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   Is 50% depreciation on an 18 month old TV OK?
P:  12/31/2009 12:14:36 PM
NeedHelp

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Last Post: 12/31/2009
Member Since: 12/31/2009

My home was burglarized this month and I've been trying to be proactive by staying in contact with the adjuster and checking on the claims process.  When I called today, she said she was planning to offer us $1500 for a 52 Samsung HDTV we bought for $3000 18 months ago (we provided a receipt).  She also used a lesser quality model at SEARS to value the item we bought at Best Buy. 

I thought the initial determination of actual cash value was supposed to be based on the purchase price less depreciation.  It's like she's planning to pay us replacement cost rather than ACV.  Am I right to fight this (and other potential valuation conflicts), and if so, how do I go about it?


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P: 1/3/2010 9:05:17 AM
JayP

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Last Post: 6/19/2010
Member Since: 5/10/2009

If I were you, the first thing I would do is ask the claim representative how they determined ACV for your TV. 
Most insurers use the following formula: ACV = replacement cost - depreciation
Courts have also looked at Fair Market Value and the Broad Evidence Rule when determining ACV.
 
The claim rep probably used the ACV formula used by most carriers but you will want to verify this.  If the formula was used you will want to verify what values were used for the Replacement cost and depreciation?
 
The replacement cost should be based on a TV that is of like kind & quality to the TV you originally had.  It appears you are disagreeing on the quality of the TV.  This is very important.  The claim rep needs to explain, document, and justify this so you understand.   If you do not agree, I would suggest you contact some local TV stores and provide them with the information on your original TV and ask them to provide you with a TV of like, kind, and quality....then see if this is of comparable price to the one the Claim handler has provided.  Show the claim rep your results.
 
Next I would ask about the depreciation.  How did the rep determine this?  What amount of depreciation was used?  Most companies use a depreciation guide or chart as a starting point.  The chart on this site says TVs have a life expectancy of 12 years or so.  Now these guides are guides only...they should not be the only thing used.  The condition of the TV should be taken into account, was it in excellent, average, or poor condition?  If your TV was only 18 months old, most guides would probably depreciate the TV about 12.5% of its replacement cost based on a 12 year life expectancy.
 
Now keep in mind that a TV purchased 18 months ago is probably much cheaper today because of the changes in technology.  The TV you bought for $3,000 can probably be purchased (replacement cost) for much less than $3,000. 
 
If you do not agree you should fight this. However, I would do a little research on your own to see what you come up with first.  The Claim Rep's figures could be accurate and you could end up with similar figures?  If you have any additional questions feel free to ask.

JayP

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P: 1/4/2010 7:26:45 PM
TRon

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Last Post: 7/6/2012
Member Since: 9/30/2006

Samsung - 52" Class / 1080p / 240Hz / LCD HDTV

Model: LN52B750U1F | SKU: 9298413

Customer Reviews:  4.9 out of 5 stars  4.9  Read reviews (62)

Delivery: Most areas Check Dates

Store Pickup: Check Stores


Special Offers:

Reg. Price:
$2,699.99
You Save:
$770.00
Sale:
$1,929.99
 
 
The above information is the most expensive at Best Buy found this minute. Your claim starts with Replacement Cost Value (RCV). First, does your policy provide RCV. If so, depreciation does not matter, unless you are NOT going to replace it. However, if it does not, the depreciation amount is 25%, based upon an average RCV of $2,000.00 as documented and the payment of $1,500.00. There are 52 inch Televisions for less at Best Buy as follows:
 

Samsung - 52" Class / 1080p / 60Hz / LCD HDTV

Model: LN52B550K1F | SKU: 9293524

Customer Reviews:  5.0 out of 5 stars  5.0  Read reviews (10)

Delivery: Most areas Check Dates

Store Pickup: Available for pickup at most stores Check Stores


Special Offers:

Reg. Price:
$1,799.99
You Save:
$600.00
Sale:
$1,199.99

It does not appear you have a real issue. 
Good Luck !!!

