WHY DEFINING ACTUAL CASH VALUE IS AMAZINGLY DIFFICULT By: Chris Boggs Courtroom arguments persist regarding the Standard Fire Policy. Prior to the 1943 edition, the meaning, application and calculation of actual cash property form specifically stated ACV value (AVC). Two key questions generally debated contemplated reasonable depreciation. in the ACV argument are: ISO-based forms only indirectly infer that the 1. What does Actual Cash Value mean; and concept of actual cash value employs depreciation. 2. Can or should labor be depreciated when This is true of the commercial property (CP), developing the ACV? businessowners' (BOP) and homeowners' (HO) policies where the concept of depreciation is found The answer to both questions key off two factors: only in the description of replacement cost. For example, ISO's commercial property policy reads: 1. The state in which the property is located; and 2. Whether ACV is defined in the policy. “3. Replacement Cost All four issues relevant to the development of ACV a. Replacement Cost (without deduction for are discussed in this article. depreciation) replaces Actual Cash Value in the Valuation Loss Condition of this Coverage Form."
Defining Actual Cash Value
Actual cash value is traditionally defined within insurance as “replacement cost less physical depreciation." However, NONE of the industry “standard" property forms promulgated by Insurance Services Office (ISO) define actual cash value. In fact, use of the term “depreciation" in direct relation to the application of ACV disappeared with the release of the 1943 NY
“Depreciation" is found nowhere else in the commercial property form. This same intimation that ACV is developed by deducting depreciation exists in the BOP and the HO policy. None of ISO's property policies directly define ACV or certify that depreciation is used to develop a property's ACV. Only in the replacement cost wording is the concept of depreciation introduced.
