Auto-Owners (Mutual) Depreciation of Labor MO and WI Class Action

Auto-Owners (Mutual) Insurance Company also sells property coverage policies for residential and commercial buildings. But the complaint for this class action alleges that Auto-Owners regularly pays policyholders in Missouri and Wisconsin less than they should get for damage to structures using the “replacement cost less depreciation” methodology, because it deducts depreciation on non-material things like labor.

The class for this action is all Auto-Owners policyholders (or lawful assignees) (1) who made a structural damage claim for property located in Missouri or Wisconsin, (2) for which Auto-Owners accepted coverage, then chose to calculate the actual cash value (ACV) only by the replacement cost less depreciation methodology, and not another method such as fair market value, (3) which resulted in an ACV payment from which non-material depreciation was withheld, or which would have resulted in an ACV payment if the withholding of non-material depreciation had not caused the loss to fall below the deductible, during the maximum limitations period allowed by law.

Different ways exist to calculate payouts for property damage. This case concerns claims for which Auto-Owners chose to calculate the ACV by first estimating the cost to repair or replace the damage with new materials, to arrive at the replacement cost value (RCV), and then subtracting depreciation. But the complaint alleges that the policies issued by Auto-Owners does not allow it to subtract non-material depreciation for things like labor.

The complaint defines the word “labor” in this case to mean “intangible non-materials, specifically including both the future labor costs and the future laborers’ equipment costs and contractors/laborers’ overhead and profit necessary to restore property to its condition status quo ante, as well as future removal costs to remove damaged property, under commercial claims estimating software.”

Policy forms do exist that permit the withholding of depreciation for labor, and the complaint calls these forms or endorsements “labor permissive forms.” But this case does not concern policies with these types of forms.

The complaint also notes that “ACV coverage is paid by [Auto-Owners] prospectively, before repairs are made.” It alleges that Auto-Owners “withheld costs for both materials and future labor required to repair or replace the Plaintiff’s building as depreciation, even though future labor does not ‘depreciate’ before it has even been incurred.”

The complaint alleges that the problem may arise from a misuse of the software used by Auto-Owners: “Like all property insurance claims estimating software, the specific commercial claims estimating software used by [Auto-Owners] allows for the depreciation of materials only or the depreciation of both material and future labor costs in its depreciation option setting preferences.”

According to the complaint. then, Auto-Owners underpaid the plaintiff in this case and other policyholders in Missouri and Wisconsin for their losses.

Article Type: Lawsuit
Topic: Insurance
Tags: Depreciation of Labor Costs, Incomplete payment of benefits due, Insurance, Property Insurance