The Proper Standard for Evaluating “Actual Cash Value” Under New Jersey Law

Jennifer Van Voorhies | Property Casualty Insurance Law Blog | April 12, 2018

One of the most common questions we hear from our clients has to do with the differences between “actual cash value” and “replacement cost value.” Replacement cost value on its face seems relatively straight forward, but what is “Actual Cash Value” determined under New Jersey law?

This topic was visited by Shane Smith following Super Storm Sandy in Calculating Actual Cash Value, Part 5: New Jersey and New York, and I was curious if the criteria had changed following such an influx of first party property damage claims.

There are typically three general ways to determine Actual Cash Value:

1. market value;
2. replacement cost less depreciation; and
3. the broad evidence rule.¹

The Broad Evidence Rule, in layman’s terms, is a combination of Market Value (what it’s selling for now) and Replacement Cost less Depreciation (how much it costs to replace minus age/wear & tear/condition, etc.).² In Messing v. Reliance Insurance Company, the court found “that the broad evidence rule was most consistent with the principle of indemnity.”³

The Supreme Court of New Jersey agreed. In Elberon Bathing Company v Ambassador Insurance Company,⁴ a fire case that went to appraisal, the Court held:

“[T]hat (1) appraisal based on replacement cost without consideration of depreciation does not measure actual cash value; (2) the proper standard for evaluating ‘actual cash value’ under New Jersey standard form policy is broad evidence rule. . . .”

The Elberon the New Jersey Supreme Court found broad evidence to be the standard because it requires the fact-finder to consider the same evidence an expert would consider relevant to an evaluation; fair market value and replacement cost minus depreciation. The Court does allow the fact-finder to use the criteria as guidelines if the facts of the case are appropriate.
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¹ See Note, “Valuation and Measure of Recovery Under Fire Insurance Policies,” 49 Colum. L. Rev. 818, 820-823 (1949); Cozen, Op. cit., supra, 12 Forum at 648-658; Hinkle, “The Meaning of ‘Actual Cash Value,’” 1967 Ins.L.J. 711. See generally Annot., 61 A.L.R.2d 711 (1958).
² Messing v. Reliance Ins. Co., 77 N.J.Super. 531, 187 A.2d 49 (1962).
³ Id. at 534.
⁴ Elberon Bathing Co. Inc. v Ambassador Ins. Co., 77 N.J. 1, 389 A.2d 439 (1978).