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Please post the "loss settlement" wording from the policy, or give us the edition of the HO3. Not all HO3 forms are the same.

Posted By Montana Goldust on 25 Dec 2012 10:01 AM

First how much depreciation should be shown in excel when you list a fire arm that was stolen. The fire arm is a Ruger 10/22 rifle with stainless barrel and composite stock that was purchased new in 2007. A new one at today's prices is exactly $247.00 out of the box.

Also a  M77 Model Ruger 30-06 purchased new in 2004.Todays price is $460.

The insured says how can you depreciate firearms when they appreciate in value daily.??

The insured has a HO#3 policy with replacement cost coverage. What are your thoughts and what is the proper way to process this claim knowing the deductible has already been met.??

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Hi Jerry,

in many cases, quality firearms will take a initial hit on depreciation in the first year, yet WILL appreciate after that. We are talking appreciating somewhere around 1 1/2  to 2 % annually. With all the recent media focus on the AR-15 platform, I own a few AR-15 platforms and they are increasing in value the more folks discuss an assault weapons ban.

An accepted standard for most carriers in regard to putting a value and depreciation or appreciation rate can be found through:

1) NRA CONDITION STANDARDS rates modern guns as New, Excellent, Very Good, Good or Fair, and antique guns as Excellent, Fine, Very Good, Good, Fair, and Poor. Each condition rating has a specific definition (you can find these defined in Blue Book of Gun Values).

 

Jerry, follow this link I found in my NRA membership literature, it should give you the information needed to deal with the gun value and move on:

http://www.locktonrisk.com/nrains/A...rePlus.htm

Now with your above information we aren't talking about any high quality firearms and are most likely machined and mass produced outside of the US. Even with that stated, the long guns should be valued close to 80 to 90% of listed price upon initial purchase (depending upon condition)

 

I hope this helps!

Merry Christmas folks!!

 

It is not possible to adjust a claim without considering the policy language. Here is an example from an older HO3 policy:

3. Loss Settlement. Covered property losses are
settled as follows:

a. Property of the following types:

(1) Personal property;

(2) Awnings, carpeting, household appliances,
outdoor antennas and outdoor equipment,
whether or not attached to buildings; and

(3) Structures that are not buildings;

at actual cash value at the time of loss but not
more than the amount required to repair or re-
place.

So the weapon should be paid at "Actual Cash Value" if your policy has the same wording.

What is "Actual Cash Value" for a used weapon, in the original box, that has been well cared for?

Since it's stainless steel we can assume it doesn't have any issues with bluing or surface rust.

You could take the purchase price and apply some random percentage, but I don't see that method in the policy.

In my opinion the "Actual Cash Value" for a stolen 10/22 Ruger made in 2007, with stainless barrel and composite stock would be the same price that other 10/22 Rugers made in 2007, with stainless barrels and composite stocks sell for.

So just find out what they sell for. The policy does not require you to apply depreciation to the original purchase price.

I hear of a case the other day where an insurance carrier hired a rug expert to determine the value of an antique Persian rug. The carrier's expert determined the market value for the used item. The adjuster then applied depreciation. The insured's attorney tried over and over to explain to the adjuster that the fair market value was already equal to the ACV, and no depreciation should be applied. Finally the supervisor got involved and agreed with the attorney. The used market/resale market/ebay price/garage sale price/craigslist price IS the ACV.

If you insist on starting with RCV or someone wants you to, then simply reverse engineer the calculation.

Find a 2012 weapon and determine what it sells for NEW. Subtract the ACV you determined from your research of what the 2007 weapon ACV is. Divide the difference by the new weapon's price. The answer is your depreciation percentage. (Of course this will only work if an almost identical new weapon costs more than the used one, which is normally the case)

By the way Jerry, I know you live in a state that is gun friendly and you yourself like to hunt. If you send me a private message I will send you one of the books my grandfather wrote: "Gun Collector's Handbook of Values" or "Guns of the Old West", whichever you prefer.

Unfortunately Actual Cash Value (ACV) and market price are not the same.

ACV is determined by subtracting depreciation based on age and condition from Replacement Value (RCV). Market price is what a willing buyer will pay a willing seller on any given day.

depends on the policy and depends on the state, Chuck.

Many policies specifically state that ACV is determined by subtracting depreciation based on age and condition from Replacement Value (RCV) AS THE SECOND METHOD to use when you can't use the first method.

The first method is basically to just determine the fair market value from comparative sales info.

Do I have to print the policy wording?

We've been over this so many times.

The whole point of estimating depreciation is to approximate what the item is worth.

If you can determine accurately what it is worth, there is no point to using a hypothetical method to approximate what it is worth.

