Massachusetts Appeals Court Permits Insurer to Choose Method of Calculating ‘Actual Cash Value’ for Building Destroyed by Fire


No. 06-P-1750.November 24, 2008

After a fire destroyed a commercial building, a dispute arose between the insurer and the insured concerning the methodology used by the insurer to value the loss. The insured then brought an action against the insurer asserting numerous tort and contract claims as well as violations of G.L. c. 175, § 181, and G.L. c. 93A. After a jury-waived trial, the judge determined, based on the terms of the insurance policy, that the insurer had a choice of methods to calculate the loss and found for the insurer on all claims. The Appeals Court affirmed the lower court decision.

The insured had purchased an $800,000 property and casualty insurance policy. Under the terms of the policy, coverage on the building would be determined on a actual cash value basis up to the amount of the policy limit of $800,000. Although the policy did not define the term “actual cash value,” it expressly provided that the policy contained all the agreements between the parties concerning the insurance afforded and that the terms of the policy could be amended or waived only by endorsement issued by the insurer.

Subsequently, the insurer conducted an inspection of the property, indicating that the property was underinsured at the existing policy limit of $800,000. Consequently, the insurer sent a letter to the insurance agent through whom the insured had purchased the policy, to advise him of its findings, calling for an increase in coverage to at least $1,300,000, and asking the agent to review the findings with the insured.

A one-page report was attached to the letter, referred to in the letter as a “Value Estimate,” was labeled “STANDARD REPORT” and showed that the property had an “insurable cash value” of $1,456,202 based upon a replacement cost less ten per cent depreciation. The insured disagreed with the report, believing the value to be too high. The insurer called upon the insured to provide copies of any appraisals of the property that showed values different from those shown on the value estimate. The insured failed to respond and the insurer wrote to advise that if it did not respond within ten days, the insurer would assume that the insured was content with his current policy limit of $800,000. The agent of the insured then requested that the policy limit be increased to the amount recommended by the insurer.

On the date of the fire, February 20, 1999, the policy limit was $1,476,730.35. The insurer hired an independent adjuster to estimate the actual cash value loss and damage, The adjuster used four different methods to estimate the value, and then averaged them to come up with a value of $1,146,248.00.”

The insured sued in Superior Court, claiming breach of contract, promissory estoppel, fraudulent or negligent mispresentation and violation of G.L. c. 93A. The insured claimed in each case that the insurer’s letter and attached “STANDARD REPORT,” when read together, gave rise to a legal obligation to determine the “actual cash value” of the property on the basis of a replacement cost less ten percent depreciation, an amount more than that determined due by the insurer and later by a referee.

The Appeals Court approved the trial judge’s analysis and dismissal of all of the insured’s claims, premised on his observation that as used in Massachusetts standard fire insurance policies and G.L. c. 175, § 99, the term “actual cash value” did not import a single standard for determining the value of insured property. Rather, Massachusetts employs the “broad evidence rule.”


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