(Article from Insurance Law Alert, March 2020)
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As discussed in previous Alerts, the Supreme Courts of Tennessee, Arkansas, Minnesota and Nebraska have addressed whether and under what circumstances labor costs can be depreciated for the purposes of calculating actual cash value (“ACV”) under a property policy. See April 2019 Alert, March 2017 Alert, January and February 2016 Alerts. Last month, the Supreme Court of North Carolina weighed in, ruling that an ACV provision is unambiguous and includes the depreciation of labor. Accardi v. Hartford Underwriters Ins. Co., 2020 WL 987541 (N.C. Feb. 28, 2020).
The homeowners submitted a claim to Hartford for damage caused by a hailstorm. Hartford issued an ACV payment of $6,743.36, which reflected the total estimated cost of repair ($10,287.28), less the deductible ($500) and depreciation of both labor and materials ($3,043.92). The homeowners argued that in calculating ACV, Hartford should have separated the costs of labor and materials and depreciated only the material items. The homeowners sought to represent a class of North Carolina residents to whom Hartford paid ACV payments based on depreciation of both labor and materials. A lower court dismissed the suit and the North Carolina Supreme Court affirmed.
Although the term ACV was not defined in the “definitions” section of the policy, a roof coverage endorsement stated that:
your policy includes Actual Cash Value (ACV) Loss Settlement for covered windstorm or hail losses to your Roof. This means if there is a covered windstorm or hail loss to your roof, [Hartford] will deduct depreciation from the cost to repair or replace the damaged roof. In other words, [Hartford] will reimburse for the actual cash value of the damaged roof surfacing less any applicable policy deduction.
The court concluded that this definition “must be read in harmony with the remainder of the policy” and is unambiguous in allowing depreciation of both labor and materials.