The Diminishing Value of Depreciation Defenses

As written in The Insurance Coverage Law Bulletin, May 2014, Volume 13, Number 4
By, Partner, Paul A. Rose and Associate, Elizabeth E. Collins
 

Although the value of a third-party liability insurance claim often can be determined in a straightforward way by simply adding the amount of a judgment or settlement to the costs of defending the claim, the amount of a first-party insurance claim like a property claim may be subject to varying valuation approaches. These varying approaches often will depend upon whether the policyholder repairs or replaces the damaged property, and the range of valuation options will be established by the policy language, as that language has been or should be construed under the law of the applicable jurisdiction.

Parties may agree upon the history of a claim and the provisions of the policy that will control, but a valuation dispute nonetheless may arise. Sometimes a dispute will occur because the policy language at issue may be susceptible to differing interpretations. A dispute may also arise because the insurer argues for an underwriting intent that does not appear evident in the language of its policy or because, in the insurer’s view, the policyholder will enjoy a windfall if the policy language is enforced as written. Regardless of the reason, such disputes are fairly common. An examination of cases in a few jurisdictions will provide some insight into the issues these disputes present, and may provide some basis for predicting their outcomes. As importantly, such an examination may offer insight into the benefits of avoiding such disputes.

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