Here are some common definitions we use when discussing 3rd party liability claims.
These definitions may vary state-by-state. They are provided as a cursory summary of some insurance terms typically used when discussing liability claims.
Depreciation — the decrease in the value of property over a period of time, usually as result of age, wear and tear from use, or economic obsolescence. Actual physical depreciation (wear and tear from use) is subtracted from the replacement cost of insured property in determining its actual cash value (ACV).
This is a term used in 1st party claims. The 1st party carrier pays the Actual Cash Value (typically less the depreciation) and stipulates that they will pay the withheld depreciated amount once proof the repairs are completed. Recoverable depreciation is only found in 1st party policies and is enforced contractually (by means of your policy). **Check your policy for more details.
Non-Recoverable Depreciation is calculated just like recoverable depreciation but is not eligible for reimbursement through a tort claim.
Actual Cash Value
Actual cash value is the amount equal to the replacement cost minus depreciation of a damaged or stolen property at the time of the loss. It is the actual value for which the property could be sold, which is always less than what it would cost to replace it. This is typically calculated by determining the Replacement Cost Value and deducting the depreciation based on age, life expectancy, and condition.
Replacement Cost Value
Replacement cost value is the cost to replace an item with a brand new, non-depreciated replacement item at the current market value.
This is a term used when a 1st party insurance company pays a claim to their insured and then demands payment for the damages on the insured’s behalf. The subrogated amount is the Actual Cash Value, or ACV.
This is a review of the damages claimed. A consultant will compare the documentation of the damages with the figures claimed for accuracy in scope and pricing. The technical review also applies non-recoverable depreciation to assist in determining the Actual Cash Value.
Xactimate is the insurance standard for estimating property damages. Xactimate uses pricing lists for labor and materials on a regional basis. It also breaks down the cost per line item to accurately depict the cost of a repair.
Xactimate’s website describes their estimating system:
Xactimate® is a software system for estimating the cost of repairs and reconstruction for residential and small commercial structures.
Deeply integrated with Verisk’s claim estimating ecosystem and a trusted cornerstone of the restoration industry, Xactimate delivers more precision, flexibility, detail, and speed than any other claims estimating software.
Xactimate gives you access to the most accurate and up-to-date pricing databases available in the United States and Canada. Xactware publishes structural repair and cleaning price lists for 460 separate economic areas and releases updates at least once per quarter.
Each structural repair and cleaning database contains more than 10,000 unit-cost line items.
For each line item, Xactimate provides:
- Labor costs
- Labor productivity rates (for new construction and restoration)
- Labor burden and overhead
- Material costs
- Equipment costs
The costs reflect the unique challenges of insurance repair, with unit costs for such tasks as mold remediation, water extraction, hazardous cleanup, and much more.
Insurance companies using Xactware’s products handle at least one out of every two property claims in the United States and Canada. More than 80 percent of insurance repair contractors and service providers with computerized estimating systems use Xactware pricing data.
First Party policies almost always carry a deductible or co-pay. This is detailed in the contract you signed with your 1st party carrier that binds you contractually with them. **Check your policy for more details.
First party carrier
This is your insurance company. They likely pay for covered damages and then subrogate to recover the actual cash value of your claim from the at-fault party. **See your agent/broker for more details.
The costs you pay for insurance coverage. The rates are dependent on several factors: Credit Score, Age of property, Claim Frequency, other exposures. **See your agent/broker for more details.