Once we discuss Florida’s definition of precise money worth, we’re actually speaking a few promise of indemnity. That promise lies on the coronary heart of the Florida Supreme Court docket’s 1949 resolution in Glens Falls Ins. Co. v. Gulf Breeze Cottages. 1 It is among the most essential but regularly misunderstood instances in Florida’s property insurance coverage historical past. Many within the trade cite it to justify depreciation deductions, however an in depth studying of the opinion reveals that it really teaches the alternative lesson: when the loss to actual property is partial and restore quite than alternative is the suitable measure, depreciation doesn’t apply.
In an earlier put up that references quite a few articles on the difficulty, Do You Have a Florida Property Insurance coverage Dispute Over Valuation? Perceive the Variations Between Substitute Price Worth, Precise Money Worth and How the Broad Proof Rule Works, I mentioned how Florida developed its strategy to figuring out ACV. In Florida Substitute Price and Precise Money Worth: A Research by Michael Cassel, I examined Cassel’s insightful evaluation of how these doctrines advanced as alternative price protection turned extra widespread. And in An Essential Florida Case Concerning Precise Money Worth of a Partial Restore and Coinsurance / Sound Worth, I revisited the pre-replacement price period, when courts targeted on restoring habitability and performance quite than merely deducting numbers on a spreadsheet.
Glens Falls arose from hurricane and hail harm to cottages insured underneath a coverage that contemplated restore quite than alternative. The insurer argued that even when the harm was repairable, depreciation ought to be deducted from the price of restore.
The Florida Supreme Court docket rejected the insurance coverage firm’s argument outright. The chancellor, whose reasoning the court docket affirmed, discovered that “the right measure of compensation for partial loss can be the price of economical restore, not exceeding, nonetheless, the worth,” and that “sound worth ought to be arrived at by alternative price, much less depreciation.” However when it got here to the precise repairs, the court docket declared that “compensation for harm to this roofing ought to be the quantity required to take advantage of economical restore, with out making use of depreciation.”
That distinction is crucial. Glens Falls doesn’t stand for the concept that depreciation ought to all the time be deducted from each restore. It stands for the precept that in partial loss conditions the place restore restores the property to a liveable situation, depreciation shouldn’t be a part of the indemnity calculation. The contract’s objective, the court docket defined, was to “indemnify the proprietor towards loss,” to not depart them worse off by forcing them to bear the price of age-related deductions on new supplies required to make the property entire once more. To use depreciation to restore would forged “upon the proprietor an added expense which we don’t consider was contemplated by the events once they entered into the insurance coverage contract.”
This reasoning aligns squarely with the doctrine of true indemnity. The objective is to not ship a property patched along with mismatched supplies, nor to provide a quantity divorced from actuality. It’s to return the insured to the place they occupied earlier than the loss, no higher, however actually no worse. And that brings us to the difficulty of matching.
Older case legislation, together with Glens Falls, by no means urged that “matching” of broken and undamaged property ought to be ignored when figuring out precise money worth. On the contrary, the whole reasoning of the case assumes that restoration means restore in a method that makes the property entire.
Matching is inherent in that precept. If an adjuster excludes matching concerns when calculating ACV, then indemnity shouldn’t be achieved. Substitute price can’t be appropriately calculated with out accounting for what it really prices to make the restore mix with the undamaged parts. Solely after figuring out that full, sensible alternative price can any acceptable depreciation be thought-about, whether it is even acceptable to permit for depreciation.
Florida’s older jurisprudence, lengthy earlier than alternative price insurance policies turned frequent, understood that time intuitively. Glens Falls teaches that when restore is adequate to revive a construction, the price of that restore have to be thought-about in its sensible and aesthetic context. Ignoring matching not solely distorts the economics of the declare, it undermines the core promise of insurance coverage.
No insurers taught their adjusters to disregard matching concerns till latest Florida-based insurers began to advance this argument inside the final decade. You’ll find that insurance coverage treatises instructing adjusters the right way to modify property insurance coverage claims educate that matching must be thought-about. Certainly, it’s so essential that the Mannequin Unfair Claims Apply Act has lengthy acknowledged it’s improper to go away out concerns of matching, as famous in Don’t Let Insurers Play the Mismatched Sport: NAIC Requirements Require Matching and Uniform Look.
Tomorrow, I’ll illustrate this precept with a hypothetical that reveals how absurd it turns into when matching is excluded from an ACV calculation. However for right now, the lesson from Glens Falls is evident: Florida traditionally considered indemnity to require concerns of restoration, and restoration can’t be achieved via depreciated or mismatched repairs. Florida’s courts knew that in 1949. We’re permitting Florida jurists to return to flawed conclusions after we fail to correctly present how ACV was traditionally calculated, together with concerns of matching.
For these on this subject, I strongly counsel studying Reflection About Historic Coverage Change and Depreciation of Partial Losses Requiring Solely Restore.
Thought For The Day
“Justice consists not in being impartial between proper and flawed, however to find out the fitting and upholding it, wherever discovered, towards the flawed.”
— Theodore Roosevelt
1 Glens Falls Ins. Co. v. Gulf Breeze Cottages, 38 So.second 828 (Fla. 1949).