What is the difference between Actual Cash Value and Replacement Cost Value?
The difference between Actual Cash Value (ACV) and Replacement Cost Value (RCV) may seem somewhat obscure to the average policyholder in Florida, but these terms are very important because they will affect the amount a policyholder will be entitled to recover in a property insurance claim?
Replacement Cost Value
The term RCV means that if an insured has suffered a covered loss, and the insured is entitled to RCV pursuant to the insurance contract, then the insurer must pay the cost that it would take to replace the property regardless of the property’s actual market value. So for example, assume that you purchased a television a few years ago. Further assume that it would cost you $3,000 to replace the TV today. However, since the time you purchased the TV, the TV has undergone some normal wear and tear and is worth less than the purchase price for a number of other factors. The value of your TV, after accounting for these factors, is now $500. Thus, if you were to sell the TV in the open market today it would probably sell for $500. Yet, if your TV is destroyed by a covered peril and your policy provides for RCV, then your insurance company will be required to pay the full replacement value of $3,000. That is how RCV works. Your insurer is liable for the cost it would take to actually replace the TV without deducting any depreciation.
Actual Cash Value
ACV works differently. Courts typically define ACV as replacement cost minus applicable depreciation. In other words, ACV typically means that your insurer will cover the fair market value of the property. This is so because fair market value already takes into account depreciation on the property. Thus, in our example above, if you have a policy that covers ACV and your TV has been lost due to a covered peril, then your insurer will only be liable to you for $500 (i.e. the replacement cost minus the applicable depreciation). Clearly, from the insured’s position RCV provides more protection than ACV.
What are the Florida laws dealing with RCV and ACV?
Florida Statute §627.7011 deals with RCV and ACV in the insurance context. This statute provides that an insurance provider must offer the prospective insured a policy that covers losses on the basis of RCV. Of course, the insured can opt out of that type of coverage and nothing prevents the insured and the insurer from agreeing on a policy that covers losses on the basis of ACV. This section only requires the insurer to offer such a policy.
The difference between ACV and RCV can have a substantial impact on the value that a policyholder will be entitled to recover under her policy. RCV is better coverage for the insured. ACV and RCV issues are frequently litigated and it is important for the insured as well as the insured’s attorney to understand the complexities of Florida’s insurance laws. The law in this area has changed over the years, and we can expect changes to continue. Often, insurance companies will pay less than they are required to pay pursuant to the insurance contract and Florida law.
You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].
Fla. Stat. §627.7011
Trinidad v. Florida Peninsula Ins. Co., 121 So.3d 433 (Fla. 2013).