Example:

Gun costs new $500.00.

Insured brings his used gun to the gun dealer who offers him $350.00 cash.

Next day the gun is stolen.

The adjuster says "after depreciation, my excel spreadsheet says the ACV is $300.00"

I call BS. Not legal, not fair, not conforming to case law, not logical, not following the policy. Just made up BS.

anyway I shouldn't be sounding so pedantic. Chuck is right, ACV equals RCV less depreciation, but that is not ALWAYS true.

Some of the states that have that rule (from case law) moderate its application by also having the the "broad evidence rule" . If the state has the "broad evidence rule" the adjuster may need to also consider the fair market value and even what the insured uses the item for, ie. how much it is worth to the insured.

It's different in every state.

Remember I work mostly in California. In California ACV is defined by the courts as equal to Fair Market Value. That's why we routinely hire appraisers for ACV total loss dwellings. Insureds often get paid based on what an appraiser says the structure was worth in the market place, plus some money for the estimated cost of demolition.

And even if the rule for a particular policy and state says ACV = RCV less depreciation, could you really in good conscience offer the person less money than their item would sell for in a thrift store, just because you put some figures on a spreadsheet? I mean maybe that's correct, but I wonder...

Here's a good article from a California perspective:

Actual Cash Value: What ls lt? How Do You Arrive at lt?

By Michael K. McCracken, CPCU November - 2011

One of the biggest problems in property loss adjusting is setting a loss on an "actual cash value" (ACV) basis. To most in the insurance industry, ACV is a 'term de arte.’ That may be well and good for those who know how to read and understand insurance policies, but it sure doesn't do any good for the members of the general public out there who buy property insurance policies. In fact, ACV often causes problems for claims professionals evaluating a loss.

Unless written on a replacement cost basis, most property policies agree to settle losses based on the ACV of the property at the time of the loss. Policies have read this way for a long time and adjusters and insureds have had arguments about ACV for just as long.

The problem? The term "actual cash value" is not defined in any policy. It would seem simple enough for Insurance Services Office (ISO) to add a definition of ACV to its property policies, but that hasn’t happened and doesn't appear likely in the near future.

FC&S Bulletins has a fine discussion of what ACV means and how its use has evolved over the years. That discussion says, in part: "Over time, courts have developed three primary tests to measure the actual cash value of property. They are:

1. Fair market value, usually described as the price a willing buyer would pay to buy property from a willing seller in a free market.
2. Replacement cost less depreciation, generally accepted to mean the cost to replace
property at the time of the loss, minus its physical depreciation.
3. The broad evidence rule - a judicious application of either one or two to the unique
circumstance of the claim, whichever is more favorable to the insured."

ACV = Fair Market Value?

Although the broad evidence rule seems to be the fairest to both insured and insurer, the California Court of Appeals has recently thrown a monkey wrench into the works. This is important, because so many trends in the law seem to start in California and move eastward. In the case of Cheeks v. California Fair Plan, 61 Cal. App. 4th 423 (1998), the court clearly and unequivocally ruled that ACV means "fair market value."

In the case, Cheeks' home was severely damaged in the Northridge Earthquake of 1994.It was insured on a policy with the California Fair Plan (CalFair) that promised: "Covered property losses are settled at actual cash value at the time of loss, but not more than the amount required to repair or replace the damaged property."

CalFair determined that the replacement cost of Cheeks' loss was $563,888. According to the trial transcript, the insurer then "reduced [that amount] by applicable amounts of depreciation and/or betterment, thereby reducing the overall loss settlement to an actual cash value amount (as required by your policy)," arriving at a final figure of $53,143. From that, the insurer subtracted the deductible of $8,800 and sent Cheeks a settlement check for $44,343.

Cheeks sued, contending that the ACV of his home, based on its market value, was more than the insurer's estimate. The trial court, however, agreed in principle with CalFair on the method used to determine the amount of the loss. The court found a slight error and awarded Cheeks an additional $700.

In reversing the trial court and finding for Cheeks, the Court of Appeal quoted an earlier Supreme Court case - Jefferson Insurance Company v. The Superior Court of Alameda County, 3 Cal. 3d 398 (1970) - in which the justices said: "It is clear that the legislature did not intend the term 'actual cash value' in the standard policy form, set forth in section 2071 of the Insurance Code, to mean replacement cost less depreciation."

Applying Jefferson to the Cheeks case, the Court of Appeal said: "Nothing in Jefferson prevents the insurer and insured from agreeing to value damage to property on the basis of replacement cost less depreciation. The question in Jefferson was how the term 'actual cash value' should be interpreted in the absence of such an agreement." The Court of Appeal came down on the side of "fair market value." The Supreme Court later upheld Cheeks with its refusal to review the lower court's decision.

