Depreciation of Labor Costs Class Action: Nebraska Supreme Court Rules In Favor of Insurer

Robinson+Cole Class Actions Insider

I’ve regularly followed on my blog key developments in the numerous class actions against the insurance industry involving the application of depreciation to the labor cost component of estimated replacement cost value in determining actual cash value under homeowners and commercial property insurance policies. The Nebraska Supreme Court recently addressed this issue on a certified question from that state’s federal district court. It ruled in favor of the insurer, holding that an insurer may apply depreciation to the cost of labor when determining actual cash value under a standard policy that did not define the term “actual cash value.”

In Henn v. American Family Mutual Insurance Company, No. S-16-597, 295 Neb. 859 (Neb. Feb. 17, 2017), the court concluded that a definition of “actual cash value” was not necessary and that term was unambiguous where Nebraska law had long defined that term as “the value of the property in its depreciated condition.” The Nebraska courts had also recognized several approaches to estimating actual cash value, including a fair market value approach and a broad evidence rule approach, under which a finder of fact may consider all relevant facts and circumstances.  Agreeing with the Oklahoma Supreme Court, the court held that “an insured is properly indemnified when the amount calculated for actual cash value equals the depreciated value of the property just prior to the loss, which includes both materials and labor.” The court further explained that “payment of the full amount of labor” in an actual cash value payment, as the plaintiffs sought, “would amount to a prepayment of benefits to which the insured is not yet entitled.”

This decision is likely to be helpful to the insurance industry in defending the numerous putative class actions pending involving this issue.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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