Actual Expenses Incurred for Repair: Does One Data Point (or Bid) Impact Estimate Validity? A Guide to Appraisal

In determining ACV, actual expenses incurred in making a repair may also be considered in determining the validity of that estimate.  Greenspoint Investors, Ltd v. Travelers Lloyds Ins. Co., No. H-10–4057, 2015 U.S. App. Lexis 293 (S.D. Tex. March 3, 2015) (memo. op.). (emphasis added)rawpixel-com-568375-unsplash

When Repairs Are Complete

It is tempting for an appraiser, when repairs were completed prior to appraisal (and a price agreed upon between the homeowner and contractor), to assert the amount of loss at issue in the appraisal is equal to the previously agreed upon price.  As noted in the quote above, a previously agreed upon price has limited application in an appraisal.  Understanding how appraisers determine the amount of loss helps explain the limited role of a previously agreed upon contract price has on the ‘estimation’ of a loss.

[The reasoning discussed below may apply equally when one appraiser brings a ‘bid’ from another contractor to the attention of the panel for the purpose of establishing the amount of loss.]

Understanding How an Appraiser Determines Price

‘Repair or replacement costs include any cost that an insured is reasonably likely to incur in repairing or replacing a covered loss.’ Ghoman v. New Hampshire Ins. Co., 159 F. Supp. 2d 928, 934 (N.D. 2001).

There are two important concepts at work here:

  1. Appraisers ‘estimate’ damages.  Estimation is a hypothetical exercise; and
  2. Reasonably likely to incur.

Estimation is a Hypothetical Exercise

An appraisal is an ‘estimation’ of damages. Estimation, by definition, is a hypothetical exercise. See Greenspoint Investors, Ltd v. Travelers Lloyds Ins. Co., No. H-10–4057, 2015 U.S. App. Lexis 293 (S.D. Tex. March 3, 2015) (memo. op.).

Reasonably Likely to Incur

Given the hypothetical nature of estimation, costs ‘an insured’ is reasonably likely to incur refer to those costs a hypothetical insured will incur repairing or replacing damaged property, in the geographical area where the damage occurred. 

The Limited Applicability of ‘Actual Expenses Incurred.’

The amount of actual expenses incurred by an insured for repairs does not automatically establish the amount of loss in appraisal.  While an appraisal panel ‘may’ consider ‘actual expenses incurred’ by the insured for repairs, the consideration is limited solely to issues concerning the validity of a panel member’s estimate. 

The issue for the panel becomes how much weight should be given to actual expenses incurred in terms of that information’s ultimate impact on the validity of Xactware (or similar estimating programs)?  When questioning the validity of an estimating program, it is helpful to understand how prices/rates are set in the software and the statistical effect of a single data point on those calculations. 

Xactware Cost Data

 Cost data used in Xactware’s products comes from:

  • Time and materials costs
    • Over 35,000 providers of materials, equipment, labor, and installed costs*
    • Over 300,000 survey points each year*
  • Analysis of actual damage repair estimates (transaction-based research)
    • Over 4 million estimates each year
    • Over 9 million data points each month
  • Direct surveys of construction market costs
    • Restoration/remodeling/new construction
    • General contractors and sub-contractors
    • Over 7,800 survey points each month

Effect of One Job/Contract/Bid on the Validity of Data Extracted from Over 4 million Estimates/Year

As noted above, Xactware reviews over 4 million estimates a year and 9 million data points each month.  Statistically, it might be difficult to consider one estimate (what the insured paid for this particular job) to have an impact on the ‘validity’ of the data collected by Xactware and relied upon by the estimator to reflect the market as a whole. 


Statistically, one would expect to encounter instances of lower or higher estimates or bids in any geographic market as Xactware’s pricing data reflects the ‘average’ cost/price.   A mathematical calculation of a ‘mean’ value from a large sample of data points predictably includes deviations.  A higher or lower bid/estimate is not only expected to exist (statistically) but its existence has little to no impact on the validity of Xactware’s determination of ‘average’ costs/prices.  The histogram above illustrates  (horizontal) X-axis values (pricing for example) against Y-axis values (frequency for example).   Following the red line, data points would show lower than average pricing and higher than average pricing.  The key here is the frequency to which an average price occurs.  Frequency is a reflection of what ‘reasonably’ may be expected.

Ultimately, whether the actual cost incurred requires the panel to question the validity of Xactware’s (or similar software) data is within the sole discretion of the panel.  Again, information concerning the actual cost incurred by the insured may only be used in consideration of the validity of an estimate—it does not, in and of itself, mandate the award be limited to actual expenses incurred by the insured.


This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this article or any of the e-mail links contained within the site do not create an attorney-client relationship between Thomas W. Hamrick and the user or browser. The opinions expressed in this article are the opinions of the individual author and may not reflect the opinions of other lawyers.

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