Matthew Fortin analyzed a recent Illinois appeals court ruling in a putative class action on whether homeowners' insurers may depreciate labor as a component of replacement cost when calculating actual cash value under homeowners’ and certain residential insurance policies in a recent Bloomberg Tax article titled “Do Labor Costs Count in Insurance Claims?” 

The case in question, Sproull v. State Farm Fire & Casualty Company, concerned an insured whose home sustained damage from high winds during a storm. State Farm estimated the repairs would cost $1,711.54, calculated recoverable depreciation costs at $394.36 and, after applying the $1,000 deductible, paid the Sproulls $317.18. The insurer’s policy did not define “actual cash value” (ACV), “depreciation” or explain what components of replacement cost would be depreciated to arrive at ACV. The lawsuit was filed as a putative class action on behalf of the Sproulls and other similarly situated insureds. 

The Court opined that “it is not reasonable to believe that an average homeowner would consider labor to be a tangible asset included within the definition of depreciation,” and, for that and other reasons, ruled that State Farm could not depreciate labor when calculating ACV under the policy at issue and remanded to the circuit court for further proceedings.

The decision in Sproull poses potential issues to the insurance industry, and they may expect to hear from insureds, public adjusters and attorneys contesting the practice of depreciating labor when calculating ACV and using it as evidence of vexatious or unreasonable conduct under the Illinois Insurance Code. 

Read the full article here.

Matt has extensive experience managing and litigating first-party property insurance claims, ranging from hail and wind damage to condominium complexes, underground cave collapses and major hurricanes to Cyclone Yasi in Australia and the Canterbury earthquakes in New Zealand.