I Post Large, it is easy on old eyes!!

Revisions : 0   |    Posted:  1/4/2010 7:26:45 PM    |    IP:  Recorded    |    Report this post
P: 1/6/2010 5:51:55 PM
Kevin Hromas

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Last Post: 12/15/2010
Member Since: 10/18/2007

NeedHelp -

TRon pretty much has it right on the money. The "value" of an item is NOT necessarily what you paid for it ... it is the cost TODAY to replace that item with one of similiar capabilities. 
 
If you do not have a replacement cost policy, the most accurate true value of a used TV set is what you can buy that set for in a local pawn shop. (Search around ... you can probably find your actual set there.) Most policies allow the insurance company the option of paying you for your loss or actually providing a replacement unit. There are companies that specialize in that type of replacement.
 
I am guessing that the deductible was taken on the dwelling damages. My recommendation is to take the money they are offering on the TV. You will get a model that is 2 years newer and probably does more.
 
Kevin Hromas - JD, PLCS
EGA - Houstyon, TX

Kevin Hromas - JD,EGA,RPA,PLCS,WIND Umpire
Houston, TX

www.KevinHromas.com

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P: 1/14/2010 5:02:50 PM
William S Cook

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Your adjuster has offered you a fair settlement on your TV based on the amount paid a year and  a half ago.  If your deduct has been applied and you are netting $1,500 then you depreication percentage is even more favorable.  If you have replacement cost coverage then, when you replace the TV with Like Kind and Quality then the insurers are obligiated to pay the amount spent for the replacement, less the deductible. If you live in Florida depreciation may not apply on a RC policy.

William S Cook
Public Adjuster 

William S Cook Public Adjuster Licensed PA in several states

Revisions : 0   |    Posted:  1/14/2010 5:02:50 PM    |    IP:  Recorded    |    Report this post
P: 5/27/2010 5:44:18 PM
digitory

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I must say, I am impressed with Jay's answer; as the broad evidence rule is not yet widely known, and many insureds will not second guess a "depreciation schedule" provided by an adjuster's claim program/process. That being said, the adjuster must consider many factors that could determine value....and not just rely on age.
 
The issue is that the BER is time consuming, it it much easier to apply the standard 10% depreciation per year on a TV and keep it moving...but, if you present additional evidence, such as wear and tear, the amount, on average, the TV was "on", the area of the house....he/she will probably readjust the acv.
 
And of course, make sure you add the s/h cost to your claim, as it will have to be set up in the room that it was in, and not in a box at some store, to be at pre-loss condition!
 
You may be interested in an article I have written regarding the BER, it may provide some detailed info on the process...

THE BROAD EVIDENCE RULE
THE DIGITORY APPROACH TO PROPERTY VALUATION

Digitory Solutions employs the Broad Evidence Rule (BER)to ascertain the actual cash value of clients’ losses. According to the International Risk Management Institute Inc., this method involves examining all legitimate sources of evidence to measure a property’s worth.

David Maloney’s reference book, “Appraising Personal Property: Principles and Methodology” explains further:

  • "[With] the Broad Evidence Rule (a.k.a. The Mc. Anarncy Rule)…there are no fixed or rigid guidelines for the determination of the amount of recovery in case of loss. The two standards normally used (fair market value or replacement cost [new] less deprecation) are merely guides, and are not the sole determination of actual cash value (emphasis added).
  • The rule allows for consideration of all the facts and circumstances…which logically tend to develop a correct estimation of value of the destroyed or damaged property for the purpose of ascertaining the actual cash value at the time of loss or damage."
Multi-Factor Method

Using the Broad Evidence approach, Digitory Solutions considers the following factors when appraising the worth of personal or professional property.

