The Big I Washington Spring 2018

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“I AM NOT CERTAIN THAT RC OR ACV IS AN ISSUE IN A THIRD PARTY CASE. IT IS DAMAGES AND HOW THE ATTORNEY ARGUES DAMAGES AND HOW THE JURY BUYS THE ARGUMENT. IT SHOULD BE THE COST TO THE PLAINTIFF THAT IS THE CONCERN.” 24 A: This is a legal issue since the PAP liability coverage pays for damages for which an insured is “legally responsible.” It’s silent as to whether or not valuation is on an ACV or RC basis. The only way to answer the question is to check with someone familiar with Iowa law to see how such claims or suits have been resolved. In the meantime, the advice given is probably good ... settle on a RC with the HO insurer and let them subrogate. I ran this by our faculty and they provided the following opinions. Faculty Response: A liability insurer only owes tort damages, that is the difference between the value of the damaged or destroyed property before the loss and its value after the loss. RC is paid as a bonus to people who pay for the coverage as a contractual right. A subrogating insurer that pays RC can never collect more than the tort damages that are normally ACV. Faculty Response: I agree completely that it is a matter of state law regarding how damages are measured. ACV and RC (especially ACV) are purely first-party insurance concepts, i.e., matters of contract between the parties to the HO policy whereas calculation of damages for a tort is a matter of tort law, or more technically the law of “remedies.” The liability insurer, of course, owes whatever the legal amount of damages is. Offhand I would say it is more likely ACV than RC. Of course, the property insurer is subrogated but if it recovers more than what it owes its insured, I don’t think it can keep the difference. As a matter of practicality, the two insurers should probably settle between themselves and just end it. Faculty Response: I am not certain that RC or ACV is an issue in a third party case. It is damages and how the attorney argues damages and how the jury buys the argument. It should be the cost to the plaintiff that is the concern. One example is the diminution of value in a third party case where the attorney uses the affidavit from the dealership to argue the damage of having a wrecked-repaired auto. In the last that I observed, the affidavit was for $5,500 and the defense argued the speculative nature of the damages and that the real cost would not be known until the car was actually sold. The jury awarded $3,500 for the diminution portion of damages. The liability policy agrees to pay damages and the court determines damages. I do see plaintiffs argue what would be a RC theory and defense attorneys argue more of a market value (never calling it ACV) but saying that the damaged property only had a value of $XXXX, not the cost to buy a new one that the plaintiff is asking for. Faculty Response: I think one good source would be the Second Restatement of Torts, which would give the prevailing rule in the U.S. generally and probably lots of state court citations on the amount of damages in a tort case involving damage to property. Generally, it’s some form of ACV. Faculty Response: California’s BAJI or Pattern Jury instructions read: Reasonable compensation to plaintiff or damage to his property. That sum is equal to the difference in the fair market value of the property immediately before and immediately after the accident. If the damages have been repaired, or are capable of repair, so as to restore the fair market value as it existed immediately before the accident, at a cost less than such difference in value, then the measure of damage is the cost of such repair rather than such difference in value. [BAJI 14.20 D] Reasonable compensation for property lost or destroyed in, or because of, the accident. That amount is the fair market value of such property at the time of its loss or destruction. [BAJI 14.21] “In actions for negligence, a manufacturer’s liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone. (Seely v. White Motor Co., supra, 63 Cal.2d 9, 18.) This general principle, the so-called economic loss rule, is the primary obstacle to plaintiffs’ claim. “ [Aas v. Superior Court of San Diego County, 24 Cal.4th 627, 12 P.3d 1125, 101 Cal.Rptr.2d 718 (Cal. 12/04/2000)] SPRING 2018 Big Washington
