When an insurance company calculates a payout for property damage, it may take the cost of a new equivalent structure, then subtract depreciation. But can depreciation be subtracted from labor costs? In certain states, or under certain policies, it cannot, claims the complaint for this class action. It brings suit against Auto-Owners Insurance Company, claiming breach of contract.
The class for this action is all Auto-Owners policy holders who (1) filed a structural damage claim for property located in Arizona, Illinois, Kentucky, Utah, or Wisconsin, (2) which resulted in an actual cash value payment during the class period from which non-material depreciation was held back from the policy holder; or where the policy holder should have been entitled to an actual cash value payment except that the holding back of non-material depreciation caused the loss to fall below the deductible, during the maximum limitations period allowed by law.
Auto-Owners sells property insurance that covers homes and other buildings in twenty-six states. At issue in this case are policies in Arizona, Illinois, Kentucky, Utah, and Wisconsin. The property insurance forms for these states are “materially identical as it relates to the contractual dispute” in this class action.
The plaintiffs in this case, John and Karen Brown, own a home in Illinois that was covered by an insurance policy from Auto-Owners. The property suffered damage in a fire around August 23, 2020. Auto-Owners ruled that the loss was covered under their policy.
The complaint says, “Auto-Owners calculates its actual cash value payment obligations to its policyholders for structural damage loss by first estimating the cost to repair or replace the damage with new materials (replacement cost value, or ‘RCV’), and then Auto-Owners subtracts the estimated depreciation.”
To do this, Auto-Owners uses a software program called Xactimate. The adjuster found that the Browns had suffered a covered loss with an RCV of $32,616.18. The Xactimate estimate took into consideration the cost of materials and labor to perform repairs. From that, Auto-Owners subtracted the policy’s $500 deductible and $14,699.20 for depreciation. The resulting ACV payment that Auto-Owners claimed to owe the Browns was $17,416.98.
The complaint claims this was an underpayment, because Auto-Owners subtracted depreciation on both materials and labor. The complaint contends that “labor does not depreciate in value over time.” It claims that the Xactimate software allows calculations to omit or include depreciation of labor.
The complaint notes that the Browns’ policy, and the other policy forms in this class action, do not permit Auto-Owners to hold back any of the value of labor as depreciation. Policy forms or endorsements do exist that permit this withholding; the complaint calls these “labor depreciation permissive forms.” However, the Browns’ policy is not one of these.
The Browns cannot determine the precise amount that was taken as depreciation of labor, because that is not itemized in the estimate they were given.
Article Type: LawsuitTopic: Insurance
Most Recent Case Event
Auto-Owners Insurance Claims Depreciation of Labor Multi-State Complaint
May 13, 2021
When an insurance company calculates a payout for property damage, it may take the cost of a new equivalent structure, then subtract depreciation. But can depreciation be subtracted from labor costs? In certain states, or under certain policies, it cannot, claims the complaint for this class action. It brings suit against Auto-Owners Insurance Company, claiming breach of contract.
Auto-Owners Insurance Claims Depreciation of Labor Multi-State ComplaintCase Event History
Auto-Owners Insurance Claims Depreciation of Labor Multi-State Complaint
May 13, 2021
When an insurance company calculates a payout for property damage, it may take the cost of a new equivalent structure, then subtract depreciation. But can depreciation be subtracted from labor costs? In certain states, or under certain policies, it cannot, claims the complaint for this class action. It brings suit against Auto-Owners Insurance Company, claiming breach of contract.
Auto-Owners Insurance Claims Depreciation of Labor Multi-State Complaint