In Boss v. Traveler’s Home & Marine Insurance Co., the policy holder filed a claim with his homeowner’s insurance company for hail damage to the roof, gutters and deck of his house.  Coverage was not in dispute.  The adjuster prepared an estimate of actual cash value (ACV) for the loss and issued payment.  The policy holder did not dispute the insurer’s use of the “repair or replacement cost less depreciation” formula or the use of a computer program to calculate it, nor did he dispute the company’s practice of depreciating costs and materials in calculating ACV.  The sticking point was the policy holder’s dispute over the insurer’s practice of depreciating labor costs when calculating ACV.

The insured filed suit and the company responded with a Motion for Judgment on the Pleadings.  The company was aware that the court has previously ruled that depreciation of “mixed” labor costs was disallowed in a similar claim insured under a like policy, in LaBrier v. State Farm, (2015).  The company however contended that under the common law definition, it was permitted to depreciate labor costs in calculating ACV.

The U.S. District Court for the Western District of Missouri reached the same conclusion it did in the LaBrier case – that the common law of Missouri did not define “actual cash value” other than in several valued policy statutes which apply only to fire losses.  The court concluded that in the absence of a definition of “actual cash value” in the policy or in common law, the term was ambiguous and therefore must be construed in favor of coverage and against the drafter of the contract, which meant “replacement cost less depreciation.”  The court determined that under that method of calculating ACV, depreciation of labor costs was not warranted.

The court discussed a Minnesota Supreme Court case reaching a different conclusion but determined the holding in Wilcox v. State Farm, the Minnesota case, to be inapplicable because the broad evidence rule, a common law rule, has not been adopted in Missouri.

Stay tuned for further developments as this case may potentially work its way through the appellate courts.  Carriers, through ISO or other avenues may attempt to define “ACV” in an amendatory endorsement.

Based on the court’s detailed analysis of the policy provisions and case law, the court denied Traveler’s Motion to Dismiss for Failure to State a Claim.

By Kent M. Bevan of Dysart Taylor