By James H. Bushart
Most insurance policies will define the terms by which the insurer will calculate ACV (“actual cash value”) in determining how much to pay, and, usually, the factor of “age” is not one of those conditions. Still, the property’s age is often used as the primary determining factor when depreciating or subtracting from the replacement costs of an item of property being adjusted for settlement.
While it is true that an object’s age can correspond closely to its extent of physical wear and tear – it is not valid in every circumstance. Age alone should not cause an object to lose much of its value; if the thing is functionally sound, it should retain most of its value.
I have helped clients recover higher settlements from insurers who had initially calculated depreciation as high as 75% for perfectly working and maintained fireplaces that happened to be original to older homes. The plaster on the wall lost to the fire was depreciated by more than 65% even though it was fully intact and functional before the fire, and the insured homeowner was entitled to a higher adjusted settlement. Countless other items and systems in the home have been grossly over-depreciated – at a great expense to the insured – for no other reason than their age.
In some cases, the age of the item may be incorrectly calculated, and higher depreciation rates can be mistakenly applied. One recent case highlighted certain things as being subject to excessive depreciation due to what the adjuster determined to be advanced age when, in fact, the same insurance company had paid for their replacement less than a year prior when vandals had damaged the home.
Property owners should know that an object’s depreciation amount is identical to how much better or more valuable a new thing is compared to the older object. This is what is being determined. Age is not always an appropriate measure of this, and the insured should challenge arbitrary deductions from replacement values based on age. The adjuster must carefully listen to the insured’s arguments and negotiate in good faith.
If you feel that your property was unfairly depreciated and that your insurance company’s offer of settlement is unreasonable and unfair, contact me (if you live in Missouri) or a public adjuster licensed to represent you in your state.
[Update – 3/12/13 – My client had a home damaged by a fire that needed extensive repair, as mentioned above. The insurance company underpaid him … claiming depreciation of 67% on the interior walls based on their age. After reopening the claim and further discussion with me, they issued him an additional check for $11,438.00.]
Copyright 2013 James H.Bushart