In a significant move to protect policyholders, the Michigan Department of Insurance and Financial Services (DIFS) issued a groundbreaking bulletin that explicitly prohibits insurers from depreciating labor costs when calculating actual cash value (ACV) in homeowner insurance claims. 1 This decision aligns Michigan with a growing number of states taking action to ensure fair claim settlements for property owners.
The Bulletin’s Key Points
The new bulletin, issued in July 2024, clearly states that insurers cannot discount labor costs for depreciation when paying homeowners insurance claims. This prohibition applies to all new and renewed policies, effectively closing a loophole that some insurers have used to reduce claim payouts.
Key aspects of the bulletin include:
- Prohibition of labor cost depreciation in ACV calculations
- Application to all new and renewed homeowners insurance policies
- Requirement for insurers to include specific language in policies if they wish to depreciate labor costs
A Growing Trend
Michigan’s decision follows similar actions in other states, reflecting a broader trend toward protecting policyholders’ interests. For instance, the Alaska Division of Insurance issued a bulletin on May 7, 2024, prohibiting the depreciation of labor costs in ACV calculations, as noted in Depreciation of Labor to Arrive at Actual Cash Value—Alaska Says No. The Alaska bulletin emphasizes that labor does not lose value and remains unaffected by any material property decline. Similarly, Wyoming’s Commissioner of Insurance issued a bulletin in April 2023 mandating that labor is not to be depreciated when determining actual cash value, as noted in No Depreciation of Labor In Wyoming When Determining Actual Cash Value of Property Insurance Losses.
Challenging Other State Insurance Commissioners
The proactive approach taken by Michigan, Alaska, and Wyoming raises an important question: Why aren’t more insurance commissioners issuing similar bulletins to protect policyholders in their states? Insurance commissioners and their staff are certainly aware of their colleagues’ actions and that the matter is being raised by consumer representatives such as Amy Bach of United Policyholders at NAIC meetings, as noted in Insurance Commissioners and Regulators Need to Protect Policyholders From Disappearing Actual Cash Value Benefits.
There are several compelling reasons why other states should consider following this lead:
- Consumer Protection: Such bulletins directly benefit policyholders by ensuring they receive fair compensation for their claims.
- Clarity in Policy Interpretation: Clear guidelines reduce disputes between insurers and policyholders, potentially decreasing litigation.
- Market Consistency: Uniform rules across states could simplify operations for insurers operating in multiple jurisdictions.
- Fairness in Claim Settlements: Preventing labor depreciation acknowledges that repair costs don’t typically decrease over time.
As more states recognize the importance of this issue, we may see a domino effect of similar rulings across the country. Policyholders and consumer advocates in other states should consider urging their insurance commissioners to follow the example set by Michigan, Alaska, and Wyoming.
For property owners and insurance professionals alike, staying informed about these developments is crucial. This is an election year. It is important to know if your elected representatives are in bed with the insurance industry. Are they appointing those watching out for citizens’ interests, or are they in bed with the insurance lobbyists? The property insurance landscape continues to evolve. So, understanding your rights and how laws and regulations in your state can make a significant difference in claim outcomes is essential.
Who was the Michigan regulator who signed the bulletin? Anita G. Fox. She seemingly brought a wealth of experience and insurance legal expertise to her role as Director of the Department of Insurance and Financial Services (DIFS). She was appointed by Governor Gretchen Whitmer in January 2019. Fox is a lawyer and was previously inducted into the Federation of Defense and Corporate Counsel. This is what her NAIC website page says, in part, of her qualifications:
DIFS is the State of Michigan department responsible for regulating Michigan’s financial industries, including banks, credit unions, and insurance and mortgage companies. DIFS provides a focal point for consumer protection, enables efficient and effective regulation, and positions the insurance and financial services sector of Michigan’s economy for growth. The agency is staffed by more than 350 professionals dedicated to promoting economic growth and protecting Michigan consumers by ensuring that the companies that it regulates are safe and sound, follow state and federal law, and are entitled to the public confidence.
Ms. Fox has more than three decades of legal experience, including managing complex litigation in federal and state courts in Michigan and nationwide. She is a recognized authority in insurance coverage. She has lectured for Mealy’s Insurance in the U.S. and abroad, in addition to teaching Insurance Law at Michigan State University College of Law.
Insurance commissioners have many dedicated career staff working with them. Yet, it is the leadership that often determines if those career regulators are focused on fairness and consumer protection or keeping quiet while insurance lobbyists dominate insurance industry initiatives and views. What goes on at NAIC meetings and who runs your state insurance office has a big impact on your ability to be treated fairly when a property insurance claim is made and if you are receiving good insurance or a Swiss cheese insurance policy full of holes and gaps when you need it the most.
Thought For The Day
If you don’t like where you are, move. You are not a tree.
—Jim Rohn
1 Bulletin 2024-18-!NS, Depreciation of Nontangible Items. Michigan Dept. of Ins. & Financial Services, issued July 3, 2024.
