Karen Karabinos’ article “The Debate Involving Depreciation of Labor Costs Continues” featured in DRI’s The Voice September newsletter, dives into the continuous discussion on whether labor costs can be depreciable when calculating actual cash value of property damage. The article focuses around Lammert v. Auto-Owners Insurance Company, in which Auto-Owners depreciated the cost of labor when calculating actual cash value of a damage claim made by the Lammert family.
“While the parties in Lammert agreed that the proper method of calculating actual cash value is the replacement cost less depreciation, the parties disputed whether depreciation applied to both materials and labor. In reaching its decision, the court applied the standard principles of interpreting insurance contracts, because Auto-Owners and its insureds presented the court with plausible interpretations of the policies. Applying those principles, the Tennessee court held that the language in both policies at issue was ambiguous, and therefore, the policies were construed in favor of the insured. Due to the ambiguity, the court ruled that labor cannot be depreciated when calculating the actual cash value using the replacement cost less depreciation method.”