So, what's the solution? How can insurers continue to use "replacement cost less depreciation" to determine ACV? In Cheeks, the California Court of Appeal gives a very simple (and workable) suggestion: "If it [the insurer] wants to determine 'actual cash value' on the basis of replacement cost less depreciation, all it has to do is say so in the policy."

Overhead and Profit

Another ACV issue that creeps into an insurer's dealing with its customers is "overhead and profit." Some insurers are famous for trying to get around paying for overhead and profit, saying that it is not actually part of the replacement cost of an item. When calculating the ACV to be paid prior to the actual repair being completed, some insurers start at replacement cost and deduct both depreciation and another 20 percent for overhead and profit.

In Gilderman and Gilderman v. State Farm, 437 Pa. Super. 217 (1994), the Pennsylvania Superior Court clearly said this practice was wrong. This decision was upheld in 1995 by the state Supreme Court's refusal to review the case.

When the Gilderman home suffered a loss, State Farm offered them the ACV of the damage up front, waiting for the work to be done. The insurer calculated ACV at

replacement cost less depreciation. From that figure, they then deducted another 20 percent for "contractor's overhead and profit." Why the deduction? The insurer stated because "contractors are not always used to repair or replace damaged property." The insurer contended that the insured would be "unjustly enriched" by payment of overhead and profit if no contractor were involved.

The court agreed with State Farm - up to a point. While recognizing that there are some types of work where a contractor would not be involved often the opposite is true. It concluded: "There are many instances where the insured reasonably would be expected to call a contractor, especially where there is extensive damage to a home requiring the use of more than one trade specialist. Thus, State Farm may not make repair or replacement estimates and then deduct 20 percent, representing contractor's fees, when those expenses reasonably are expected to be incurred."

However, the court said that the more important issue is whether or not the insurer agreed to pay its customer ACV. Since ACV means "repair or replacement cost less depreciation," the Pennsylvania court said, "We hold that repair or replacement costs include any cost that an insured is reasonably likely to incur in repairing or replacing a covered loss. In some instances, this will include use of a general contractor and his 20 percent overhead and profit."

The Court of Appeals of Michigan went even further in decrying the practice of withholding 20 percent for a contractor's overhead and profit. In Salesin v. State Farm, 581 N.W.2d 781, (1998), the court said this about the calculation of ACV:

"State Farm's insurance Policy in this case does not contain a definition of 'actual cash value,' nor does it set out the basis on which State Farm determines actual cash value. The process by which actual cash value would be determined was contained in State Farm's Operation Guide. In accordance with the provisions of that document, State Farm routinely deducts contractor's overhead and profit as well as depreciation when it makes an 'actual cash value of the damage' payment under section I.c.(l) of its insurance policy. There was deposition testimony that this procedure is contrary to industry norms and practices."

Again in Salesin, the insurer advanced the argument of "unjust enrichment" as a reason for the 20 percent deduction. Regarding this issue, the court said:

"It is uncomfortably true that finding that State Farm owes Salesin an additional
$5,581.79 for the contractor's overhead and Profit will result in a payment to him for costs that he has not incurred and almost certainly will not incur. However, it is also true Salesin has paid a premium for a full replacement cost policy. There is no logical reason, nor any reason based upon the insurance Policy itself or the record below, for deducting estimated contractor's overhead and profit when making payments under section I.c.(1) of State Farm's insurance Policy."

It seems that these courts were just exercising common sense. After all, the price of anything – a car, a house, a shirt – includes the value of the raw materials that went into it, plus the cost of the labor to make it. Try to buy a car, but tell the dealer that you want to deduct 20 percent for the dealer's overhead and profit. That wouldn't fly. And these two courts have said that it won’t fly with insurance settlements, either.

However, that still leaves open the question: "How should ACV be calculated?" While that may be up for debate – as noted in the FC&S discussion cited earlier – what these courts have strongly implied is that insurers should define ACV in their property policies. Such a definition might go a long way toward short-circuiting arguments between insured and adjuster.

(Michael K. McCracken is a self-employed insurance consultant, who holds the CPCU designation and is a recognized expert in property insurance policies and coverages. He may be reached at mailto:mike-mccracken@cinci.rr.com or 513-317-2972.)

I heard an adjuster once suggest to follow the 80/20 rule.

Once you get 80% of the information, just make a decision. Any time spent trying to get the remaining 20% is usually wasteful and inefficient.

A second adjuster told me to just "WAG" it (wild a$$ guess).

