Fong Hong May
Since they had agreed previously that the amount of Fong’s loss was to be computed as cost of replacement less betterment the insurer reasonably, it felt, computed the actual cash value of the hotel as its entire replacement cost less betterment. Using this method, the actual cash value of the hotel was found to be approximately $170,000. This would have caused Fong to be penalized by the average clause and collect only a small portion of the loss he had incurred. Fong contended that, for the purpose of the average clause, actual cash value meant fair market value and since the market value of the hotel was low he was insured to value and there should be no penalty. The insurer contended that actual cash value should be defined the same when computing value for the implementation of an average clause as when computing a loss and, therefore, Fong was woefully underinsured. If the insurer’s definition was correct, Fong would only collect $10,154 of his loss, while if Fong was correct he would collect the full $24,102.
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