On July 3, 2024, the Michigan Department of Insurance and Financial Services (DIFS) issued a bulletin, which expressly prohibits insurance companies from depreciating labor when calculating actual cash value (ACV), unless the insured as agreed to the depreciation of labor in exchange for a lower premium. According to DIFS:
ACV is ordinarily understood to mean the loss of value due to wear and tear, deterioration, and obsolescence to physical or tangible items. Nontangible items such as labor are not physical objects and do not deteriorate, age, or decline in value regardless of any potential decline in value to the physical property in need of repair.
Beginning with policies issued or renewed on or after January 1, 2025, according to the Bulletin, insurers that wish to depreciate labor must do so through the use of a standalone endorsement that identifies the nontangible items subject to depreciation. These endorsements must be optional coverage available for a reduced premium.
We expect that commercial lines carriers will raise questions as to whether this Bulletin applies to commercial lines policies. We will report on any further developments as they occur.
If you would like additional guidance on this issue, HKR has compiled a Survey of State Law on Depreciation of Labor.
This post was originally published through Horst Krekstein & Runyon’s Property in 60 Seconds Newsletter. If you would like to receive future copies of that newsletter, please use this link to sign up.