A third adjuster, "You really need to SWAG it" (Scientific...).

Occasionally, I must tell my children, "If people in my world shop for answers like you shop for answers from mommy and daddy, they get their butts fired."

Too many variables and not enough information to make any kind of decesion.

Are the two guns the only thing that are claimed?

If so, you'll be below the threshold for withholding depreciation anyway most likely.

Most HO-3's have a policy limit on guns. What is that limit in this case?

The original post mentioned that they have a replacement cost policy. Doesn't mention if this includes personal property or not. Probably does, but once again, not enough info to go on to be sure.

The policy is a HO 0003  Special Form 4/91 edition . There is a "valuation clause" stated in the Montana policy that says:When this policy insures against Loss or damage and the real property is considered to be a total loss,Without criminal fault on the part of you or your assignee, the amount of insurance written on such real property shall be taken Conclusively to be the true value of the insured real property and the true amount of the loss and measure of damages. Condition 18

The state of loss is in Montana

There is no stated amount in the policy singling out firearms .there is a personal property limit of $145,300. with a $1,000 deductible policy wide.

The total of the claim is $1700 which is for the 2 guns and a back pack filled with items totaling $540.

Thanks for all your input. I have been working for clients who handle all of their own personal property losses separate of Structure, so I admittedly am out of sync with the current ways contents is being handled. it doesn't look like anything has changed since I did handle contents back in the 1990's.

Thanks to everybody again,

Every HO3 O4/91 I've ever seen has a $1000.00-$2000.00 limit on fire arms.  Every state and carrier is different so your milage may very.

SECTION I – PROPERTY COVERAGES

COVERAGE C – Personal Property

Special Limits of Liability. These limits do not increase

These limits do not increase

the Coverage C limit of liability. The special

limit for each numbered category below is the total

limit for each loss for all property in that category.

1. $200 on money, bank notes, bullion, gold other

$200 on money, bank notes, bullion, gold other

than goldware, silver other than silverware, platinum,

coins and medals.

2. $1000 on securities, accounts, deeds, evidences

$1000 on securities, accounts, deeds, evidences

of debt, letters of credit, notes other than bank

notes, manuscripts, personal records, passports,

tickets and stamps. This dollar limit applies to

these categories regardless of the medium (such

as paper or computer software) on which the material

exists.

This limit includes the cost to research, replace or

restore the information from the lost or damaged

material.

3. $1000 on watercraft, including their trailers, furnishings,

$1000 on watercraft, including their trailers, furnishings,

equipment and outboard engines or

motors.

4. $1000 on trailers not used with watercraft.

$1000 on trailers not used with watercraft.

5. $1000 for loss by theft of jewelry, watches, furs,

$1000 for loss by theft of jewelry, watches, furs,

precious and semi-precious stones.

6. $2000 for loss by theft of firearms.

7. $2500 for loss by theft of silverware, silver-plated

ware, goldware, gold-plated ware and pewterware.

This includes flatware, hollowware, tea sets, trays

and trophies made of or including silver, gold or

pewter.

8. $2500 on property, on the "residence premises,"

$2500 on property, on the "residence premises,"

used at any time or in any manner for any

"business" purpose.

9. $250 on property, away from the "residence

$250 on property, away from the "residence

premises," used at any time or in any manner for

any "business" purpose. However, this limit does

not apply to loss to adaptable electronic apparatus

as described in Special Limits 10. and 11. below.

10. $1000 for loss to electronic apparatus, while in or

$1000 for loss to electronic apparatus, while in or

upon a motor vehicle or other motorized land

conveyance, if the electronic apparatus is

equipped to be operated by power from the electrical

system of the vehicle or conveyance while

retaining its capability of being operated by other

sources of power. Electronic apparatus includes:

a. Accessories or antennas; or

Accessories or antennas; or

b. Tapes, wires, records, discs or other media;

Tapes, wires, records, discs or other media;

for use with any electronic apparatus.

Posted By Montana Goldust on 02 Jan 2013 11:19 AM

The policy is a HO 0003  Special Form 4/91 edition . There is a "valuation clause" stated in the Montana policy that says:When this policy insures against Loss or damage and the real property is considered to be a total loss,Without criminal fault on the part of you or your assignee, the amount of insurance written on such real property shall be taken Conclusively to be the true value of the insured real property and the true amount of the loss and measure of damages. Condition 18

The state of loss is in Montana

There is no stated amount in the policy singling out firearms .there is a personal property limit of $145,300. with a $1,000 deductible policy wide.

The total of the claim is $1700 which is for the 2 guns and a back pack filled with items totaling $540.