Do Not Depreciate Labor When Calculating Actual Cash Value—Missouri Appellate Court Upholds Policyholder Win

A routine roof claim has significant results for Missouri property insurance adjustment. Some insurance companies try to chisel away at amounts owed by making up new arguments and pressing them in court. A Missouri appellate court had none of that, holding insurers should not deprecate labor when calculating actual cash value.¹

While the entire opinion is worthy of reading, the holding regarding the depreciation of labor was as follows:

Lexington argues that Mrs. Franklin’s and the trial court’s view, that only some of the replacement costs such as materials are depreciable, but not others such as labor, is illogical, unreasonable, and too narrow an interpretation of the term ‘actual cash value.’ We disagree. A policyholder would not reasonably expect that an ACV payment would be reduced by depreciation on estimated labor costs. This belief, that labor does not depreciate, ‘is a plausible conception for a wealth of thoughtful, knowledgeable judges, and it is even more so for lay insureds with no special competence in property or insurance matters.’ Arnold v. State Farm Fire & Cas. Co., 268 F. Supp. 3d 1297, 1312 (S.D. Ala. 2017). If Lexington wished to depreciate labor, it had the ability to include such a provision in its policy, but it did not do so. The insurer, as the drafter of the policy, is in the better position to remove ambiguity from the insurance policy. Burns, 303 S.W.3d at 512. Lexington’s argument regarding labor depreciation relies on a technical definition and understanding of depreciation that is not evident in the insurance policy. ‘[A]n insured should not have to consult a long line of case law or law review articles and treatises to determine the coverage he or she is purchasing under an insurance policy . . . unless a technical meaning is clearly provided in the insurance policy.’ Lammert, 572 S.W.3d at 179 (citation omitted).

This follows a growing trend where labor can only be depreciated only if it is clearly noted in the insurance policy. We noted in Depreciation of Labor and Actual Cash Value, that some states are permitting insurers to place language in policies that allow for the depreciation of labor.

Thought For The Day

Believe you can and you’re halfway there.
—Theodore Roosevelt
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¹ Franklin v. Lexington Ins. Co., No. WD84816, 2022 Mo. App. LEXIS 412 (Mo. App. June 28, 2022).