  • Age and condition of the item
  • Age and condition of the home/building
  • The item’s specific position within the structure
  • Amount and frequency of use
  • Any protective devices used
  • Durability of the item
  • Profile of the Insured or user
  • Number of users in the household or business
  • Rarity (if the property is an antique or collectible)
Advantages of the Digitory Approach

Although BER opponents claim that the above factors are more subjective than the traditional depreciation schedule, consider that:

  • Applying a set age norm without considering use and other data is less accurate.
  • Digitory’s approach adheres to the precedent established by insurance case law.
  • The broad evidence rule is a growing trend in U.S. courts.

Limits to the Replacement Cost Less Depreciation (RCLD) Method

Although insurance companies prefer the RCLD valuation approach, Digitory Solutions opts for the Broad Evidence Rule (BER) instead. The former method depreciates property based mainly on age, while the latter takes other criteria, including age, into account.

RCLD would assign the same depreciation to an item no matter whom it belonged to, how often it was used, or where it was located.

For example, the method does not distinguish any difference in value between a sofa owned by a senior citizen couple used in a guest room and a sofa owned by a large family with children used in the children's playroom.

Clearly, the wear and tear of the sofa in the first case would be significantly less than in the second example. An appraiser using BER would associate two different depreciation amounts based on each unique situation. To Digitory specialists, this is the more realistic and responsible approach.

Legal Basis for the Broad Evidence Rule

Furthermore, the Digitory Solutions method adheres to established precedent in insurance case law. The BER was upheld by two notable New Jersey Supreme Court insurance claim decisions:

  • 1978 Elberon Bathing Co. v. Ambassador Insurance Co.
  • 1998 Ward v. Merrimack Mutual Fire Insurance Co.

In fact, in Elberon v. Ambassador, the amount originally awarded by the umpire was overturned because it was only based on replacement cost and not the Broad Evidence methodology.

Growing Trend toward the Broad Evidence Rule

New Jersey courts are not the only ones favoring the broad evidence approach. An article by Jay Barry Harris, Esquire and Barbara E. Brigham, Esquire FINEMAN & BACH, P.C., concluded that:

  • "Despite these criticisms, the trend is toward using the broad evidence rule.
  • One court summarized the advantages of using the broad evidence rule as follows:
  • ‘To put the matter in other words, the courts, when faced with a choice between applying some standardized rigid rule such as replacement cost minus physical depreciation or of adopting some more flexible test which can be modified in such a way as to accord more nearly with the principle of indemnity, have generally preferred the latter alternative even though it has involved the sacrifice of administrative convenience and simplicity (emphasis added).' "

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P: 5/28/2010 8:45:23 PM
misterC

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Member Since: 4/9/2008

Mr Hromas has it right- check the "loss settlement" section of your policy.

If you read your policy carefully it often says they owe you for an equivalent used item, which means:

EBAY
pawnshop
thrift store
craigslist
etc.

Many adjusters incorrectly think that they are supposed to take a new price and subtract a depreciation percentage as the FIRST step to determine ACV. Not true on most HO3 polices.
That method is the second method, when the first method (finding it on ebay) doesn't work.

When all else fails, read the policy.

Revisions : 0   |    Posted:  5/28/2010 8:45:23 PM    |    IP:  Recorded    |    Report this post
P: 5/28/2010 11:01:20 PM
digitory

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Last Post: 12/20/2011
Member Since: 5/27/2010

Date: 5/28/2010 8:45:23 PM
Author: misterC
Mr Hromas has it right- check the 'loss settlement' section of your policy.


If you read your policy carefully it often says they owe you for an equivalent used item, which means:


EBAY

pawnshop

thrift store

craigslist

etc.


Many adjusters incorrectly think that they are supposed to take a new price and subtract a depreciation percentage as the FIRST step to determine ACV. Not true on most HO3 polices.

That method is the second method, when the first method (finding it on ebay) doesn't work.


When all else fails, read the policy.


