I am certain some insurance Texas adjusters are going to be surprised to learn that Texas case law has held that when a partial loss happens, depreciation SHOULD NOT be deducted from the loss. I mention this due to the hundreds of loss statements prepared by insurance company representatives where depreciation is routinely deducted.

Anticipating that this post may cause an uproar in the insurance community, as it likely will be copied and sent to those same Texas adjusters, I will simply quote Texas cases on the rule. These cases were instances where judges were faced with this issue in partial loss situations.

In Gulf Ins. Co. v. Carroll, 330 S.W.2d 227, 233 (Tex. Civ. App. Waco 1959), the Court discussed this issue at some length. The Court first quoted the policy language:

"* * * Liability hereunder shall not exceed the actual cash value of the property at the time of loss ascertained with proper deduction for depreciation; nor shall it exceed the amount it would cost to repair or replace the property with material of like kind and quality within a reasonable time after the loss."

This is the fairly simple actual cash value language still followed in some fashion in most policies. The Court then started its analysis:

"… The second clause would apply to an insured standing in the shoes of the plaintiffs where they have sustained a partial damage to their building. Plaintiffs elected to fix their damages under the latter clause. They did it by pleading their partial loss and by tendering proof as to the reasonable cost of such repairs, using material of "like kind and quality." The Court submitted the damage issue, absent the burden of proof clause, substantially: What sum of money, if any, would be the actual and necessary cost of repairing and replacing the plaintiffs’ property so damaged, if any, with material of like kind and quality within a reasonable time after such loss, if any? And the jury answered, $850. The record shows without dispute that repairs to a house under such conditions cannot be made without using new material, and we think the appellant’s criticism of the Court’s charge in this behalf is strained and without any justification whatsoever.


"We are not in accord with this view of the contract. First of all, the property was not destroyed and it needed only to be repaired. It is without dispute that the damage could be repaired only by the use of new material of like kind and quality. In the second place, we see nothing in the liability clause to indicate that a deduction for depreciation is required to be applied to the damage accruing for repairs made under the second clause, and we so hold. We have found no case in the books expressly touching upon this exact situation. The nearest cases are: Texas Moline Plow Co. v. Niagara Fire Ins. Co., 39 Tex.Civ.App. 168, 87 S.W. 192, er. ref.; and [*234] Southern National Ins. Co. v. Wood, 63 Tex.Civ.App. 319, 133 S.W. 286. See also Fidelity & Guaranty Fire Corporation v. Ormand, Tex.Civ.App., 62 S.W.2d 675, w. dis.; Maryland Motor Car Ins. Co. v. Smith, Tex.Civ.App., 254 S.W. 526, n.w.h.

In 45 C.J.S. Insurance § 915, page 1014, we find this statement of the rule:

"If the value is to be arrived at by replacement or reproduction cost, it has been held that depreciation may not be deducted from the cost of replacement and restoration."

In Third National Bank v. American Equitable Ins. Co. of N.Y., 27 Tenn.App. 249, 178 S.W.2d 915, certiorari denied by Supreme Court, we find this statement of the rule, Pt. 14, at page 925 of 178 S.W.2d:
"While replacement cost is a dominant factor in fixing the amount of recovery for total loss of a building, it plays an even greater part in fixing the amount of recovery for a partial loss to a building. It would seem that the only practical way to measure the extent of partial damage to a building would be to inventory its damaged parts, and the only way to express such damage in terms of money would be to count the cost of replacing such parts, so as to restore the building to the same condition it was in just before the fire. And the view which we think supported by the better reason and the greater weight of authority is that HN3depreciation may not be deducted from such cost because that would make the sum insufficient to complete the repairs and would leave the building unfinished; and this would fall short of the indemnity contracted for in the policy." Citing many cases." 

Carroll, 330 S.W.2d at 233

This decision was approved by a subsequent case, Farmers Mut. Protective Asso. v. Cmerek, 404 S.W.2d 599, 600-601 (Tex. Civ. App. Austin 1966), which stated:

"We believe that appellee properly proved his loss, by proving the amount it would cost to repair or replace the property in accordance with a provision of the policy for the limitation of liability, which is as follows: "Subject to Article 6.13 of the Texas Insurance Code, 1951, as amended, liability hereunder shall not exceed the actual cash value of the property at the time of loss, ascertained with proper deduction for depreciation; nor shall it exceed the amount it would cost to repair or replace the property with material of like kind and quality within a reasonable time after the loss, without allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair, and without compensation for loss resulting from interruption of business or manufacture; nor shall it exceed the interest of the insured, or the specific amounts shown under ‘Amount of Insurance.

