A loss professional must always adhere to the policy language applicable to coverage, loss determination and payment: LKQ, RCV, DEPR, ACV, deductible, salvage value.
Some definition of terms is necessary, to facilitate discussion of the warranty issue (of Craftsman tools or any other item). Note: local jurisdictions affect the actual interpretation of policy language but the following definitions are generally accepted:
LKQ Like, kind, & quality (the same or comparable item: design, construction, quality, use, etc)
RCV Replacement Cost Value (of LKQ) - inc sales tax & applicable handling/delivery charges
DEPR Depreciation (based upon age, condition, obsolescence, etc)
ACV Actual Cash Value (Market Value or, RCV less applicable DEPR)
SALVAGE VALUE: an actual bid from a salvor or, an appropriate value agreed with the owner. [Salvage Value will be affected by extent of damage and a perceived Market Value: more desirable item = higher salvage value; less desirable item = lower salvage value].
LKQ: an included warranty has no effect on RCV (of LKQ); neither for a same (exact) replacement item nor for a comparable (non-exact) item.
When considering an exact replacement, the term 'exact' means its value is the same as the damaged item in all respects and including warranty terms. Extended warranties originally purchased may have to be factored in order to determine the appropriate RCV (of LKQ).
When considering a comparable item (because an exact item is no longer available), a warranty issue may be a valid consideration but affecting only DEPR and/or SALVAGE. In this instance, the non-availability of the (new) item may increase competition for used or damaged items thereby increasing its Market Value sometimes to the point the Market Value actually exceeds the RCV of an exact or comparable replacement item. [For purposes of determining RCV (of LKQ), the substitution of a comparable item would not be appropriate when an exact item is available. However, loss adjustment consideration may be given the insured in other aspects of the claim if the insured asks for substitution of an item with one of lesser RCV (of LKQ].
Generally, if the warranty issue is raised by the claimant, one should review whether or not the item being considered is same as the lost item; that is, maybe you should consider another item which more accurately reflects the LKQ to the item lost. One should give due consideration to such an issue if raised and only include in loss settlement if it appropriately affects the loss determination.
RCV (of LKQ): One may claim RCV is, in part, a reflection of the popularity of the item and/or the manufacturer's/retailer's reputation. Though this claim is likely true to an extent, RCV is what it is, regardless of what factors were utilized in setting the price. And, all things being equal, what is owed is the lesser retail price among valid options. Further, RCV is generally inclusive of any warranty programs offered by manufacturers or retailers (exceptions are those warranties available as a separate purchase such as to extend the warranty period beyond the basic included in the item's retail price); that is, they have to recoup enough in retail sales to cover any warranty work.
[Note: Unlike 1st party contracts with the appropriate endorsement, RCV is generally not owed to 3rd party claimants who are limited to ACV. ]
DEPR: The amount of applicable DEPR affects only the ACV and does not alter the RCV. Generally, applicable DEPR is determined through the consideration of the lost item's: age, condition, obsolescence, etc. (at the moment immediately preceding the loss)
Age of an item may or may not affect the ACV of a particular item (see Market Value). Consider that the Market Value of some items actually increases with age.
Condition of an item is probably the most variable consideration when determining the amount of applicable DEPR. Some owners use an item less than others which is typically reflected in a better-than-average condition when compared to the same or comparable items owned by others. Likewise, the care exhibited for a particular item by owners is as varied as the owners: some take exceptional care while others to lesser degrees. Insofar as a value based on age of the item, the better maintained item is comparatively more desirable and would have a higher ACV.
Obsolescence affects many items, particularly 'high tech' devices whose design, construction and retail price changes frequently. In the majority of cases, the current available comparable hardware will be more powerful, be combined with more functionality, and cost less than the original item when purchased. Generally, the RCV (of LKQ) will be limited to comparable items simply because the same (exact) item(s) are no longer manufactured and/or available. But, the DEPR applicable to obsolete items will be a substantially higher percentage (to RCV) than a comparable non-obsolete item and, SALVAGE value may be nil or very nearly so.
MARKET VALUE: does not necessarily equate to [RCV less applicable DEPR] because market demands may dictate a value which is less or more (than RCV less applicable DEPR). The desirability of the item being considered may increase the Market Value to a value which even exceeds the RCV (of LKQ). Contrarily, the Market Value demand may be less even than the value calculated as [RCV less applicable DEPR]; for example, an item that is considered obsolete may have a minimal (or non-existent) Market Value.
The issue of a perceived no questions asked return policy on Craftsman tools arises frequently in loss adjusting. Just as frequently, in my opinion, this warranty aspect (whether actual or perceived) is ONLY germane to the proper adjustment of such personal property losses insofar as the issue may affect the determination of ACV and Salvage Value [additionally, see LKQ consideration above for non-exact replacement items].
It is assumed that a loss professional will learn from mistakes; else, their claims career will not (or should not) continue. In terms of a good faith adjustment, a loss professional does not generally always have to be correct in his/her assessment but must have acted reasonably even when their assessment is subsequently determined to be wrong or inadequate. The more perceived 'experience' one has (actual or merely the total number of years in loss adjusting) the less incorrect assessments will be viewed as 'reasonable' and instead taken as evidence of bad faith.
You may have noticed I use the term 'generally' quite frequently. The reason is that loss adjusting is subject to as many nuances as there are situations; and, though many situations appear to be alike, it's those small nuances which make all the difference. Avoid complancency when handling claims. Instead, approach every claim as if it's the first instance and always refer to the policy. Then, review and refine adjustment procedures to fit the claim at hand.
As to nuances, some of you will find exceptions to the issues which I have addressed in this post. I think that is fine – I am always open to learning something new and welcome your comments. My aim always is to add to our overall professionalism.