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(Article from Insurance Law Alert, April 2020)

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Last month’s Alert reported on a North Carolina Supreme Court decision holding that an Actual Cash Value (“ACV”) provision in a property policy was unambiguous and included depreciation of labor costs.  This month, the Sixth Circuit, applying Ohio law, deemed an ACV provision ambiguous and interpreted it against the insurer, ruling that labor cost depreciation could not be considered in calculating ACV.  Perry v. Allstate Indem. Co., 2020 WL 1284960 (6th Cir. Mar. 18, 2020).

The property policy provided:  “If you do not repair or replace the damaged, destroyed or stolen property, payment will be on an actual cash value basis.  This means there may be a deduction for depreciation.”  The term “depreciation” was not defined.  Allstate argued that depreciation applied to both material and labor, whereas the policyholder claimed that depreciation was ambiguous with respect to labor costs because depreciation typically refers to value lost as a result of physical wear and tear. 

An Ohio district court ruled in the insurer’s favor.  The Sixth Circuit reversed, noting that there was “no clear answer from Ohio law on whether labor costs are depreciable in calculating ACV.”  The court therefore deemed the provision ambiguous and construed it in the policyholder’s favor.