The insurer is not entitled to a deduction for depreciation in the event of a partial loss, as distinguished from a total loss. In Gulf Insurance Company v. Carroll, Tex.Civ.App., 330 S.W.2d 227, n.w.h., a case very much like the instant case, discussed in detail the authorities in cases of this character and we do not deem it necessary to review such." (emphasis added)

A more recent federal case involving a broken sewer and plumbing, Unity/ Waterford-Fair Oaks v. Fireman’s Fund Ins. Co., 2001 U.S. Dist. LEXIS 24818 (W.D. Tex. June 20, 2001), followed the same rule in a partial loss situation:

"In the context of the language relating to damages in the Fireman’s Fund policy, it is proper to measure damages for a repairable injury to a building as the amount necessary to restore the building to its condition immediately prior to the injury. See Imperial Ins. Co. v. Nat’l Homes Acceptance Corp., 626 S.W.2d 327, 329-30 (Tex. App.–Tyler 1981, writ ref’d n.r.e. Ins. Co. v. Nat’l Homes Acceptance Corp., 626 S.W.2d 327, 329-30 (Tex. App.–Tyler 1981, writ ref’d n.r.e.)."

My suggestion to Texas policyholders not being paid under this rule of law is to copy this post, send it to your adjuster, and ask for your money or why the insurance company is not following this law.

  • Mark Phillips

    If only this accurate settlement information could be blasted to every marketing outlet to the general public, be it billboards, talk shows, or email alerts.

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  • Debra Cox

    Can an insurance company stipulate that paymnent will be made for a partial loss to the roof only if the insured agrees to replace the remainder of the roof at his/her own expense?

  • Kathy Padgett

    I had damage to my house during Hurricane IKE. We have completed all the repairs that were possible with the insurance amount given by windstorm but we still have more to complete on the house.

    I am now trying to get my depreciation back from Windstorm and twice I have given receipts invoices and cancelled checks only to be denied my depreciation because I have not broken the invoices down. Most of the people repairing the house didn’t break every single repair down, they charged a set amount to do a certain amount of repair work.

    After reading the blog I was wondering if this means I can send this to the Windstorm person and tell them I have the right to get my depreciation back?

  • Paul Smithey

    contingent upon the construction code used by a particular city, most codes read that ‘if 25% or more of the roof is replaced in any one 12 month period, the entire roof must be replaced.
    Because this is a code requirement, and would not have been incurred by the insured unless the loss of the 25% had been made manifest, the insurer is obligated to pay for the additional roofing, unless specifically addressed in the policy. Some policies establish code implementation dollar value limits.

  • Johnny Alex

    So in TX there is not depreciation, but what about other states. Is each state going to adjust claims differently?

  • Karen Houston

    I did send this to my adjuster from the insurance company and he contacted his attorney and wrote back that this was a case from 1959 and that a lot has changed since then and that you are wrong.

    How do I fight back with this?

    They are being ridiculous with with holding on my insurance claim?

    How do I respond?

  • steve belmnt

    can depreciation be applied to demolition, tear out and cleaning or only to tangible items?

  • Chip,

    Does this still stand, or has another ruling changed it?

  • Ed F

    Cal,

    Isn’t the last case listed current enough?

    It certainly is more current than the first stated 1959 case.
    A more recent federal case involving a broken sewer and plumbing, Unity/ Waterford-Fair Oaks v. Fireman’s Fund Ins. Co., 2001 U.S. Dist. LEXIS 24818 (W.D. Tex. June 20, 2001), followed the same rule in a partial loss situation:
    “In the context of the language relating to damages in the Fireman’s Fund policy, it is proper to measure damages for a repairable injury to a building as the amount necessary to restore the building to its condition immediately prior to the injury. See Imperial Ins. Co. v. Nat’l Homes Acceptance Corp., 626 S.W.2d 327, 329-30 (Tex. App.–Tyler 1981, writ ref’d n.r.e. Ins. Co. v. Nat’l Homes Acceptance Corp., 626 S.W.2d 327, 329-30 (Tex. App.–Tyler 1981, writ ref’d n.r.e.).”