Shane Smith | Property Insurance Coverage Law Blog | February 8, 2015
Texas courts have defined actual cash value as “repair or replacement costs less depreciation.”1 However, a Texas appellate court noted that actual cash value of property is equivalent to and synonymous with the fair market value of the property.2
Whether labor or overhead and profit can be depreciated is an important consideration when discussing actual cash value. In Texas, labor will likely be depreciated in the context of a total loss. In Tolar v. Allstate Texas Lloyd’s Company,3 the court stated that “replacement costs” is defined as “a composite of all reasonably foreseeable repair or replacement costs, including, labor, materials and sales tax.4 The Tolar court determined that general contractor overhead and profit should be depreciated to reach the ACV payment because it is included in “replacement costs.”5 The court relied on an Oklahoma decision, Branch v. Farmers Insurance Company, where the court held that labor and materials may be depreciated.6 Alternatively, where there is a partial loss, the insurance company is not entitled to a deduction for depreciation.7
1 Ghoman v. New Hampshire Ins. Co., 159 F. Supp. 2d 928, 934 (N.D. Tex. 2001).
2 US Fire Ins. Co. v. Williams, 732 S.W. 2d 57, 60 (Tex. App. 1987).
3 Tolar v. Allstate Tex. Lloyd’s Co., 772 F. Supp.2d 825 (N.D. Tex 2001).
4 Id. at 831-832.
5 Id. at 832.
6 Id. at 831, citing Branch v. Farmers Ins. Co. Inc., 55 P.3d 1023, 1027.
7 Farmers Mut. Protective Ass’n of Tex v. Cmerek, 404 S.W. 2d 599, 600-01 (Tex. Civ. App. 1966).
via Calculating Actual Cash Value, Part 5: Texas : Property Insurance Coverage Law Blog.