The issue in Riggins v. American Family Mutual Ins. Co.
centered around the carrier’s decision to depreciate labor costs to a covered claim for storm damage to the insured’s residence.
, a hailstorm damaged the roof, gutters, screens and solar lights of the insured’s residence. Several weeks later, the insured made a claim under her homeowner’s policy and was paid the actual cash value (ACV) estimate prepared by the carrier. To reach the ACV estimate, the carrier summed up the estimated replacement cost, deducted depreciation, the insured’s deductible, and then, from the deduction for depreciation, also depreciated labor costs. The insured thereafter made repairs, including repair of the screens, for the sum of $300 when the carrier had estimated replacement cost of the screens to be approximately $730.
The carrier filed two motions for summary judgment. In the first motion, the carrier asked the court to declare that the ACV policy definition “the amount it costs to repair or replace property with property of like kind and quality less depreciation for physical deterioration and obsolescence” allowed the carrier to depreciate the entire estimated cost of repair including materials and labor in calculating the insured’s ACV payment. On that motion, the court found that the phrase “for physical deterioration and obsolescence” limits the type of depreciation that may be factored into an ACV calculation. As a result, the carrier’s calculation of the ACV payment due the insured, which included a depreciation factor applied to the entire estimated cost of repair, including labor, was not proper. The carrier then filed a second motion for summary judgment asking the court to find that even though labor costs should not have been depreciated, the insured suffered no injury because any deficiency in the ACV calculation was offset by the overpayment made to the insured with regard to the repair of the screens. The insured countered with the plain contract language requiring the carrier to pay the full ACV without depreciating labor costs irrespective of subsequent events.
The carrier argued that the policy caps ACV payments at subsequent actual replacement cost regardless of whether the actual cost is higher or lower than the ACV, contending that the insured was paid more than she was owed under the policy. The court, however, found that the policy provisions on which the carrier relied do not operate as a cap on ACV if the subsequent repair or replacement cost is lower than ACV. The carrier argued policy language, but in the court’s mind, omitted an important clause, which reads in full: “Buildings insured at 100% of replacement cost will be settled at replacement cost, subject to the following” . . . What follows are two stand-alone sections and the court determined that the language in this second section supersedes the introductory phrase relied on by the carrier and does not include any language that caps ACV at whatever amount an insured actually pays to repair or replace after receiving an ACV payment. The policy does not allow the payment to be lowered if subsequent repair or replacement costs are lower than the ACV payment.
The Federal District Court for the Western District of Missouri held that the carrier is required to pay the full ACV without depreciating labor costs regardless of whether the subsequent actual cost to repair or replace is lower than the ACV made. The court denied the carrier’s motions for summary judgment.
This case note follows an earlier case note from several months ago also decided by the Federal District Court for the Western District of Missouri that did not allow depreciation of labor costs in a policy that did not define actual cash value.
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