Insureds who decided to not repair or replace a part of their dwelling that was damaged in a hurricane sought compensation for their loss under the following provisions of their homeowners policy: "You may disregard the replacement cost loss settlement provisions and make claim under this policy for loss or damage to buildings on an actual cash value basis. You may then make a claim within 180 days after loss for any additional liability on a replacement cost basis."

The insurer paid an amount based on replacement cost less depreciation of the damaged portion of the house. Objecting to the reduction, the insureds sued individually and, on behalf of other Floridians whose actual cash value settlements were reduced by depreciation, as a class action. The trial court, concluding depreciation was not deductible, granted partial summary judgment on the suits to the insureds who initiated them.

On appeal, the insurer stressed the clarity of the pertinent policy provisions and that, when insureds elect to not repair or replace and choose "actual cash value" settlement, they claim an amount reflecting the value of the property immediately before the damage occurred.

The insureds argued that there was no mention of depreciation in the policy provisions under which they made their claim. (See pertinent language quoted in first paragraph.) They also stressed that "actual cash value" was not defined in the policy. Accordingly, a settlement reduced by depreciation was not proper.

The appeal court found no ambiguity in the controlling language and cited precedent for "actual cash value" in an insurance policy meaning "fair market value," a widely recognized appraisal term. Noting a cost approach as a widely used practical guide for determining fair market/actual cash value, it found the application of depreciation essential. The insureds had been offered a full replacement cost settlement or an actual cash value settlement that did not require replacement. They chose the latter.

The judgment of the trial court was reversed in favor of the insurer and against the insureds. (AMERICAN RELIANCE INSURANCE COMPANY, Appellant v. PEREZ ET AL., Appellees. Florida District Court of Appeals. No. 95-3415. January 8, 1997. CCH 1997 Fire and Casualty Cases, Paragraph 6010.)