18th Apr 2018

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Actual cash value – defined

Actual cash value insured against by a California Fair Plan policy has reference under the insurance code to the following phrases:

1. Total loss to the structure;
2. Partial loss to the structure. See California Fair Plan Association v. Garnes (2017) 11 Cal. App. 5th 1276, 1282 (referring to Insurance Code §§ 2051, 2070, 2071). These sections set minimum standards of coverage for indemnity. [California Fair Plan v. Garnes, supra]

Partial loss: where the cost of repair exceeds the property’s fair market value

In California Fair Plan Association v. Garnes (2017) 11 Cal. App. 4th 1276, the insured purchased a Fair Plan policy with limits of $425,000. A fire loss caused a partial loss to the insured’s home. The cost of repair was agreed to be $320,000. The fair market value of the property was $75,000. The policy in question issued before enactment of Insurance Code § 2014 provided coverage for a partial loss as the “… lessor of the cost to repair less reasonable depreciation or the actual cash value”. The Fair Plan offered as payment the amount of $75,000 which equaled the fair market value of the home [11 Cal. App. 5th 1276, 1284]. The Fair Plan policy provision conflicted with the provisions in Insurance Code § 2051 (amended 2004) which mandates coverage for partial loss to repair or replace the thing lost less reasonable deduction for depreciation. The court in California Fair Plan Association v. Garnes held against the Fair Plan and in favor of the insured and required the Plan to pay $320,000 for repairs to the building [11 Cal. App. 5th 1276, 1286]. See discussions at § A17 ACTUAL CASH VALUE; § P120 PUBLIC POLICY [§ P120:4 Policies contrary to public policy as expressed in a statute].

References in bold are to Mr. Cornblum’s text CALIFORNIA INSURANCE LAW DICTIONARY AND DESK REFERENCE, 2017 Edition, published by ThomsonReuters (1-800-344-5008 to order 3-Volume text).  2018 Edition due out in June 2018.

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