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Holden v. Farmers Insurance Co. of WA, Civ. No. 59024-3-I, in Division I of the Washington Court of Appeals (January 22, 2008).

Ms. Holden had a renter’s policy with Farmers Insurance Company of Washington. Her policy stated that “covered loss to property will be settled at actual cash value.” The policy defined Actual Cash Value (ACV) as the “fair market value of the property at the time of loss,” but did not define fair market value. Farmers used a variety of means to determine fair market value, including surveying on-line markets, hiring an appraiser, agreeing with the insured on the value and depreciating the cost of a new item to reflect age, obsolescence and wear and tear. Ms. Holden also had replacement cost coverage, which was defined as “the cost, at the time of loss, of a new article identical to the one damaged, destroyed or stolen.”

Ms. Holden filed a claim with Farmers for contents loss relating to a fire under the ACV provision and was paid the ACV amount. She did not replace the property and did not make a claim for replacement cost coverage. She did, however, ask that Farmers add sales tax onto the ACV payment, which Farmers declined to do.

Farmers agreed that it adds the sales tax onto replacement cost value when depreciating to the ACV. Farmers asserted that it did that only to determine the correct ACV figure and that plaintiff was not entitled to any sales tax unless and until she actually replaced the property.

The court agreed with Farmers, holding that the sales tax is not owed unless it is actually incurred by the insured. Since she did not replace anything, she did not incur a sales tax and was not entitled to it.

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Smith Freed & Eberhard, P.C.

Contact: Jeffrey Eberhard