From this beginning, the California Supreme Court set in stone the definition of actual cash value in property insurance when it was asked to resolve a dispute arising out of a fire at a hotel owned by Fong Hong May. Fong had purchased a policy of fire insurance from Jefferson Insurance Company that provided him coverage against loss by fire pursuant to the Standard California Fire Policy. His policy contained, as a rider to the Standard policy an “average” or “coinsurance” clause. The average clause provided that Fong was required to maintain, as a condition of his policy, insurance equal to 70% of the actual cash value of his hotel. Fong believed that his hotel, less the value of the land, was worth $65,000 and therefore insured it for $45,000, or approximately 70% of its estimated value.
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