USAA Casualty Insurance Labor Depreciation in Tennessee, Mississippi Class Action

This is one of a number of recent class actions taking issue with how insurance companies calculate payments owed for losses. The complaint for this class action alleges that USAA Casualty Insurance Company (UCIC) improperly calculates the amount due to its policyholders by depreciating labor costs.

Plaintiff Fred Juhnke Colby had a policy with UCIC on his home. In October 2019, his garage suffered a fire loss. UCIC determined that the damage to the garage was covered by the policy.

How did UCIC calculate the payment it owed Colby—the actual cash value, or ACV—on the garage? First, it estimated the cost to repair or replace damaged parts with new materials, which is the replacement cost value (RCV). Then it took what the policy calls “a deduction for deterioration, depreciation and obsolescence.” The complaint alleges the company used “commercially-available computer software” to make its calculations.

The figures it arrived at were an RCV of $16,73217, depreciation of $2,174.17, and a policy deductible of $632.17. This resulted in an ACV payment of $13,925.83.

However, the complaint alleges that this amount is an underpayment, because UCIC took a depreciation on labor. “Labor” here includes the costs of the labor, any removal costs, and the costs of the laborers’ equipment necessary in restoring the garage. The complaint alleges that this is improper because “labor does not depreciate in value over time.”

The complaint refers to a 2008 National Association of Insurance Commissioners survey that polled state insurance departments about the depreciation of labor. Colby lives in Tennessee, and the Tennessee Department of Insurance said, “It is generally the belief that labor is not depreciable, but the Department has no written position on the matter. We believe there is some case law supporting this aspect. To our knowledge, this is not a problem here.” 

In August 2017, the Mississippi Insurance Commissioner issued a bulletin on the depreciation of labor expenses in property claims that said, in part, “If such a practice is used, the insurer should clearly provide for the depreciation of labor in the insurance policy.”

The complaint alleges that UCIC uses a kind of software where depreciation of labor can be toggled off or on. It claims that the company did not depreciate “pure labor line items” such as “Demolish/remove—bedroom/room.” The complaint claims, “UCIC only depreciated labor in line items where it would be difficult if not impossible to detect the practice.”

The class for this action is all policyholders under a property policy issued by UCIC (1) who made a structural damage claim for properly located in Tennessee or Mississippi, (2) which resulted in an actual cash value payment from which “non-material depreciation” was withheld from the policyholder, or which should have resulted in an actual cash value payment but for the withholding of “non-material depreciation” causing the loss to drop below the applicable deductible, during the maximum class period allowed by law.

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