## Facts

- Elberon Bathing Co., Inc. and Elberon Bathing Club operated a bathing club in Long Branch, New Jersey and held fire insurance consisting of a $25,000 primary policy and a $125,000 excess policy issued by Ambassador Insurance Co.
- A January 8, 1975 fire caused partial damage to the club facilities and contents in an amount exceeding the primary limits; the primary insurer paid $25,000.
- The insureds and Ambassador disputed the amount of loss payable under the excess policy and invoked the policy’s appraisal clause; each side selected an appraiser, and a court appointed an umpire when the appraisers could not agree.
- The appraisal panel inspected after repairs were completed and, based on affidavits, the umpire and the insureds’ appraiser treated their task as determining replacement cost.
- The panel set the loss at $77,000 without deducting depreciation; Ambassador’s appraiser did not sign the award.
- The insureds sought judgment enforcing the appraisal (seeking $52,000 after crediting the $25,000 primary payment); Ambassador argued the appraisal used the wrong valuation standard, failed to consider relevant evidence, and that liability defenses (including fraud) required adjudication.

## Issues

1. What valuation method governs “actual cash value” for a partial loss under New Jersey’s standard fire policy?
2. Whether replacement cost without depreciation can constitute “actual cash value.”
3. Whether an appraisal award may be set aside when the panel applies an incorrect legal standard and omits relevant valuation factors.
4. Whether judicial review of a fire policy appraisal must proceed under the New Jersey Arbitration Act.
5. Whether a court may enter judgment on an appraisal amount without deciding coverage and liability defenses, including alleged fraud.

## Decision

- The Supreme Court of New Jersey reversed enforcement of the appraisal award and set it aside.
- The court held that “actual cash value” is determined by the broad evidence rule, not by replacement cost alone.
- The court held that replacement cost without depreciation does not measure actual cash value.
- The court ruled that the panel’s failure to consider depreciation and other relevant evidence supplied sufficient cause to vacate the award.
- The court held the trial court was not required to treat the appraisal as statutory arbitration under the Arbitration Act.
- The court remanded for a redetermination of loss under the correct standard and for adjudication of the insurer’s liability defenses, including fraud.

## Legal Principles

- “Actual cash value” under New Jersey’s standard fire policy is determined by the broad evidence rule, permitting consideration of any evidence logically bearing on value at the time of loss (including market value, replacement cost less depreciation, age, condition, obsolescence, use, and location).
- Replacement cost without a deduction for depreciation is not “actual cash value” because fire insurance is indemnity and may not place the insured in a better position than before the loss.
- An appraisal award may be vacated when appraisers disregard the governing legal standard and fail to consider relevant valuation evidence, as this is more than a mere valuation disagreement.
- A contractual fire appraisal clause is not equivalent to statutory arbitration; courts are not confined to arbitration-act review limits when the appraisal is legally defective.
- Appraisal fixes only the amount of loss; coverage and liability defenses (including fraud) remain for judicial determination before entry of final judgment.

## Conclusion

The court required “actual cash value” in fire-loss appraisals to be determined under the broad evidence rule, vacated an award based solely on replacement cost without depreciation, and held that courts must still decide insurer defenses and liability rather than treating the appraisal as dispositive.


Elberon Bathing Co. v. Ambassador Insurance Co., 389 A.2d 439 (N.J. 1978)