Actual Cash Value vs. Market Value Case Study
The Most Common Dispute Appraised

Case Description

A small, individually owned five-unit apartment building with two retail stores on the main level was completely destroyed by a fire in the small town of Milan, Michigan. The property insurance policy for the building only required the insurance company to pay the Actual Cash Value (ACV) of the property or the amount of the loss, whichever amount was less.

In pricing the value of the property, the insurance company obtained a Market Value appraisal. The current market value of the apartment building was determined to be $111,000, which the insurance company paid out as the Actual Cash Value of the property. The insured, believing that the value of their property should have exceeded $300,000, contacted Globe Midwest Adjusters International (GMAI) for help. After completing a review of the insured’s policy and their claim, GMAI’s staff determined that the insurance company’s offer was insufficient and recommended the insured go to Appraisal.

Issue: Distinguishing Actual Cash Value from Market Value

The insurance company used a tactic of determining Actual Cash Value (ACV) based on the “market value” of the property. This Market Value Appraisal is completed by a real estate appraiser (not to be confused with an insurance appraiser) based on recent sale prices of similar properties. While this method is becoming increasingly more common, Actual Cash Value is not always the same as Market Value. The ACV of the property should take into account a variety of factors that may or may not include the market value.

Property insurance policies issued on an Actual Cash Value basis values the property based on its used or depreciated condition. This is different than the Replacement Value, which is the cost to replace the property with new property. The most common definition of ACV is the replacement cost less depreciation.

In cases such as this, where the policy only pays based on ACV, there are two ACV calculations that are important; ACV of the property and ACV of the loss. The ACV of the property is based on the value of the entire property prior to the loss, whereas the ACV of the loss is based on the depreciated value of the repairs to the damaged portion of the building. The reason these two values are so important is because the insurance company only owes the insured the lesser of the ACV of the property OR the ACV of the damages. In some cases, the ACV of the damages (i.e. the loss) will exceed the ACV of the property. This occurs when the ACV of the damage is based on replacement cost less depreciation and the ACV of the property is based on market value in a depressed area.

In our case, since the building was totally destroyed, the ACV of the loss and the ACV of the property should have been the same. However, the insurance company calculated the ACV of the property based on market value (which was a much lower value) rather than replacement cost less depreciation. This method of calculation originally resulted in a lower payment to the insured.

How Globe Midwest Adjusters International Helped

With expert knowledge of various methods of valuation, GMAI prepared a detailed report for the Umpire of the appraisal panel; identifying errors and documenting the flaws in market value appraisal put forth by the insurance company. Substantial documentation, such as a replacement less depreciation analysis, adjustments to the market appraisal and arguments on what weight should be given to the various methods of determining ACV, was presented to support why the property should be valued at a much greater ACV amount than the insurance company originally offered. Based on the thoroughly researched and substantiated information presented by GMAI’s Appraiser, the Umpire signed an award to the property owners that was nearly three-times the original settlement.


A knowledgeable and experienced insurance Appraiser can make a strong argument to the appraisal panel as to what the ACV of the property actually is, which is always based on a variety of factors that may or may not include the market value. Before GMAI was retained, the building owners were offered $111,000. With the addition of GMAI’s Appraiser, they were offered $325,000, which is $214,000 more than the amount previously paid by the insurance company.