’s Law Dictionary 53 (4th ed. 1968); 4 Nichols on Eminent Domain § 12.01, at 12-9 to 12-23 (rev.3d ed. 1996); 2 Words and Phrases, “Actual Cash Value” 332-38, 117-19 (1955 & Supp. 1996) (cases collected)). Fair market value accounts for the property’s depreciated condition.6 Perez, 689 So.2d at 291. Goff v. State Farm Florida Ins. Co., 999 So.2d 684 (Fla. App., 2008). In other words, actual cash value refers to worth of the object at the time of the loss versus when it was bought. It also means the value or cost of a similar object at the time of the loss. Actual cash value includes overhead and profit if a contractor is needed to make repairs. Mee v. Safeco Ins. Co. of Am., 908 A.2d 344, 348 (Pa.Super.Ct.2006); Gilderman v. State Farm Ins. Co., 437 Pa.Super. 217, 649 A.2d 941, 945 (1994), Goff v. State Farm Florida Ins. Co., 999 So.2d 684 (Fla. App., 2008). This means that if you need to hire a contractor to make repairs, then your insurance company should cover part of it. However, under actual cash value policy it may not be obligated to pay all overhead and profit. In some appraisals, both the actual cash and the replacement cost are determined. It may be determined later whether actual or replacement value applies.

Replacement cost means the actual current market value of the loss without depreciation. For example, if an oven is damaged, then under replacement cost policy an insurance company would pay for a similar new oven. Some policies work as a hybrid. That is, they will pay actual cost value of the loss before any repairs are done. However, if repairs are completed, then you may make a subsequent or supplemental claim for the difference.

The issue of replacement cost versus actual cash value can get complicated. If you have any questions please call Fort Lauderdale homeowner’s insurance lawyer. We are available 24/7 and can be reached at 305.764.9907 or 1.888.413.8353.