Damage Assessment and Claim Valuation
Valuation methods
Actual cash value equals replacement cost less depreciation from age, condition, and obsolescence, or market value where appropriate. Replacement cost pays new without depreciation, usually after repair or replacement, with recoverable depreciation withheld until then. Agreed value fixes the amount by endorsement. Functional and economic obsolescence reduce value even when physical condition is good. For buildings, use line-item estimating with quantities, labor, materials, overhead and profit where warranted, plus tax and permits. For autos, use market comparables or a recognized valuation service, then add tax and title where the policy allows.
Time-element and liability
Business income equals lost net income plus continuing expenses over the period of indemnity, limited by coinsurance and any waiting period. Extra expense covers costs to avoid or shorten a shutdown. Liability claims value medical specials, future care, lost earnings, pain and suffering, and general damages.
Traps
- Deducting depreciation and then also applying the deductible twice.
- Withholding recoverable depreciation after replacement is complete.
- Adding overhead and profit to a simple repair that needs no general contractor.
- Ignoring matching of undamaged siding or shingles where the policy or jurisdiction requires it.
- Conflating salvage value with subrogation recovery.
- Failing to document the estimating source and unit prices.
Rule of thumb
Show your math: replacement cost, depreciation basis and percentage, ACV, deductible, net payable, and what is withheld and why.
Worked example: $20,000 RC contents, 40% depreciation equals $8,000, so ACV is $12,000. With a $2,000 deductible, pay $10,000 now and $8,000 recoverable depreciation on proof of replacement.