Liberty Mutual Personal Insurance Depreciation of Labor Texas Class Action

This class action brings suit against Liberty Mutual Personal Insurance Company (LMPIC), alleging that in calculating actual cash value (ACV) for damage to property, it should not depreciate labor costs. The complaint is careful to state that it is objecting to the depreciation of “future labor, yet to be incurred…”

LMPIC provides property insurance coverage for homes and other buildings in Texas. According to the complaint, it uses Xactimate software to estimate RCV, depreciation, and ACV calculations.

The complaint differentiates between actual cash value (ACV) and replacement cost value (RCV): “Future labor is at issue because, pursuant to LMPIC’s property insurance policy forms at issue, ACV payments are to be made prospectively, that is, prior to the policyholder undertaking repair to a damaged structure. In contrast to ACV coverage, replacement cost value coverage payments … are made retrospectively, after repairs have been completed.”

Other cases have been filed in recent years against Liberty Mutual Group property insurers, like LMPIC, the complaint says. It alleges, “While some of these cases are still pending, the ones that have resolved [have] resulted in Liberty Mutual Group insurers ceasing the practice in the state(s) at issue in those cases.”

According to the complaint, most property insurers in Texas do not withhold future labor “depreciation” when calculating ACV, and those that do are doing it “only pursuant to the terms of their insurance policies, which expressly permit future labor to be withheld…” The complaint alleges, “The LMPIC policies at issue did not include any provision or language that allow it to withhold labor as depreciation when making ACV payments for structural loss claims.”

The issue has been addressed by the Fifth Circuit Court of Appeals, the complaint claims, pointing to a case in which that court “held that both the insurer and insured’s interpretations of the otherwise undefined phrase ‘actual cash value’ were reasonable, thus the policy was ambiguous and must be construed in favor of the insured.”

The decision, made under Mississippi law, applies to Texas as well, the complaint contends, because both sets of laws “are the same as it relates to all of the contractual interpretation issues before the Court.”

The class for this action is all LMPIC policyholders, or their assignees, who made:

• A structural damage claim for property in Texas,
• For which LMPIC accepted coverage, then chose to calculate ACV exclusively by the replacement cost less depreciation method and not by any other method, and
• Which resulted in an ACV payment, during the class period, from which “non-material depreciation” was withheld from the policyholder; or which would have resulted in an ACV payment except that the withholding of non-material depreciation caused the loss to drop below the applicable deductible.
• Here, “non-material depreciation” means application of either the “depreciate removal,” “depreciate non-material,” and/or “depreciate O&P” option settings within Xactimate or other similar settings in other such software.
• The class period is the maximum time period allowed by applicable law.

Article Type: Lawsuit
Topic: Insurance
Tags: Depreciation of Labor Costs, Insurance, Property Insurance