A gemologist-appraiser's only task is to render the appraisal in compliance with the state of jurisdiction's requirements. Here's what to remember about that.

You are invited to your new neighbor's house for a community get-together. You are to bring the main dish. Not to be cheap, you bring steaks ordered from a high-end restaurant. You lay down the meal on the dining room table, but instead of praise over your steaks, there is a gasp. Everyone is a vegan! You assumed that steaks were great and did not research to ensure that the neighbors would approve. You are out of compliance.

        Compliance is the Quest

Almost all courses, societies, publications, ethical standards, and articles state that the gemologist-appraiser must comply with the law. After all, appraisals are basically relied upon as legal documents. Therefore, compliance is a requirement.

The ubiquitous appraisal used to obtain insurance is not difficult to render in compliance. The appraisal will be used to secure one of two types of insurance policies, either agreed value¹ or actual cash value. The date of inspection will be the effective date² and replacement value will be the value definition, providing the value achieves indemnity.

        Casualty Loss Changes the Quest³

In an agreed value policy, a full casualty loss will be settled by the insurance company paying the insured the amount to which they agreed. If the loss is not a full casualty loss, then the value definition becomes actual cash value.

In an agreed value policy, if an insured item is lost, then the effective date changes to match the date of incident. And to further complicate the scenario, the value definition changes as well. Instead of replacement value, it becomes actual cash value.

        Broad Evidence Rule

Maybe an example will make it easier to understand how to comply with the law.

An Illinois homeowner secures insurance for a diamond ring. The marine policy⁴ is an actual cash value policy. They have a second house in Key West, Florida.⁵ After crossing the Georgia-Florida state line, driving south towards Key West, a commercial truck makes a sudden turn and forces them off the road and into the ocean. However, when the car was retrieved from the water, the ring was missing.

You are a gemologist-appraiser in Florida, and the owner needs an appraisal for their missing diamond ring. The extraordinary critical assumption aspect of the evaluation is not a problem since they have a laboratory report, receipt, and other significant paperwork.

Florida defines actual cash value using the Broad Evidence Rule. What does the Broad Evidence Rule require? It requires (1) acquisition cost, (2) (fair) market value, (3) cost of replacement, (4) reconstruction value, (5) value to owner, (6) condition of item, and (7) value in use. The trier of fact will decide which one will achieve indemnity. After all, indemnity is the basis for insurance. The insured is not to make a profit nor sustain a loss but be made whole in terms of money. Of course, the gemologist-appraiser cannot report what the value to the owner is or the acquisition cost, and it's not likely that there will be a value in use, per number seven. That leaves a few other values for the gemologist-appraiser to determine in a Broad Evidence Report.

A District Court of Appeal of Florida stated, "In order to establish to what extent an insurer is liable where 'actual cash value' is the yardstick used to determine damages, it is necessary to determine what criteria is to be used to define this phrase. . . . the Supreme Court indicates that in these matters, Florida will adhere to the so-called 'Broad Evidence Rule.' Under this rule, any evidence logically tending to establish a correct estimate of the value of the damaged or destroyed property may be considered by the trier of facts to determine 'actual cash value' at the time of loss."⁶

Basically, the Broad Evidence Rule does not replace actual cash value but merely extends it.

Should the appraisal comply with Florida or Illinois legal requirements? After all, the marine policy was signed in Illinois. It is Illinois!

        Actual Cash Value Basic Definition

Actual cash value is usually defined as replacement value minus depreciation and obsolescence. And Illinois defines actual cash value as "replacement minus depreciation and obsolescence." An appellate court of Illinois stated, " . . . the proper method for arriving at actual cash value comports with well-established Illinois law. [I]n arriving at 'actual cash value' a deduction must be made from replacement cost to account for depreciation . . . "⁷

Even though the casualty loss occurred in Florida, the valuation needs to be rendered in compliance with Illinois law. As a gemologist-appraiser, always ask in which state the policy is in effect. There are 51 jurisdictions (50 states and the District of Colombia), and that translates to 51 possibilities.

        Keep on Trucking

What about the truck that caused the accident? If the owner did not have insurance on their diamond ring, they might levy a lawsuit against the truck. Either the truck driver or his insurance company would need to cover the loss.

If an insurer is involved and the jurisdiction is Geogia, then actual cash value will be defined as fair market value. The Supreme Court of Georgia declared, "'Actual cash value' of the insured property under the terms of insurance policies such as the one before us is regularly defined as the fair market value of the property. The measure of damages, in the event of loss, is ordinarily the difference between the fair market value of the insured property immediately before the damage and immediately thereafter, not exceeding the face amount of the policy nor the net cost of replacement."⁸

And if the trucker is to be served with a lawsuit, the gemologist-appraiser will need to have a copy of the complaint. A list of reasons to sue (cause of action) will be stated. Each one has a compliance requirement and effective date. For instance, a cause of action for this scenario might be negligence. In Georgia, that would be full market value.

"Under controlling Supreme Court authority, '[i]f personal property were injured but not destroyed, loss of [use] might be recovered as damages; but where the property was lost or destroyed by the negligent act of another, the measure of damages would be the full market value of the property at the time of the injury or loss, with interest thereon.'"⁹

        Conclusion

Always ask your client what they will do with the appraisal report once you get it to them. Do not suggest a reason as that will sway them. Their uninfluenced answer will inform you of which of the above appraisal assignments, for example, should be followed. Your only task is to render the appraisal in compliance with the state of jurisdiction's requirements.¹⁰

Written by Bill Hoefer