ACV And RCV: Are Courts Respecting The Difference?

• Published date: 07 January 2022
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Drew Eckl & Farnham, LLP
• Author: Ms Mary Alice Jasperse

A continual issue that our clients have seen is for contractors and public adjusters to attempt to blur the distinction between ACV and RCV figures in an effort to recover RCV upfront and without incurring the RCV expenses. In appraisal, this circumstance can arise when a policyholder demands appraisal but only includes an RCV figure in their appraisal demand. In litigation, we have seen policyholders attempt to introduce RCV-only figures where the evidence shows that the insured did not perform repairs. The purpose of this article is to provide insurers with a strategic response to these maneuvers in the context of recent federal court rulings.

Under most standard property insurance policies, a policyholder is entitled to an upfront actual cash value ('ACV') payment for covered damages. Replacement cost value ('RCV') is the cost of replacing the property without any deduction for depreciation. 'Depreciation' is the decline in value of property due to age, use, wear and tear, etc. Generally, under the terms of a policy, if a policyholder does not incur replacement costs, he or she is not entitled to recoverable depreciation. See Marchman v. Grange Mut. Ins. Co., 232 Ga. App. 481, 483, 500 S.E.2d 659 (1998). As a result, distinguishing between an ACV and RCV calculation is important. Fortunately, it appears that courts are catching on to the difference.

Appraisal Concerns

Appraisal 'provides a method by which the insurer and the insured can make a final determination regarding the actual cash value' of property damages. McGowan v. Progressive Preferred Ins. Co., 281 Ga. 169, 171 (2006). Generally, the appraisal clause is invoked after the insurer issues the upfront ACV payment to the policyholder. Recently, we have seen appraisal being invoked by insureds along with an estimate or damages proposal that reflects RCV numbers only, leaving out comparative ACV figures. This presents a perilous situation. If repairs have not been performed when appraisal is demanded and the appraisal demand is based upon an RCV figure, then the insurer agrees to appraisal at the risk of being presented with a faulty appraisal award. This ultimate award could be faulty if repairs remain uncomplete and the award is premised upon RCV figures rather than ACV figures. Most problematically, if the appraisal award does not even specify if the award is an RCV or an ACV figure, the insurer may have no basis to contest its legitimacy after the fact. Bell v. Liberty Mutual Fire Ins. Co...