I must respectively disagree with the above captioned quote; it is my opinion that it does not have any legal basis, contradicts the court's opinions, and would not allow the insured to become whole, per the language of the policy.

"Equivalent used item?" Not for replacement cost value.
If we employed the method suggested Mister C, the insured would not become whole....

Example: A 2 year old TV with MSRP of $2000. If the adjuster happened to find it for sale by some desperate seller for $600, he/she would quote rcv at $600. Then, apply depreciation of 25% to come up with actual cash value of $450.

After waiting 4 months to receive settlement check, the insured needs to replace the TV. There is no longer a desperate seller on EBay selling it at $600. She decides to purchase it new (as she purchased it originally, with warranty), and pays $2100 for it at Best Buy for retail. She submits the receipt to receive the hold back. She then realizes that she is at a  $1500 loss. She is not whole.


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P: 5/29/2010 3:16:18 PM
misterC

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I was referring to PP at ACV.

I would tend to agree with you for RCV.

Revisions : 0   |    Posted:  5/29/2010 3:16:18 PM    |    IP:  Recorded    |    Report this post
P: 5/29/2010 3:31:19 PM
misterC

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And your adding something I never said-

It is never appropriate to find a similar used item, and then depreciate that to get an even lower number.

And I never said you need to find a desperate seller- that's not FMV. FMV is arm's length transaction from seller not under duress.

If the 3 year old damaged laptop sells for $1100, 1000, $1050 on the internet then paying $1050.00 might be fair ACV. Especially since the craigslist price is asking price.

Starting with the original $3000 purchase price and applying 50% depreciation on the item doesn't make sense if it available for $1100, 1000, $1050 on craigslist.

But why don't you explain to me why you would consider how many people are in the house etc. for adjsuting the value of an item. I always hear how an item in a house with children should be depreciated more aggressively than in a house with elderly people. What the heck does the theoretical projected possible future wear and tear that hasn't yet occurred have to do with the value of the item at the time of loss?

I mean I get the BER idea but I don't think the existence of children should make any difference. So if the adjuster estimates greater depreciation because of the presence of children, and then those children later move out, can the insured then make a supplemental claim with lower depreciation?

Have these court cases you cite allowed this kind of depreciation calculation? If they have, fine, I'll go along with it in those states on those policies but frankly it seems stupid to me even if everybody is nodding their head in agreement.

Your information is great, but I do some policies in Calif where it clearly says ACV is owed based on FMV of similar used items and applying depreciation is done as a second choice when FMV of used can't be found.

I also do some RCV PP and I wonder if the BER idea applies in Calif.

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P: 5/29/2010 3:45:30 PM
misterC

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I re-read what you posted more carefully.

Let me clarify my response- I would agree that if there are a lot of children that have ALREADY sat on the couch that it could be depreciated more.

I was just spouting off about the children = more depreciation idea because I have heard so many times that depreciation should be based on the expected life span (future wear) that I want to scream- that idea makes no sense to me and I don't know where you stand on it.

The reason for taking a life span as a denominator in the depreciatin equation is to have a guide to how much to subtract for the life that has already been USED UP, not how much life MIGHT BE LEFT in the item.

In other words if the kids have been sitting on the couch for four years, and at the rate they have worn it it will last another eight, then it is 33% worn.

If the insured says the kids are moving out and going forward she will only sit on the couch once a week, it would not be correct in my opinion to change the life span from 12 to 20 based on that information.

So I would say your "Broad" evidence rule is great that it is so broad, but let's not get carried away.

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P: 5/29/2010 4:42:35 PM
digitory

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Last Post: 12/20/2011
Member Since: 5/27/2010

Mister C Says: But why don't you explain to me why you would consider how many people are in the house etc. for adjsuting the value of an item. I always hear how an item in a house with children should be depreciated more aggressively than in a house with elderly people. What the heck does the theoretical projected possible future wear and tear that hasn't yet occurred have to do with the value of the item at the time of loss?

