Alabama – Maybe – Where an insurance policy defined actual cash value as replacement cost less an allowance for physical deterioration and depreciation, including obsolescence, depreciation of labor was permitted. See Ware v. Metropolitan Prop. & Cas. Ins. Co., 220 F.Supp.3d 1288 (M.D.Ala. 2016). However, in Arnold v. State Farm Fire & Cas. Co., 2017 U.S. Dist. LEXIS 122051 (S.D.Ala. Aug. 3, 2017), the court refused to rule that a policy that does not define actual cash value unambiguously permits the depreciation of labor.
Arizona – No – Where the insurance policy leaves “actual cash value” and “depreciation” undefined, a carrier may not depreciate labor costs in the the determination of actual cash value. See Walker v. Auto-Owners Ins. Co., 2022 Ariz. LEXIS 306 (Ariz. Sept. 27, 2022).
Arkansas – Yes – Effective August 1, 2017, labor costs may be depreciated in the determination of actual cash value for new and renewed policies, provided that certain pre-approved language is included in the insurance policy. See Ark. Code Ann. § 23-88-106.
California – No – The depreciation of labor costs in the determination of actual cash value is precluded by a state regulation. See 10 C.C.R.§ 2695.9(f)(1).
Colorado – Yes – Labor costs may be depreciated in the determination of actual cash value. See Basham v. United Servs. Auto. Ass’n, No. 16-cv-03057, 2017 U.S. Dist. LEXIS 118729 (D. Colo. July 28, 2017).
Florida – Yes – Labor costs may be depreciated in the determination of actual cash value. See Goff v. State Farm Fla. Ins. Co.,999 So. 2d 684, 689 (Fla. 2d Dist. Ct. App. 2008); see also Trinidad v. Florida Peninsula Ins. Co., 121 So. 3d 433, 443 (Fla. 2008) (favorably citing Goff as dicta).
Illinois – No – The Illinois Supreme Court held that insurers may not depreciate labor when calculating actual cash value where neither ‘actual cash value’ nor ‘depreciation’ are defined by the policy. See Sproull v. State Farm Fire & Cas. Co., 2021 Ill. LEXIS 619 (Ill. Sept. 23, 2021).
Indiana – Yes – The Indiana Supreme Court has authorized the application of an “across-the-board” depreciation deduction, reversing a lower court’s determination that labor costs could not be depreciated in the determination of actual cash value. Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349, 365 (Ind. 1982).
Kansas – Yes – Labor costs may be depreciated in the determination of actual cash value. See Graves v. Am. Family Mut. Ins. Co., 2015 U.S. Dist. LEXIS 95127, at *12-*13 (D. Kan. Jul. 22, 2015), aff’d, 2017 U.S.App. LEXIS 6980 (10th Cir. April 21, 2017).
Kentucky –Undetermined, but possibly no – Kentucky courts have not decided this question. The United States Court of Appeals for the Sixth Circuit held that labor costs should not be depreciated when the term “actual cash value” is not defined in the policy. Hicks v. State Farm Fire & Cas. Co., No. 18-5104, 2018 U.S. App. LEXIS 28894, at *1 (6th Cir. Oct. 15, 2018). The Kentucky Supreme Court has declined to answer the question of whether an insurer, in determining the actual cash value of damaged property under an indemnity insurance policy, may depreciate the cost of labor. See Brown v. Travelers Casualty Insurance Co. of America, No. 15-50, 2016 U.S. Dist. LEXIS 55037 (E.D. Ky. Apr. 25, 2016).
Louisiana – Yes – Labor costs may be depreciated in the determination of actual cash value. See Shahan v. Allstate Vehicle & Prop. Ins. Co., 2022 U.S. Dist. LEXIS 135488 (W.D. La. July 29, 2022)
Minnesota – Case-by-case determination – Answering a certified question from the United States District Court for the District of Minnesota, the Minnesota Supreme Court has held that depending upon the facts and circumstances of each particular case, a fact-finder may consider depreciated labor costs in determining actual cash value, if such evidence “logically tends to establish” actual cash value. See Wilcox v. State Farm Fire & Cas. Co., No. A15-0724, 2016 Minn. LEXIS 50 (Minn. Feb. 10, 2016).
Mississippi – Yes, with limitations – The Mississippi Insurance Department issued a Bulletin in 2017 advising that there is no statutory law in Mississippi prohibiting labor depreciation, but if the practice is used, the insurer should clearly provide for the depreciation of labor in the insurance policy. Mississippi Insurance Department Bulletin 2017-8. The Fifth Circuit Court of Appeals, interpreting Mississippi law, denied an insurer’s motion to dismiss where the term “actual cash value” was not defined in the policy. Where both parties argued reasonable but differing interpretations of the term, the court ruled in favor of the insured’s interpretation that actual cash value only included depreciation of materials not labor. Mitchell v. State Farm Fire & Cas. Co., 2020 U.S. App. LEXIS 9874 (5th Cir., Mar. 30, 2020).
