Has Hawaii Determined a Definition of “Actual Cash Value” Under a Property Insurance Contract?

One of my favorite sailors and racing companions is Keahi Ho. He is a Maui firefighter and a crew member on Merlin. While fighting fires and saving lives on Maui last week, his home, boat, and car were lost to the fire which destroyed Lahaina and its port.

I was researching Hawaii insurance law regarding its test for actual cash value. Our blog has never cited any Hawaiian cases regarding the issue. No secondary insurance sources on the topic list a case from Hawaii.  

There is one fairly recent Hawaiian federal district court case that discussed the term without citing any Hawaii state insurance cases for support finding that “actual cash value” means “fair market value:”                 

[T]he Court is not in a position to award summary judgment. Notably, the Court is entirely unaware of how Privratsky intends to prove his damages in this case. The Court is, thus, not able to determine whether ‘actual cash value’ or ‘repair/replacement costs’ is at issue. The Court can, however, provide the following guidance on this matter. As the parties appear to acknowledge in their own ways, the insurance policy is clear as to the settlement of losses thereunder: for ‘[p]ersonal property,’ ‘at actual cash value at the time of loss’; and, for ‘buildings under Coverage A or B[,]’ ‘no more than the actual cash value of the damage unless [ ] actual repair or replacement is complete[.]’… LibertyGuard Deluxe Homeowners Policy at 8-9…. Further, the Court agrees with Liberty to the extent that these clauses mean that Privratsky is only entitled to the actual cash value of the damage or the actual cash value at the time of loss–he is not entitled to damages for the cost to repair or replace any building, unless he actually repaired or replaced the same. See Hess v. N. Pac. Ins. Co., 859 P.2d 586, 589-590 (Wash. 1993) (discussing cases and holding, in the context of substantively identical policy language, that ‘only the actual cash value is owed unless actual repair or replacement is undertaken and completed.’); see also In re Taxes Bishop Estate, 33 Haw. 149, 152 (1934) (explaining that ‘actual cash value’ is ‘synonymous’ with ‘market value’ and ‘means such a price as a capable and diligent business man could presently obtain for the property.’) (quotation omitted); United Truck Rental Equip. Leasing, Inc. v. Kleenco Corp., 929 P.2d 99, 106 n.12 (Haw. Ct. App. 1996) (citing Black’s Law Dictionary and noting that ‘[a]ctual cash value is considered synonymous with fair market value.’). Therefore, should this case continue to trial, in order to establish damages resulting from any loss covered by the insurance policy, Privratsky will need to present evidence showing the actual cash value of his alleged damage. He will not be permitted to use estimates to repair or replace said damage, or anything of a similar ilk, to meet this burden.

The judge relies on tax and tort cases rather than first-party property insurance cases for a definition of actual cash value. To be fair, I could not find where the parties litigating the issue cited even one case on the issue so that the court had some guidance on the issue. In the vast majority of first-party property insurance cases not involving automobiles, most states refuse to use the fair market value test to determine the “actual cash value” owed under an insurance policy.   

For example, the Hawaii Department of Commerce and Consumer Affairs has this on its website discussing the difference between replacement cost and actual cash value:  

If your coverage is for replacement cost value and the cost to repair property is greater than the cost to replace the property, the insurance company will reimburse you the dollar amount needed to replace damaged personal property or dwelling property with the like kind and quality, limited by the maximum dollar amount listed on the declarations page of the policy. For example, if you won a five-year-old lawn mower that is destroyed by a fire, the company will reimburse you with an amount to purchase a new, similar lawn mower, minus your deductible.

If your coverage is for actual cash value and the cost to repair the property is greater than the actual cash value of the property the insurance company will reimburse you the dollar amount to replace the property minus the amount of accumulated depreciation. For example, if that same five-year-old mower was destroyed, and the average lawn mower lasts 10 years, the company will only reimburse you for the half (10 years minus five years) the cost of the item, minus your deductible.

Progressive Insurance states on its website the following when explaining actual cash value:

Actual cash value (ACV) is the amount to replace your damaged or stolen property, minus depreciation, at the time of the loss. It doesn’t replace what you lost — instead, it reimburses you for the item’s current value. To determine an item’s ACV, an insurance adjuster will take the cost of replacing your damaged or stolen property and reduce the cost of the property based on depreciation, such as age and wear and tear.

Many states and insurance companies follow this Replacement cost less depreciation test noted by the Hawaii government and Progressive to determine “actual cash value.” Other states follow the “broad evidence rule” as explained in Actual Cash Value Damages and The Broad Evidence Rule in Florida. Only a handful follow the market value test because actual cash value policies are not underwritten on a market value basis. Most of the time, there is no market for used pieces or parts of property at various stages of depreciated condition. Boats, cars, planes, and jewelry are noted deviations from this, and fair market value is often discussed for those items under those specialized coverages.

For Keahi Ho and our other unfortunate brothers and sisters on Maui, the first rule is to read your full policy and all endorsements to determine if the policy states how payment is being made. Maybe Hawaiian adjusters have been much more successful settling these matters without litigation because they take care of their customers better than on the mainland.     

Thoughts About the Hawaiian Islands By Mark Twain:

“No alien land in all the world has any deep strong charm for me but that one, no other land could so longingly and so beseechingly haunt me, sleeping and waking, through half a lifetime, as that one has done. Other things leave me, but it abides; other things change, but it remains the same. For me the balmy airs are always blowing, its summer seas flashing in the sun; the pulsing of its surfbeat is in my ear; I can see its garlanded crags, its leaping cascades, its plumy palms drowsing by the shore, its remote summits floating like islands above the cloud wrack; I can feel the spirit of its wildland solitudes, I can hear the splash of its brooks; in my nostrils still lives the breath of flowers that perished twenty years ago.”

—Privratsky v. Liberty Mut. Fire Ins. Co., No 21-cv-00390, 2023 WL 2574481 (D. Haw. Mar. 20, 2023).