Summary:

Determining the value of destroyed property for insurance purposes is no mean feat. If the insured and the insurer disagree about the amount of a policy payout, a lawsuit may be on the horizon. That's where the broad evidence rule comes into play. While an appraisal is the common method of settling differences between insurer and insured, many times a claim ends up in court.

Undefined Actual Cash Value

The broad evidence rule is rooted in case law but may be generalized as the idea that a fact-finder may consider evidence from multiple sources in determining the value of lost property at the time it was destroyed. Commonly considered variables are economic value, fair market value, depreciation and deterioration, structural or functional obsolescence, and others. Courts will generally consider virtually any common-sense argument and typically award in favor of the insured. While not defined in the standard insurance policy, some states have tried to ward off potential litigation by defining "actual cash value", particularly with respect to homeowner insurance policies. While the definitions may differ by state, in general the definitions include the language that actual cash value means (or is calculated as) the amount or cost to repair or replace covered property at the time of loss or damage with material of like kind and quality, less some form of depreciation or deterioration. Some states will even include a deduction for obsolescence. Typically, an insurer will compute actual cash value as replacement cost less depreciation. The National Association of Insurance Commissioners (NAIC) has defined actual cash value as "the amount it would take to repair or replace damage to a home and its contents after depreciation".