Missouri – No – Absent specific policy language allowing for it, labor costs may not be depreciated in the determination of actual cash value. Franklin v. Lexington Ins. Co., 2022 Mo. App. LEXIS 412 (Mo. Ct. App. June 28, 2022).
Montana – No – the Montana Commissioner of Securities and Insurance issued an Advisory Memorandum stating that labor may not be depreciated in property claims. See also Mont. Code Ann. § 33-24-101 (“[i]f there is no valuation in the policy and unless a basis more favorable to the insured is provided for in the policy, the measure of indemnity in an insurance against fire is the expense, at the time that the loss is payable, of replacing the thing lost or injured, in the condition in which it was at the time of the injury”); McIntosh v. Hartford Fire Ins. Co., 106 Mont. 434, 438, 78 P.2d 82, 83 (1938); Blankenship v. Farmers Union Ins., No. DV-98-56, 1999 Mont. Dist. 1075, at *7 (Mont. Dist. Ct. Nov. 5, 1999)
Nebraska – Yes – An insurance company may depreciate labor when calculating actual cash value. See Henn v. Am. Family Mut. Ins. Co., 894 N.W.2d 179 (Neb. 2017). However, under an actual cash value policy or where the actual cash value of the property, as repaired, does not exceed its actual cash value at the time of the loss, depreciation of labor is only permitted if it is expressly provided for in the Policy. See Olson v. Le Mars Mut. Ins. Co., 269 Neb. 800, 810, 696 N.W.2d 453, 461 (2005).
North Carolina – Yes – Labor costs may be depreciated in the determination of actual cash value. See Accardi v. Hartford Underwriters Ins. Co., 2020 N.C. LEXIS 83 (N.C. Feb. 28, 2020).
Ohio – Unsettled – The Sixth Circuit Court of Appeals, interpreting Ohio law, held that an insurer cannot depreciate labor if the policy does not define depreciation and does not expressly provide for such deductions. Perry v. Allstate Indem. Co., 2020 U.S. App. LEXIS 8555 (6th Cir. Mar. 18, 2020). See also, Cranfield v. State Farm Fire & Casualty Co., 2020 U.S. App. LEXIS 9254 (6th Cir. Mar. 23, 2020) (relying on Perry).
Oklahoma – Yes – Labor costs may be depreciated in the determination of actual cash value. See Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017, 1021 (Okla. 2002); Branch v. Farmers Ins. Co., 55 P.3d 1023, 1027 (Okla. 2002).
Pennsylvania – Yes, if depreciation is otherwise authorized – Repair costs may not be depreciated for partial losses, unless expressly provided for by the policy. See Kane v. State Farm Fire & Cas. Co., 841 A.2d 1038, 1047 (Pa. Super. Ct. 2003). Depreciation deductions have been held to be appropriate under a policy that defines “actual cash value” as “the cost to repair or replace the damaged property less deduction for physical deterioration (depreciation) and obsolescence.” London v. Insurance Placement Facility, 703 A.2d 45, 49-50 (Pa. Super. Ct. 1997). Depreciation deductions have also been held permissible in replacement cost policies that provide for an initial actual cash value payment until repairs are completed. See Kane, supra. At least one court interpreting Pennsylvania law has held that labor costs and tax may be depreciated under such policies providing “holdback” payments. See Papurello v. State Farm Fire & Cas. Co., No. 15-1005, 2015 U.S. Dist. LEXIS 154536 (W.D. Pa. Nov. 16, 2015).
South Carolina – Yes – An insurer may depreciate the cost of labor in determining the actual cash value of a covered loss when the estimated cost to repair or replace the damaged property includes both materials and embedded labor components. See Butler v. The Travelers Home and Marine Ins. Co., No. 2020-001285 (S.C. May 12, 2021).
Tennessee – No – The Tennessee Supreme Court has held that insurance companies may not depreciate labor. See Lammert v. Auto-Owners Mut. Ins. Co., No. M2017-02456-SC-R23-CV (Tenn. April 15, 2019).
Texas – Unsettled – Courts applying Texas law have reached differing conclusions on the issue. Compare Tolar v. Allstate Tex. Lloyd’s Co., 772 F. Supp.2d 825, 831-32 (N.D. Tex. 2011) (suggesting that labor costs may be depreciated in the determination of actual cash value) with Sims v. Allstate Fire, 2023 U.S. Dist. LEXIS 5653 (W.D. Tex. Jan. 11, 2023) (holding that the undefined term “actual cash value” is ambiguous and may be interpreted as not including depreciation of labor).
Vermont – No, according to state Insurance Department – The Vermont Insurance Department has recently issued a bulletin advising that labor costs may not be depreciated when adjusting property loss claims. See http://www.dfr.vermont.gov/reg-bul-ord/property-loss-claims-no-labor-depreciation.
Washington – No. See WAC 284-20-010 (Standard Fire Policies) (amendment effective January 1, 2022) – “Except for the intrinsic labor costs that are included in the cost of manufactured materials or goods, the expense of labor necessary to repair, rebuild, or replace covered property is not a component of physical depreciation and may not be subject to depreciation or betterment.”
Last updated: January 17, 2023
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