For purposes of insurance, property damage losses are generally determined using one of two valuation methods: (1) actual cash value; or (2) replacement cost. Most insurance policies specifically provide for recovery based on a replacement-cost basis. However, there are policies that limit recovery to actual cash value. It is also common for policies to limit recovery to actual cash value until the damaged property is actually repaired or replaced. In that instance, an insured can make a claim for the actual cash value of the property and then submit a supplemental claim once the property is repaired or replaced. Such policies typically set an outside limit on the time within which the property must be repaired or replaced.
There are three general methods for determining actual cash value: (1) market value; (2) replacement cost less depreciation; and (3) the broad evidence rule. In Elberon Bathing, Inc. v. Ambassador Insurance Company, 77 N.J. 1 (1978), the New Jersey Supreme Court adopted the broad evidence rule. That rule applies in the absence of another method expressly set forth in the insurance policy. According to the court, the broad evidence rule
requires the fact-finder to consider all evidence an expert would consider relevant to an evaluation, and particularly fair market value and replacement cost less depreciation. If the appraiser finds it appropriate under the particular circumstances he may, after weighing both factors, settle on either alone. Normally, replacement cost minus depreciation can be significant evidence of value but it is not necessarily conclusive. Thus under the broad evidence rule the two stated criteria do not bind the fact-finder but instead become guidelines with other relevant evidence. No evidence is per se exclusive of other evidence; any evidence may be used jointly or alternatively according to the circumstances and the property to be evaluated.
Id. at 13 (citations omitted). In other words, the fact finder can take into consideration a myriad of factors and is not limited to applying a set formula to arrive at actual cash value. The Elberon court determined that an actual cash value calculation using the broad evidence rule is more likely to be reliable than either the market value or replacement cost less depreciation calculation method used alone.
The fact finder can be a jury, a judge, an appraiser, an arbitrator, or a mediator. In light of the flexibility given to the fact finder in calculating actual cash value, it is rare for a court to overturn an actual cash value determination. This is illustrated by the Appellate Division’s decision in Puhlovsky v. Rutgers Casualty Insurance Company, 2014 WL 9967355 (App. Div. July 1, 2015).
Puhlovsky involved damage to a commercial building located in Paterson, allegedly resulting from construction work being performed on an adjoining building. The insured and the insurer each retained experts to calculate the value of the loss. However, the jury calculated the loss at a value less than that calculated by either expert. In other words, the jury came up with its own valuation.
The insured argued that the jury’s verdict was not properly supported because the jury apparently did not rely on either expert’s calculation. Citing Elberon, the Appellate Division rejected that argument, noting:
New Jersey has adopted the “broad evidence rule” in reviewing appraisal awards. Under the broad evidence rule, the fact-finder uses calculations of both fair market value and replacement cost less depreciation as “guidelines, along with any other relevant evidence” to come to a conclusion. The criteria “do not bind the fact-finder.”
Id. at *6 (citations omitted). The court went on to note:
Here, there is no indication that the jury did not give reasonable consideration to the relevant evidence in this case. Under Elberson, the jury is not required to accept the expert testimony of either party. As defendant notes, there were many separate variables to which the jury may have given weight when determining the appropriate value of the property, including age and condition of the building, market conditions, the location of the building, etc. The jury not only heard the testimony of multiple experts, including each expert’s methodology, but also viewed pictures of the property.
Id. Thus, the court upheld the jury’s determination.
Obviously, no one knows what the jury actually considered in arriving at its calculation. For the most part, juries are not required to provide an explanation for their decisions and judges are generally reluctant to allow attorneys to question jurors after they have rendered a verdict for fear that something a juror says may be used to attempt to impeach the jury’s verdict. It does seem somewhat strange that the jury did not accept either expert’s valuation. Under the broad evidence rule, however, the trier of fact essentially can do whatever it wants in calculating actual cash value. Given the unpredictability of jurors, and the high probability that they do not have specialized knowledge concerning valuation issues, the New Jersey Supreme Court may want to revisit the issue of whether jurors should be given so much discretion in calculating actual cash value.
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