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Apply depreciation equal to the amount of sales tax, that's it. A 10 year old craftsman 1/2" ratchet is as good as a brand new one. If the insd. has RC coverage, give him the sales tax back when he replaces the tools. In these situations there is no reason to make it complicated.

I don't necessarily disagree with Tim's approach, and would certainly let it pass if I were sitting on a supervisor's desk, but at the same time I would not find fault with someone who applied some percentage of depreciation to the tools. I haven't been in a pawn shop lately, but as I remember, there are plenty of sets of used Craftsman tools to be had in the pawn shops for less than full replacement price.

I think you could go either way on this, and not be wrong.

OK, let's say it's a daily claim assigned to you the adjuster on a Monday. Because there is water damage (from fire suppression) to some fancy artwork, you send out a contents specialist with the carriers OK. The contents expert gets there Monday PM, a day before you do, and documents all the contents, including the tools. The insured asks the contents expert, "Can I take these tools now that you have seen them?" and the contents expert says "Sure, go ahead."

When you get to the loss the next day the insured shows you his brand new tools he got on trade in.

Do you still owe him for the loss? Why? If not,why not and how do you write the denial letter? (Your denial letter must quote policy language or case law or at least give some kind of rational argument)

assume it is an HO3 if you want.

OK. I see what you are saying now. It did not cost him anything to replace the tools. If you pay him anything then he will be profiting on the claim. I will have to think about the coverage in that light. On a side note, I think the Sears replacement agreement says something like failure due to normal wear and tear, if that is the case they would not honor fire damaged tools. I will have to check on that as well.

Here's what I think, after reading a homeowner policy (not an HO, but similar):

On some polices the carrier only owes that cost to replace, if that's all they want to pay: no cost to get the replacement = no payment required. Also the carrier may have the right to replace the property instead of paying money. If the insured is claiming $80,000 for an antique piano the carrier has the option to go find that exact piano for $10,000 and deliver it to the insured. And we need to consider salvage.

So if you were going to pay ACV you could pay something less than $4000 because even if you were confident if could be returned for new product nobody (in the Fair Market Value world) would pay 100 cents on the dollar just for the pleasure of driving to the store and dealing with the store clerk. And then as the adjuster you would take the salvage items which you could personally handle by returning to sears yourself or getting a bid from a salvor or maybe selling back to the insured, depending on your judgement and what the carrier wants. Of course the easiest way would be to ask the insured to return it themselves, and if they were succesfull you wouldn't owe anything, if not you would. Like Tim and Tom said it's actually not a slam dunk to return fire damaged tools, another example of don't assume, do homework. When I posted this question I thought it was an automatic to return the tools but after I googled it I read otherwise.

I don't think the carrier can force the insured to return the tools but the carrier does have the right to pay ACV and keep or sell the the tools as salvage. Of course we all know there is a difference between what is possible and what makes sense, depending on whether it is a CAT or a daily claim and how much money is involved.

let me clarify one thing- don't EVER handle salvage personally unless you have thoroughly discussed it with the carrier and they want you to. It's too much of a sticky issue, but sometimes the carrier gets a lot LESS money by going with a salvor than doing things like selling back to the insured, having the insured find a buyer they know, letting the adjuster help, most salvors will admit that the carrier can get more money elsewhere, just make sure everything you do is discussed and approved...

Actual Cash Value (ACV) is Replacement Cost (RCV) less depreciation. Depreciation is figured using age and condition. The only influence Sears has is that a Sears tool is a high quality tool that under normal wear conditions is a life time tool, but then lots of tools are. An HO-3 provides All risk except as excluded coverage at Replacement Cost (RCV) only if the policy is endorsed and replacement is actually made. The undisputed amount is paid, usually ACV and the RCV is paid, less the deductible when receipts are presented. The salvage does not belong to the insurance company until full payment is made.

The standard HO3 language says: "personal property...at actual cash value at the time of loss but not more than the amount required to repair or replace."

Is "actual cash value" really replacement cost less depreciation? Is that really what the policy says?

from the H0 3 8/96 washington (other versions are similar)

ACTUAL CASH VALUE means....b)....the market value of property in a used condition equal to that of the destroyed property, if reasonably available on the used market.

c. Otherwise, actual cash value means the market value of new, identical or nearly identical property less reasonable deduction for wear and tear, deterioration and obsolescence.

In plain English this says the ACV is the thrift store/Ebay/Craigslist price unless there aren't any similar items for sale and then (and only then) the ACV is determined by taking today's price for a similar NEW item and subtracting for wear (depreciation).

To say it another (exagerated ?) way, the policy is telling the adjuster to search Ebay first, and do a depreciation schedule second only if Ebay doesn't have the item. (I'm only half serious, but I wanted to make the point.

Of course most of us adjusters grab the depreciation schedule first, but that's not actually what the policy says.

So therefore, if the insured has an item that cost $1000 new, is only 2 years old, in great condition, and similar items can be found for sale at $30.00, that's what the carrier would owe: $30.00. It would not be neccessary to apply depreciation to calculate some kind of theoretical ACV. The carrier simply does not owe one penny more than what that item can be bought for in the used item marketplace. (Ebay, garage sale, craigslist, thriftstore, etc.)

And if you really could return some tools and get brand new ones the carrier could decide to pay the insured ZERO on the basis that they do not owe "more than the amount required to repair or replace."

And notice that is says "repair or replace". If the item can be repaired you don't have to list the RCV less ACV or the Ebay price- you could just put down "repair allowance" on your spreadsheet, and show the repair cost.

I do agree with you that the salvage does not belong to the carrier until full payment is made.

The value of any item is what a willing buyer will pay a willing seller at any given time. Actual Cash Value (ACV) the term used in many different contracts of insurance has been interpreted differently repeatedly in every state.

Leland, I agree with you, my example has always been a theft claim I handled at St Paul years ago. An insured doctor bought a Sony Beta Max machine then reported it stolen. Investigation showed it to be new and in excellent condition. Applying Replacement Cost (RCV) less depreciation ( in this case nearly 0%) I was about to pay the Actual Cash Value (ACV), Beta Max started off expensive, but this was at the time Beta Max was beaten in the market place by VCR. I don't pay any attention to television so I knew almost nothing about either format, but over the weekend reading the Sunday paper I noticed a Dillard's ad. Dillard had the Sony Beta Max and was selling them off at fire sale prices, so back in the office on Monday I sent the insured the ad and a check. We waived his deductible.

Sears is very liberal in their tool return policy, I took back a break over bar that I had put a cheetah bar on and twisted the end out of it, they asked what happened to it, sheepishly said "don't know, it broke". They gave me a new one. Chuck is correct, a theft claim is a better scenerio here, insured has $xxxx worth of Craftsman, Snap On, etc tools stolen, what depreciation applies. It is a moot point if he has and RC endorsement, but what if he has an ACV policy, what is fair to him? His 20 year old ratchet is as good as a new one. I still say discount the sales tax and let it rip. However, good points have been made here, such as pawn shop prices on these type of tools, PawPaw passes and MawMaw has a yard sale and sells all of PawPaw's tools for .20 on the dollar. I think the DOI would go with the very little depreciation settlement.

Hm adjusting problems. Within the last year I have changed my thinking on "used" DVD, blue ray and music disk. I start at the same place the thief starts the pawn shap. The shop owner has a list of all the above media and sells it to customers 100% guaranteed for 25% of the discount store price. This means he paid his source no more than 12.5% for the guaranted media disk. Start think like this and you will get much closer to ACV. Adjusting skills can be aquired.