Frankenmuth “Replacement Cost Less Depreciation” Calculations Class Action

Frankenmuth Mutual Insurance Company offers policies for property insurance. When Frankenmuth calculates the actual cash value (ACV) of losses in certain states, it uses a “replacement cost less depreciation” method. The complaint for this class action alleges that Frankenmuth, in calculating payouts, improperly depreciates labor.

The plaintiff in this case, Elaine Parker, who does business as Skateland Rollersport, had an insurance policy with Frankenmuth for a property in Fairfield, Illinois. On or around January 27, 2020, the property suffered damage that was covered by the policy and required replacement or repair.

The complaint alleges that Illinois, Kentucky, Ohio, Tennessee, and Wisconsin “are ‘replacement cost less depreciation’ states for purposes of determining actual cash value under property insurance policies…”

In calculating actual cash value for structural damage in cases like Skateland’s, the complaint alleges, Frankenmuth first estimates the replacement cost value (RCV), or the cost to repair or replace the damage with new materials, then subtracts depreciation. To make these calculations, the complaint claims, Frankenmuth uses a software program called Xactimate.

The Xactimate estimate Frankenmuth provided to Skateland, the RCV was $112,580.12, a figure that included the cost of materials and labor for the repairs. From this number, Frankenmuth subtracted $58,564.75 for depreciation. The net ACV amount was then $54,015.38. However, the complaint asserts that this was an underpayment for Skateland.

According to the complaint, the Xactimate software allows for two options when calculating depreciation: the depreciation of materials only, or the depreciation of both material and labor. The complaint alleges that Frankenmuth depreciated the costs of both materials and labor, “even though labor does not depreciate in value over time.”

The complaint alleges, “While a property insurer may lawfully depreciate material costs when calculating the amount of an ACV payment owed to an insured, it may not lawfully withhold repair labor as depreciation under the policy forms at issue in Illinois, Kentucky, Ohio, Tennessee, and Wisconsin when using a replacement cost less depreciation methodology.”

According to the complaint, this means that Frankenmuth underpaid Skateland for the repair of its damages. Unfortunately, the complaint alleges that Skateland is not able to determine the exact amount withheld as depreciation of labor without to Xactimate or the electronic file used to make the ACV calculations.

The class for this action is all Frankenmuth policyholders who made (1) a claim for structural damage to property in Illinois, Kentucky, Ohio, Tennessee, or Wisconsin, and (2) for which Frankenmuth accepted coverage and calculated ACV exclusively by replacement cost less depreciation methodology, and (3) which resulted in an ACV payment during the class period from which non-material depreciation was withheld from the policyholder; or which should have resulted in an ACV payment but for the withholding of non-material depreciation causing the loss to drop below the deductible, during the maximum limitations period allowed by law.

Article Type: Lawsuit
Topic: Insurance
Tags: Actual Cash Value, Depreciation of Labor Costs, Insurance, Property Damage from Incident