Online Definition Published by the Texas Department of Insurance Does Not Limit the Proper Calculation of “Actual Cash Value” (ACV): Absent Legally Mandated Calculation Method, Insurer is Not Bound to a Particular Method

In the subject case, a Federal  district court granted Allstate’s motion to dismiss for failure to state claim and dismissed a class action which insisted Allstate had in bad faith refused to use either the “Cost Approach” or “Comparable Sales Approach” to determine “Actual Cash Value” of their covered and damaged automobiles. Allstate, instead, determined vehicle base value upon list prices for on three to ten comparable vehiclesfor sale in Texas then adjusted for mileage, condition, etc. Plaintiffs appealed to the Fifth Circuit Court of Appeals. They claimed that the online  Automobile Insurance Guide, published by the State Department of Insurance mandated ACV to be determined by subtracting depreciation from replacement cost. The Fifth Circuit, however, found nothing to indicate the insurance department’s online “guide” was legally binding on any insurer.

The Court noted that Texas law neither mandates the Comparable Sales Approach or the alternative, Cost Approach, advanced by Plaintiffs. Importantly, there is no legal penalty imposed when an insurer uses a different approach than either that proposed by the insurance commission’s “guide” nor as suggested by the plaintiff.  Thus, the Court concluded that Plaintiffs’ could prove no set of facts justifying relief and affirmed dismissal.  See also Singleton v. Elephant Insurance Co., 953 F.3d 334 (5th Cir. 2020) (insurers  not required to pay  taxes and mandatory fees under the auspices of ACV).

NOTE:  Vague, non-statutory or non-regulatory definitions and calculation methods for “actual cash value” leads to disagreement and litigation. However it does seem clear that if no specific definition and/or method of calculation of ACV is mandated by statute or formally adopted rule, that any method can be used. Presumably that method would have to be objectively reasonable but that is not clear. 

Departments of Insurance which do not obtain either regulatory or legislative (better) adoption of such specific rules can be sure that their “guides”, “advice” and “policy advice” on their websites are, at best, misleading to the public if they suggest certainty in result or procedure where none exists.  It has also been held that the approval of language in policy forms provides no defense to a bad faith case against an insurer for relying upon such a provision. See e. g.,  Employers Mut. Cas. Co.  v. Thompson, 490 So. 2d 897, 909 (Miss. 1986) (approval of policy forms by the state insurance commissioner is not a defense to a punitive damages claim)(Suggesting it would be if the legislature said otherwise in a statute).

A practical suggestion could be for insurance departments to obtain regulatory adoption or legislative enactments that provide that the departments’ approvals of forms and methods are binding as a matter of law on insurers and insureds at least for policies issued in the state involved.

One final point from this relatively short opinion:  the law generally, in our State and in Texas, mandates that if words and phrases in a policy are ambiguous, that if the insured’s interpreted meaning is reasonable it must be accepted and defines coverage.   This opinion does not confront that issue.  In fact it says that there may be three definitions and methods (four when Allstate’s variation is used) none of which are said to be unclear that the policy definition is clear though it provides no concrete method of calculation.   It is unlikely that this issue is finally resolved in the Fifth Circuit or even in Texas. Click here to read the full case.

The attorneys at Webb Sanders & Williams have experience resolving insurance disputes for both the insurer and their insured. If you need assistance regarding an insurance case, contact our office at 662-844-2137.