Actual Cash Value in California

By June 22, 2017 October 25th, 2018 Insurance Blog, Larry Arnold
Larry M. Arnold

Larry M. Arnold

A recent appellate court case came down here in California that I thought you may find of interest: California Fair Plan Assn. v. Garnes, 11 Cal. App. 5th 1276. Case No. A143190. In California, actual cash value is statutorily defined in Insurance Code Section 2051, which shall be determined in one of two ways depending upon whether there has been a “total loss to the structure” or a “partial loss to the structure”. In the event of partial loss to the structure, the measure of actual cash value is the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured minus a fair and reasonable deduction for physical depreciation or the policy limit, whichever is less. In the event of a total loss to the structure, the measure is the fair market value of the structure or the policy limit, whichever is less.

In this particular case, while the structure was not totally destroyed, the cost to repair the structure far exceeded its fair market value. The California FAIR plan contended, therefore that made it a total loss and it was only obligated to pay the fair market value. The appellate court disagreed and stated that based upon the legislative intent and its interpretation of the statues, in the event of a partial loss, meaning that the structure was not completely destroyed, that the insurer is obligated to pay replacement costs minus depreciation, even though that amount of recovery far exceeded the fair market value of the structure.

This has been our interpretation of the statues for some time, however this appellate court now makes that interpretation clear.

For full text of the case, please click here.