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Depreciation of Labor Costs When Determining Actual Cash Value: Henn v. American Family

In February, the Nebraska Supreme Court held that it is acceptable for insurance companies to depreciate labor costs when determining the actual cash value (ACV) of damaged property, even when the insurance policy does not define “actual cash value” or “depreciation.” See Henn v. American Family Mutual Insurance Co., 295 Neb. 859 (Neb. 2017). Writing for the Nebraska Supreme Court, Chief Justice Michael Heavican concluded that all relevant facts and evidence should be used to calculate ACV, and both materials and labor constitute relevant facts to consider when establishing the value of property prior to the loss. The case dates back to a September 2011 dispute when Rosemary Henn filed a homeowner’s claim with American Family due to damage to

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Posted in Actual Cash Value, Depreciation

Arkansas Bars Depreciation of Labor When Calculating Actual Cash Value

Over the last few years, courts have disagreed over whether labor — as opposed to materials — can be depreciated when determining actual cash value (ACV); two of our 2015 posts addressed cases in which the District of Kansas said yes while a Kentucky federal court said no.  On Thursday of last week, in a split decision, Arkansas’s highest court sided with the naysayers in Shelter Mut. Ins. Co. v. Goodner, 2015 Ark. 460, 2015 WL 8482788 (Ark., Dec. 10, 2015).  Two of the justices filed a vigorous descent.  At the present time, the case has no LEXIS citation. The insureds owned a mobile home in Texarkana that sustained a covered loss in July of 2012.  The policy provided that

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Posted in Actual Cash Value, Depreciation, Homeowners Coverage

Kansas Court Sanctions Depreciation of Labor to Determine Actual Cash Value

Two of our previous posts reported that Arkansas and Kentucky courts have now barred insurers from depreciating labor—as opposed to materials—when arriving at actual cash value (ACV).  Last Wednesday in Graves v. American Family Mut. Ins. Co., 2015 WL 4478468, 2015 U.S. Dist. LEXIS 95127 (D.Kan., Jul. 22, 2015), a federal court in Kansas reached the opposite result in a case of first impression in that state, holding that ACV entails depreciating both materials and labor. A storm damaged the insured’s roof in December 2013, and she made claim under her homeowners policy.  The contract of insurance called for payment on an ACV basis unless the damage had been completely repaired or replaced, and it defined ACV as “[t]he amount

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Posted in Actual Cash Value, Depreciation, Homeowners Coverage, Loss Adjustment, Replacement Cost

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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