Every once in a while, I come across an insurance argument so off-base it makes me wonder if someone fell asleep during basic property adjusting training. The notion that “matching” should be excluded from actual cash value (ACV) calculations is one of those ideas. It’s not just wrong. Instead, it’s historically, practically, and intellectually indefensible. And yet, somewhere along the way, insurance defense lawyers began pushing this nonsense into the courtroom, convincing some judges that “matching” is somehow a creature of replacement cost coverage.
I wrote previously about this topic in The Million-Dollar Marble and the Absurdity of Ignoring Matching, where I explained that actual cash value has always been understood as replacement cost less depreciation. The only debate ever was over how to determine depreciation—not whether matching is included. Matching has never been an add-on or an elective coverage; it is integral to the concept of indemnity itself. When property is damaged, the goal is to restore the insured to the condition they were in before the loss, not leave them with a patchwork quilt of mismatched materials.
You won’t find a single authoritative insurance training text from the Insurance Institute of America, the very institution that trained generations of adjusters, suggesting otherwise. In Property Loss Adjusting, Volume I (1990), 1 the section on “Matching Existing Paper” plainly states:
When confronted with stained wallpaper, the adjuster should ask the homeowner if matching paper is available. The answer is often yes because people generally buy more paper than is required. If the paper was installed within the past several years, there may be a roll stored in the attic or basement.
If there is no left-over paper, it is unlikely that a match can be made because wallpaper, although manufactured in long lengths, is often made in different dye lots. For this reason, even if the pattern can be bought to match the damaged pattern, it may not be the same color. Therefore, while wallpaper can create the advantage of potentially small repairs, it also brings the potential for large repairs—if a match cannot be made, the paper must be completely replaced.
That was 1990. It was presented not as an exotic or controversial idea, but as basic claims handling in a treatise that those seeking the coveted AIC or CPCU designations would learn. Adjusters were trained that when matching materials could not be found, the entire surface or area must be replaced because that’s what it means to make the policyholder whole.
Now let’s connect this to actual cash value. In the very same book, under “Explaining Depreciation,” adjusters were instructed as follows:
A common euphemism for depreciation is ‘betterment.’ The amount of depreciation on an object is identical to the amount of how much better, or more valuable, a new object is compared to an older object. An insured who receives a new object would be in a better position than before. When the property is insured for actual cash value, the amount of the loss settlement reflects the ‘betterment’ that would exist were replacement cost values used. Explaining actual cash value in terms of ‘betterment’ can often help the insured understand why depreciation is calculated and applied against replacement values. There is nothing misleading about the use of the term ‘betterment.’ Quantitatively, betterment and depreciation are always equal. The term ‘betterment’ expresses a different way of looking at the same situation.
In short, the most universal method of determining actual cash value is replacement cost less depreciation. Matching has nothing to do with “betterment.” It’s part of replacement cost. Depreciation accounts for age and wear; matching accounts for uniformity and restoration to pre-loss condition. The two operate in tandem, not in opposition.
To illustrate, consider wallpaper in a newly built home. Suppose a specialty wallpaper was applied throughout a room, and a portion is damaged by a water leak. The homeowner has a small leftover roll, but not enough to repair the area. Even if the same pattern is available, it’s a different dye lot. And, it won’t match. Under the principle of indemnity, the insured is entitled to a consistent, matching surface. Without matching, the insured is left with a visibly flawed wall. The policyholder is worse off, not restored. That is why matching is, and always has been, a component of ACV.
If the wallpaper were brand new, there would be zero depreciation. Replacement cost and actual cash value would be the same. If the insured chose not to repair, that’s their right, but the measure of their loss is still based on what it would take to replace the matching wallpaper, less any depreciation for age or condition. Removing matching from the equation rewrites the concept of ACV entirely and how property insurance adjusters have been taught to determine it.
With respect to my zealous insurance defense colleagues, this entire detour away from matching mirrors another misguided argument that insurance defense lawyers sold to the courts over 25 years ago. The idea that “suspension of business” in business income policies meant a “complete cessation” of all operations. As I discussed in Suspension of Business Was Never Intended to Mean Total Cessation of Business Operations—Insurance Lawyers Duping Judges Into Wrong Insurance Contract Interpretations, this was another example of over-lawyering gone wrong. Defense counsel twisted practical insurance concepts into technical arguments that sounded clever but ran counter to both the language and the historical purpose of the policy. The same thing is happening with “matching.” As explained in my blog article, the ISO had to go back and rewrite the policy language to reflect the historical manner suspension of operations has always been treated.
Practitioners, judges, and insurers alike should acknowledge what the industry’s own textbooks and training have always said: actual cash value equals replacement cost, including matching, less depreciation. Anything less doesn’t reflect depreciation; it reflects distortion. And when insurers or their lawyers start inventing ways to leave policyholders worse off than before the loss, that’s not adjustment. That’s manipulation.
If the policy clearly states that it will not pay for matching until the property is replaced, that is another issue. I would suggest that our insurance regulators would then consider the historical implications of this, and the reason why not matching is considered an unfair claims practice under the NAIC model regulations. Maybe they will not approve such forms, but I am not holding my breath.
The bottom line is that the stupidity of taking matching out of actual cash value isn’t just academic. It’s a betrayal of the fundamental principle of indemnity itself and what insurance has always provided us.
Thought For The Day
“We study the past to understand the present; we understand the present to guide the future.”
— William Lund
1 Markham, James J., Property Loss Adjusting, Volume I, Insurance Institute of America (1990).