The insurer agrees to pay ACV, but they are calculating the ACV differently from our method. We say the $210 price of the last unit sold reflects the obsolescent of the sprayers and should be the unit cost of the ACV settlement, which generates a total settlement of $140,000. The insurer says that since it took ten years to sell the first half of the inventory, it will take at least that long to sell the balance. Therefore the $140,000 should be discounted to $90,000 to reflect the time value of the money generated by the sales over the ten year period. Who is right?

Minnesota Subscriber

A

Since coverage is indicated as promising replacement cost recovery, three questions are in order. One, does the insured desire to have the units replaced? Two, are there replacements available? Three, does the amount of insurance support a replacement cost recovery? If the answers to these questions are in the affirmative, the insured is entitled to recover for the cost of replacing the units.

The question becomes: what is the actual cash value of obsolete property? Since the $210 sale is of relatively recent occurrence, and assuming that no evidence suggests a further drop in value has occurred in the interim between sale and loss, the unit cost figure seems both logical and just.

As for the insurer's contemplation of the time value of money and speculation on the value of inventory three, five, seven, even ten years hence, there is no validity in such conjecture. The actual cash value that is insured is that figure which represents the value of the property at the time of loss. If future obsolescence is a criterion why stop with ten years? In twenty, the paint sprayers may be totally valueless—so, the insurer owes nothing? Perhaps the insured can conjecture as well as reveal a wondrous new application soon to be discovered to cause the lost items to skyrocket in value. Do not, however, expect the adjuster to join in that speculation.