Digitory Says: Depreciation does not project a theoretical pattern or result, but rather determines the "actual cash value" moments prior to the insured loss. Simply put, ACV is the value of the item prior to damage.

When determining ACV, one should take into consideration all available evidence in order to determine what the actual cash value of the item was prior to the loss. Of course, the matter in which the item was used will have a very important role in determining ACV,  more so then age. Age is nothing but a number!

Let me ask you a question: If your insured had 12 pairs of shoes in their closet at the time of the loss, and they were all 2-3 years old, how would you determine ACV?

The outdated formula of RCV-Depreciation (per expected life span)=ACV would net inacurate results.

Allow me to explain, if the insured owned 12 pairs of shoes, and (we can assume) only has (2) feet, then it would be very unlikely that the insured was able to wear 12 pairs of shoes everyday for 2-3 years.

So...lets say, the insured wore each pair of shoes at least once every (2) weeks.... each pair of shoes would only be worn approximatley for 25 days per year. These shoes would be in very good condition compared to a pair of shoes worn 350+ days per year.



Mister C Says: I mean I get the BER idea but I don't think the existence of children should make any difference. So if the adjuster estimates greater depreciation because of the presence of children, and then those children later move out, can the insured then make a supplemental claim with lower depreciation?

Digitory Says: It does not matter if the children move out. ACV is to determine the value of the item prior to the loss.


 

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P: 5/29/2010 5:03:11 PM
digitory

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Member Since: 5/27/2010

I re-read what you posted more carefully. Thank you, I appreciate your interest.

Let me clarify my response- I would agree that if there are a lot of children that have ALREADY sat on the couch that it could be depreciated more. Exactly, we both agree on this!


I was just spouting off about the children = more depreciation idea because I have heard so many times that depreciation should be based on the expected life span (future wear) that I want to scream- that idea makes no sense to me and I don't know where you stand on it. "Proected Life Span"= "Lazy Aduster Syndrome"

Let me explain, most of the adjusters are using a standard depreciation schedule. These schedules "project" the life span of common household items. For example, they usually state that a Sofa will last for 10 years. So, the adjuster would just depreciate the sofa by 10% for every year old it is.
 
$900 sofa that was purchased in 2002 would be: RCV $1000 (<--inflation) and ACV $200
 
THIS IS NOT CORRECT AND IMPROPER!!!!!
 


The reason for taking a life span as a denominator in the depreciatin equation is to have a guide to how much to subtract for the life that has already been USED UP, not how much life MIGHT BE LEFT in the item.

QUESTION: How would you determine what percentage of life has been "used up" if you do not know how long the item would have lasted under normal conditions?

In other words if the kids have been sitting on the couch for four years, and at the rate they have worn it it will last another eight, then it is 33% worn. If the children were sitting on the couch for four years, I would be very worried about the health of those children.
If they sat on the couch for 2 hours per day, every day, then I would say that couch should be depreciated at a higher rate the our senior citizen couple's couch which was protected by a plastic cover and in a guest bedroom.
This is why we employ the BER and not formulations on life span.

If the insured says the kids are moving out and going forward she will only sit on the couch once a week, it would not be correct in my opinion to change the life span from 12 to 20 based on that information.
 

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P: 5/31/2010 8:27:30 PM
digitory

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bump

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P: 12/12/2013 7:27:09 AM
danielhermann

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There in no way valuation of a product depreciates by 50% in 18 months. What your insurance company is looking is the current price of the product and in last 18 months the cost of the TV has surely gone down. That's the benefit for the insurance company. Even if you show the receipt they will look into the present market value of the TV. So I am afraid you do not have much choice. Now what you do is change your insurance coverage to a company who will provide you maximum coverage may be you have to shell out a higher premium but you can avoid this type of losses.

http://www.scholarsinsurance.com/

Revisions : 0   |    Posted:  12/12/2013 7:27:09 AM    |    IP:  Recorded    |    Report this post

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