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Eighth Circuit: Repairs May Be Compensable as Extra Expense Even if They Don’t Reduce the Business Income Loss

“Read the policy, read the policy, read the policy” is a famous piece of advice for coverage counsel everywhere.  Last Friday in Midwest Reg’l Allergy, Asthma, Arthritis & Osteoporosis Center v. Cincinnati Ins. Co., 2015 WL 4590642, 2015 U.S. App. LEXIS 13430 (8th Cir., Jul. 31, 2015), a unanimous panel of the Court of Appeals rejected arguments that a contract of insurance required that any Extra Expense serve to reduce the otherwise payable business income loss in order to be compensable.  As interpreted by the court, the policy was written in such a fashion as to make that a prerequisite for only one of the three defined types of Extra Expense. The insured operated a clinic in Joplin, Missouri.  On

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Posted in Extra Expense, Tornado

Kentucky Court: Depreciating Labor to Get Actual Cash Value Is Like Making the Insured Use a Very Old Roofer With Debilitating Arthritis to Repair the Roof

Surprisingly few states have addressed the question of whether an insurer can depreciate labor – as opposed to materials – to arrive at actual cash value (ACV).  Two weeks ago in Bailey v. State Farm Fire & Cas. Co., 2015 WL 1401640, 2015 U.S. Dist. LEXIS 37568 (E.D.Ky., Mar. 25, 2015), a federal court in Kentucky held that it was impermissible to do so, quoting an Oklahoma opinion that analogized such a step to requiring the policyholder to use “a very old roofer with debilitating arthritis who can barely climb a ladder or hammer a nail” to effect repairs to a roof. The case was a proposed class action by a West Liberty, Kentucky dentist whose office was damaged by

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Posted in Actual Cash Value, Depreciation, Fire, Replacement Cost, Tornado

Arkansas’ Supreme Court Prohibits The Depreciation Of Labor Costs Under An Actual Cash Value Policy

On November 21, 2013, Arkansas’ highest court held that “the costs of labor may not be depreciated when determining the actual cash value of a covered loss under an indemnity insurance policy that does not define the term ‘actual cash value.’”  In addition, the court bottomed its decision on both  the old canard of ambiguity and on the notion that depreciating labor is both illogical and inconsistent with the principle of indemnity.  As a result, even a change in policy language to expressly provide for labor’s depreciation might not pass muster in the state. Adams v. Cameron Mutual Ins. Co., 2013 Ark. 475 (Ark., Nov. 21, 2013) arose after a tornado damaged the Adamses’ home in Mena, Arkansas.  Their homeowners

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Posted in Actual Cash Value, Ambiguity, Depreciation, Tornado
About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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