Once we speak about 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 determination in Glens Falls Ins. Co. v. Gulf Breeze Cottages. 1 It is among the most vital but steadily misunderstood instances in Florida’s property insurance coverage historical past. Many within the business cite it to justify depreciation deductions, however an in depth studying of the opinion exhibits that it really teaches the alternative lesson: when the loss to actual property is partial and restore reasonably than substitute is the suitable measure, depreciation doesn’t apply.
In an earlier put up that references quite a few articles on the problem, Do You Have a Florida Property Insurance coverage Dispute Over Valuation? Perceive the Variations Between Alternative Value Worth, Precise Money Worth and How the Broad Proof Rule Works, I mentioned how Florida developed its strategy to figuring out ACV. In Florida Alternative Value and Precise Money Worth: A Examine by Michael Cassel, I examined Cassel’s insightful evaluation of how these doctrines developed as substitute value protection grew to become extra widespread. And in An Essential Florida Case Relating to Precise Money Worth of a Partial Restore and Coinsurance / Sound Worth, I revisited the pre-replacement value period, when courts targeted on restoring habitability and performance reasonably than merely deducting numbers on a spreadsheet.
Glens Falls arose from hurricane and hail injury to cottages insured underneath a coverage that contemplated restore reasonably than substitute. The insurer argued that even when the injury 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 courtroom affirmed, discovered that “the proper measure of compensation for partial loss could be the price of economical restore, not exceeding, nevertheless, the worth,” and that “sound worth ought to be arrived at by substitute value, much less depreciation.” However when it got here to the precise repairs, the courtroom declared that “compensation for injury 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 depreciation ought to at all times 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 goal, the courtroom defined, was to “indemnify the proprietor in opposition to loss,” to not go away 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 solid “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 aim 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 definitely no worse. And that brings us to the problem of matching.
Older case legislation, together with Glens Falls, by no means prompt that “matching” of broken and undamaged property ought to be ignored when figuring out precise money worth. On the contrary, the complete 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 issues when calculating ACV, then indemnity shouldn’t be completed. Alternative value can’t be accurately calculated with out accounting for what it really prices to make the restore mix with the undamaged parts. Solely after figuring out that full, life like substitute value can any applicable depreciation be thought of, whether it is even applicable to permit for depreciation.
Florida’s older jurisprudence, lengthy earlier than substitute value insurance policies grew to become frequent, understood that time intuitively. Glens Falls teaches that when restore is adequate to revive a construction, the price of that restore should be thought of 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 issues till latest Florida-based insurers began to advance this argument inside the final decade. You’ll discover that insurance coverage treatises educating adjusters find out how to regulate property insurance coverage claims train that matching needs to be thought of. Certainly, it’s so vital that the Mannequin Unfair Claims Follow Act has lengthy acknowledged it’s improper to depart out issues 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 exhibits how absurd it turns into when matching is excluded from an ACV calculation. However for right this moment, the lesson from Glens Falls is evident: Florida traditionally considered indemnity to require issues of restoration, and restoration can’t be completed by depreciated or mismatched repairs. Florida’s courts knew that in 1949. We’re permitting Florida jurists to come back to flawed conclusions once we fail to correctly present how ACV was traditionally calculated, together with issues of matching.
For these on this matter, I strongly recommend 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 proper and upholding it, wherever discovered, in opposition to the flawed.”
— Theodore Roosevelt
1 Glens Falls Ins. Co. v. Gulf Breeze Cottages, 38 So.second 828 (Fla. 1949).
