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August 15, 2017 | Blog Post| The ABC's of ACV in Subrogation Claims

Oftentimes, during the course of a subrogation claim, third-party liability adjusters will refuse to pay the full amount of the “Repair Cost Value” (“RCV”) of the damages demanded, and contend that they only owe “Actual Cash Value” (“ACV”), regardless of the amount paid in the underlying first party property claim adjustment.   Oftentimes, this position is not necessarily predicated on a specific legal doctrine or theory, but rather a general “understanding” that is commonly used in the insurance context.   The true measure of damages, in the legal context, is always dictated by state law. 

In most jurisdictions, the general purpose of an award of damages is to attempt to make the injured party whole to the greatest extent possible.  In the case of real property, if the injury is not permanent or where the property can be restored to its pre-loss condition, the measure of damages can include the cost to repair.  However, in cases where the cost of repair exceeds the “fair market value” of the property in its pre-loss condition, or where repairing the property is unpractical, the proper measure of damages is typically the “diminution in value,” which is the reduction in the value of the property due to the loss event.  In other words, property damages are generally limited to the lesser of the cost to repair or the post-loss diminution in the property’s fair market value.

In the insurance context, the "actual cash value" (“ACV”) is usually used to describe the pre-loss value of the subject property, and therefore, ACV is not necessarily equal to the “replacement cost value” (“RCV”).  Rather, ACV is generally determined by subtracting any applicable depreciation from the replacement cost.  However, courts in various jurisdictions throughout the country have also indicated that "actual cash value" is synonymous with “fair market value,” unless otherwise defined by policy terms.  The development of the case law is indicative of how insurance industry terms have become intertwined with the legal nomenclature pertaining to the measure of damages.

In many cases, it may benefit the subrogating claimant to concede that third-party recovery will be limited to ACV, since the case law in most jurisdictions will support the notion that damages would be limited to the “fair market value” or otherwise implement some means of accounting for depreciation and/or betterment.  In the end, this concession could save a great deal of time and resources.  However, there are some cases where depreciation may not apply or an item is so unique that replacement is the only fair measure of damages available. Obviously, each scenario is unique and should be evaluated independently. In most cases, review or consultation with legal counsel is beneficial and recommended.  Nonetheless, this posting is intended to provide subrogation professionals with some general guidance when considering if ACV damages are appropriate when asserting claims against third party tortfeasors.

Aaron M. Jacobs

A Senior Associate at Butler Weihmuller Katz Craig LLP in Tampa, FL. Aaron practices in our Aviation, and Subrogation & Recovery departments.

November 09, 2017 Blog PostDon't Wreck Your Carmack Claim: Requirements for the Written Notice of Claim

Carmack claims are unique animals.  Carmack provides a shipper—or its subrogating insurance company—with the sole remedy for damages sustained when goods are shipped between states.  As the sole remedy, it’s imperative that a claimant strictly comply with Carmack’s notice of claim requirements and any additional notice requirements outlined in the bill of lading.  As subrogation professionals, when a cargo claim comes in, the bill of lading should be the first document reviewed to determine what needs to be done—in addition to the five items listed below—to provide proper notice of the claim to the carrier.  Failure to file proper written notice will bar the claim. 

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September 21, 2017 Blog PostThe Rule of Sevens: Evaluating Claims Involving a Child

As subrogation professionals, we may be tasked with evaluating property loss claims where a child caused or contributed to the property damage.  For example, is a child playing with matches or a lighter liable for a fire loss?  Or, is a child liable for driving a vehicle into the neighbor’s home? In some instances, a parent may be held liable for the child’s acts.   As more fully set forth below, when evaluating a claim involving a child, it is important to evaluate the age and capacity of the at-fault party, and to be familiar with state specific statutes regarding parental liability. 

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September 01, 2017 Blog PostHurricane Hindsight is 20/20

It took years of depositions and other discovery to realize that that most of my 2004-2005 hurricane condominium association claims were much simpler to defend than I thought.   The center of gravity of these claims was the proper calculation of Actual Cash Value (ACV).

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August 29, 2017 Blog PostThe Common Interest Doctrine: Maintaining Confidentiality

While confidentiality is usually destroyed when communications between an attorney and client take place in the presence of a third party or when work product is shared with others, those communications can remain protected if the common interest doctrine applies.

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August 23, 2017 Blog Post"It's Not Old, It's A Classic!": Risk in Aging Aircraft with GARA Protecting Manufacturers

The General Aviation Revitalization Act of 1994 (“GARA”) was a byproduct of aging aircraft, rising costs, and tort liability in the United States.  Congress was concerned that aircraft manufacturers were being devastated by liability costs for accidents occurring long after the planes left the manufacturer.  These liability costs drove up the price for aircraft beyond what the market would bear, and general aviation experienced a sharp decline.  The General Aviation Manufacturers Association reports the total U.S.-manufactured general aviation airplane shipments went from a high of 17,811 in 1978 to a low of 929 in 1994.  As a result many manufacturers stopped making certain model aircraft, including Cessna which ceased production of all piston aircraft in 1986. 

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July 18, 2017 Blog PostSubrogation Following a Hurricane is All Hands on Deck

Hurricane season began June 1 st, and runs through November 30th.   However, we are about 30 days from approaching the peak of hurricane season, when the season becomes its most active.  Weather predictors are predicting an above-average number of storms this year, with 14 expected named storms.  As anyone who has worked “CAT” claims knows, when a hurricane hits, it’s “all hands on deck.”  This is true for subrogation professionals, as well.  There is a significant increase in the number of claims that must be triaged, with a goal of finding any claims that might have subrogation potential. 

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November 16, 2015 Blog PostWest Virginia Supreme Court Allows Landlord's Subrogation against Tenant

The West Virginia Supreme Court of Appeals recently opened the door further for a landlord’s insurer subrogating against a tenant for damages to the landlord’s property.

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October 13, 2014 Blog PostIs Texas Following Florida's Lead On Changing The Economic Loss Rule?

Practicing in both Florida and Texas I have seen the Economic Loss Rule evolve over the years, and its direct impact on the recovery potential for our subrogation claims appears to be moving in a positive direction. Recently, the Texas Supreme Court held in a per curium opinion in Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 2014 WL 4116839 (Tex. Aug. 22, 2014), that a claimant can now bring a tort claim (negligence, in this case) against a party, as well as a breach of contract claim. In doing so, the Court applied ...

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Key Points
Author Practice Area CASE TYPE
  • Subrogation