That amount is determined, when there is no definition of ACV in the policy, by either reducing the cost of replacement by physical depreciation, by determining the difference between the fair market value of the property before and after the loss, or by applying the broad evidence rule to establish ACV.
Nebraska applies, for partial losses, the broad evidence rule. The rule allows a fact-finder to consider what the life of the destroyed property, both materials and labor, would have been, as well as any other relevant evidence presented.
Under both the market value test and the broad evidence rule, all relevant evidence is considered in determining the value.
Actual cash value is typically calculated one of three ways: (1) the cost to repair or replace the damaged property, minus depreciation; (2) the damaged property's "fair market value"; or (3) using the "broad evidence rule," which calls for considering all relevant evidence of the value of the damaged property.
According to Munich RE (parent company of Munich Reinsurance America, Inc.), as of 2010 there were twenty-three states where courts had adopted the broad evidence rule, eleven states that concluded actual cash value is equivalent to fair market value, four that maintained actual cash value is replacement cost less depreciation, two that found it is replacement cost with no depreciation, and ten where no decisions on the topic were found.
Using the broad evidence rule has now become another possible option in determining the actual cash value of insured property in the event of a loss.
The ramifications of the application of the broad evidence rule are many, and reviewing each would require another article.
Courts have used three definitions: replacement cost less depreciation, the traditional method; market value; and the broad evidence rule
. The questions posed here only arise if a court defines actual cash value as replacement cost less depreciation.
As a standard for determining the payment that would restore the insured to the same condition that existed before the loss, the Court adopted what's come to be known as the broad evidence rule. The broad evidence rule says that everything that bears on the value of property should be considered.
The strength of the broad evidence rule is its inclusiveness.
The broad evidence rule -- a judicious application of either one or two to the unique circumstance of the claim, whichever is more favorable to the insured."
Although the broad evidence rule seems to be the fairest to both insured and insurer, the California Court of Appeals has recently thrown a monkey wrench into the works.