📋 Overview

An undervaluation claim alleges that your settlement offer fails to reflect the reasonable value of the insured's loss. Under California Insurance Code 790.03(h)(5), failing to attempt in good faith to effectuate fair settlements is an unfair claims practice. This guide helps you defend your valuation methodology.

⚠ Bad Faith Risk

Knowingly undervaluing claims can constitute bad faith. Document objective basis for all valuations.

🕒 Regulation Compliance

10 CCR 2695.7(g) requires good faith offers that reasonably approximate actual cash value or repair cost.

💰 Appraisal Rights

Most property policies contain appraisal clauses - a neutral mechanism for resolving valuation disputes.

Common Undervaluation Disputes

  • Property claims - ACV vs. replacement cost, depreciation methodology
  • Auto claims - Total loss valuation, diminished value
  • Personal injury - Pain and suffering multipliers, future damages
  • Business interruption - Lost profits calculations, period of restoration
  • Contents claims - Like-kind-and-quality replacement
$450
Professional Response Letter

Valuation methodology defense, documentation, and formal response on attorney letterhead.

Schedule Review

🔍 Valuation Methods

Understanding proper valuation methodology is key to defending your position.

California Valuation Standards

Claim Type Standard Key Considerations
Property - ACV Replacement cost minus depreciation Document depreciation basis
Property - RCV Full replacement with like kind/quality No betterment deduction
Auto total loss Fair market value Comparable sales required
Personal injury Reasonable value of damages Subjective elements

📄 Property Valuation

  • ✓Scope of loss documented
  • ✓Unit pricing justified
  • ✓Depreciation calculated per policy
  • ✓Local labor/material rates used

🚗 Auto Total Loss

  • ✓Comparable vehicles identified
  • ✓Mileage/condition adjustments
  • ✓Options/equipment valued
  • ✓Multiple valuation sources

💡 Regulation 2695.7(g)

When liability is reasonably clear, insurers must provide a fair, accurate, and reasonable evaluation. Your valuation must be objectively supportable, not the minimum arguably defensible.

🛡 Key Defenses

Document these elements to defend your valuation.

Objective Methodology

Your valuation was based on recognized methodology: comparable sales analysis, Xactimate pricing, certified appraisals, or industry-standard databases.

When to use: You can point to specific, objective sources for your valuation.

Good Faith Dispute Over Value

Valuation is inherently subjective. A genuine dispute over value does not constitute bad faith if your methodology is reasonable.

When to use: Experts differ on valuation; your position is within reasonable range.

Policy Terms

Your valuation follows policy language regarding ACV, depreciation, or settlement methodology that the insured agreed to.

When to use: Policy defines valuation method or limits that apply.

Claimant Contribution to Dispute

Claimant failed to provide documentation, cooperate with inspection, or submit to examination under oath that would clarify value.

When to use: Claimant's non-cooperation prevented accurate valuation.

⚠ Avoid These Practices

  • Using outdated pricing databases without adjustment
  • Applying depreciation without documented basis
  • Ignoring claimant's documented evidence of value
  • Making "take it or leave it" offers without negotiation

⚖ Response Options

Strategic options for resolving undervaluation disputes.

Invoke Appraisal

Most property policies have appraisal clauses. This neutral process can resolve value disputes efficiently.

Request Documentation

Ask claimant for specific evidence supporting their valuation to identify and narrow the dispute.

Re-Evaluate

If claimant raises valid points, consider whether adjustment is appropriate to avoid bad faith exposure.

Mediation

Non-binding mediation can help resolve disputes before litigation and demonstrate good faith.

📊 Gap Analysis Example

Auto total loss - valuation dispute

Insurer's valuation$18,500
Claimant's demand$24,000
Gap$5,500
Appraisal cost (est.)$1,500
Litigation cost (est.)$15,000+
CONSIDER SETTLEMENT IFUnder $21,000

📝 Sample Responses

Professional response templates for undervaluation disputes.

Defense of Valuation Methodology
We have reviewed your assertion that our valuation of [$AMOUNT] for the [LOSS TYPE] is inadequate. We respectfully disagree. Our valuation was developed using [methodology - e.g., Xactimate pricing, CCC comparable analysis, independent appraisal], which is an industry-standard approach. Specifically: - [Detail element 1 of valuation] - [Detail element 2 of valuation] - [Detail element 3 of valuation] We believe our valuation represents the fair and reasonable value of the covered loss under the policy. If you have specific documentation supporting a higher value, please provide it for our consideration.
Appraisal Invocation
Given the parties' disagreement regarding the value of the loss, we hereby invoke the appraisal provision contained in Section [X] of the policy. Under this provision, each party shall select a competent and impartial appraiser within [20] days. The two appraisers shall then select an umpire. The appraisers shall separately determine the amount of loss, and if they fail to agree, shall submit their differences to the umpire. We have selected [APPRAISER NAME AND CREDENTIALS] as our appraiser. Please provide the name and contact information for your selected appraiser within the time specified in the policy. We believe appraisal will efficiently resolve this valuation dispute.
Request for Supporting Documentation
We acknowledge your position that the loss value exceeds our current evaluation of [$AMOUNT]. To properly consider your position, we request the following: 1. Written estimate(s) from licensed contractors/vendors supporting your claimed value 2. Documentation of any pre-loss condition/value claims 3. Receipts or other proof of purchase for disputed items 4. Photographs or other evidence you believe supports higher valuation Upon receipt and review of this documentation, we will provide a substantive response within [15] business days. We remain committed to fair and prompt claim resolution.

🚀 Next Steps

Strategic path forward for undervaluation disputes.

Step 1: Document

Ensure complete documentation of valuation methodology in claim file.

Step 2: Review

Objectively assess claimant's arguments - is adjustment warranted?

Step 3: Engage

Communicate willingness to discuss; request supporting documentation.

Step 4: Resolve

Consider appraisal, mediation, or adjusted offer to resolve dispute.

Need Professional Assistance?

Get expert help defending your valuation methodology and responding to undervaluation claims.

Schedule Consultation - $450

California Resources

  • Insurance Code 790.03: Unfair Claims Settlement Practices
  • 10 CCR 2695.7: Standards for Prompt, Fair, and Equitable Settlements
  • Civil Code 3333: Measure of Damages
  • Insurance Code 2051: Standard Fire Policy (ACV definition)