Faculty Response: ACV is typically all that’s owed. People don’t question that in an auto liability claim. They don’t expect the liability carrier to replace their totaled car with a new one. But they don’t understand not getting all the damage to other types of property paid, or having a deduction for depreciation. How the law measures ACV is often different than replacement cost less depreciation. A common legal measure is the difference in the value of the property before and after the loss. I sat as a juror years ago on what turned out to be a subro case, though you couldn’t tell that in the legal proceedings. In court, the insured was suing a TV manufacturer for faulty circuitry that started a fire. Once we decided that the TV was responsible, the judge instructed us to determine the ACV of the property. We were given copies of the property lists from their claim and ultimately awarded about 40 cents on the RC dollar, partly because we weren’t very sympathetic to the insured. All of that money went back to the HO carrier. Faculty Response: I hate to say it (because it’s from the “left coast”), but California’s approach is quite fair. Returning the insured to the “fair market value,” or cost of repair, is exactly what most people would expect. They do NOT expect to be told, “Your building (we think) has depreciated by X percent so here is our settlement, have a nice day.” Faculty Response: I had almost this same question yesterday from an Indiana agent except the accident involved an at-fault driver insured under a Business Auto form. The damage was to a commercial building and the adjuster for the at-fault driver wants to depreciate the damage to the build by 30 percent. The agent for the at-fault driver feels this is incorrect, as do I. I know if someone damages my building I want it fixed – and I sure don’t want to have MY insurer pay (it would be subject to a $$$$ deducible). Plus, the way the markets are today, my insurer would nonrenew me, my premiums go up, and I get my friendly lawyer to sue everyone in sight. With regard to settling with the HO carrier and letting them subrogate. Question: Does the deductible apply? Answer: YES. Will the HO carrier cancel? Answer: Probably. The insured does not understand “subrogation” (and I’m not sure some insurers do either). Another question: If you take this approach, is this loss charged to the HO agent? Most likely the insured is out the deductible, but at least they get replacement cost otherwise. The HO insurer would get back part of the payment (though probably not enough to reimburse the insured the deductible). With the insurer negotiating, rather than the insured, I’d bet the liability insurer would back off on the 30 percent depreciation to something more reasonable. The building would have to be in a poor state of repair to demand that much depreciation. Q: “This question has to do with a claim arising under the CGL. I have a plumbing contractor who installed a hot water heater and forgot to secure a fitting, resulting in water leaking out. By the time the claimant discovered this, the hardwood floors had buckled and the carpet was ruined. “Here’s the problem ... the claims adjustor for my contractor has told the claimant that they’re only legally liable for the damages on an ACV basis, not replacement cost. So the claimant will not be put back whole. I asked the adjustor to show or tell me where “legal liability” on a 3rd party property damage claim was defined as ACV. He said that it was common law (state of Alabama). “I’ve been in this business for a long time and can’t believe that, if this is the case, I haven’t had any complains about the settlement of these kind of claims. Now for the first time ever, I have an insured, a claimant, and contractor raising heck with me about the settlement. Got any suggestions or words of wisdom?” A: The only “words of wisdom” I can give you are those of the 16th century French physician Francois Rabelais: “What can’t be cured must be endured.” Of course, your insured probably isn’t interested in what some old dead guy thinks about the situation. I agree that, often, these claims are just settled and the insured gets his/her property replaced, but there is some basis in law in many (or “YOUR INSURED PROBABLY ISN’T INTERESTED IN WHAT SOME OLD DEAD GUY THINKS ABOUT THE SITUATION.” Big Washington SPRING 2018 25
Page 1 and 2: Big Washington BIG I WASHINGTON IS
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Page 5 and 6: Question: Is writing E&S insurance
Page 7 and 8: Office of the Insurance Commissione
Page 9 and 10: The bill’s impact on insurers’
Page 11 and 12: STABILITY A new section has been ad
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Page 15 and 16: I NDEPENDENT INSURANCE AGENTS & BRO
Page 17 and 18: state initiatives have no effect on
Page 19 and 20: Thank you to the more than 65 agent
Page 21 and 22: Thank you to the following agencies
Page 23: AN AT-FAULT MOTORIST STRUCK A DWELL
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Page 31 and 32: Thoughtful is Thoughtful is giving

The Big I Washington Spring 2018

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