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Being In The Minority – The Broad Evidence Rule

value real estateProperty insurance policies often value claims based on “actual cash value.”   The term is defined differently in different states and in various policies.  When confronted with an interpretation issue, courts typically calculate actual cash value (ACV) as: (1) fair market value; (2) replacement cost less depreciation; or, (3) under the “broad evidence rule.”  The majority of states, including New York and New Jersey, follow the broad evidence rule.  Pennsylvania, our home state, does not.

As the name suggests, the broad evidence rule is an inclusive valuation method.  It allows any evidence/factor that tends to establish the correct estimated property value of a building or personal property.  Some permissible valuation factors may include:

  • original cost;
  • replacement value;
  • wholesale value;
  • market value;
  • economic and functional obsolescence;
  • condition and physical deterioration;
  • location;
  • use; or
  • sales and purchase offers.

Given the flexible nature of the broad evidence rule, this list isn’t exhaustive.  However, the price of flexibility precludes a bright-line test for determining exactly how much weight should be assigned to each potential factor affecting valuation.  For this reason, each ACV valuation under the broad evidence rule must be determined on a claim-by-claim basis.

Pennsylvania, unlike most states, does not follow the broad evidence rule.  Over the past 85 years, the methodology for calculating ACV in Pennsylvania has not changed, and Pennsylvania law excludes any consideration of market value in calculating ACV.  Whether or not Pennsylvania’s appellate courts will seek to join the majority of broad evidence rule states remains to be seen.

Please feel free to contact any member of our Insurance Industry Group with any questions.

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