What Is the Broad Evidence Rule?

The broad evidence rule outlines the guidelines that insurers must go about in determining the value of lost, stolen, or damaged property. It does not specify any one method to value any one piece of property, only that the method which most accurately represents the true cash value of the property should be used. The broad evidence rule means that all facts and circumstances that bear on the value of property can be considered.

Understanding Broad Evidence Rule

The broad evidence rule is used by insurance companies to determine the dollar amount to be paid out to the insured in the event of a claim. As opposed to using the traditional actual cash value approach of replacement cost minus depreciation, the broad evidence rule can take into account many factors, including market value, original cost, replacement cost, age and condition of the property, location, frequency of use, durability of the item, assessed value, number of users in the household or business, offers to sell, offers to purchase, and rarity. Because of this, each actual cash value determination must be assessed on a claim-by-claim basis.

States use three different approaches to calculate actual cash value when a property policy fails to adequately define the term: the fair market value, replacement costs minus depreciation, and the broad evidence rule. As of 2016, the broad evidence rule has been accepted by 23 states, including New York and New Jersey. It has become more commonplace in recent years, although some states like California specify that actual cash value equals market value.

Pros and Cons of the Broad Evidence Rule

The broad evidence rule’s strength is its inclusiveness and flexibility. It has been praised for indemnifying an insured party through a fairer distribution of insurance proceeds than results from other approaches. This is because the insured is able to present evidence showing the inadequacy of the market value or replacement cost less depreciation approaches in certain cases.

Some criticisms of the broad evidence rule include that it lacks certainty or predictability because it is not a definite formula. When insurance is purchased, no calculations as to the value of the property is available. The rule, therefore, imposes an additional burden on insurers and court systems, since it requires more administrative complexity and time than the other approaches. Further criticism of the broad evidence rule is that insurers can take advantage of collateral issues to escape liability. Another complaint is that the consideration of an indefinite number of factors can lead to speculation and a clouding of the issue of actual loss.