Many insurance policies include a section titled "Definitions," which defines certain terms used throughout the policy. The meanings of those terms are frequently the subject of litigation. A perfect example is the case I write about this week. Despite the fact that Actual Cash Value ("ACV") is usually a term that is defined or explained in some way in an insurance policy, this provision is frequently the subject of dispute between homeowners and insurance companies. On occasion, insurance companies do not properly calculate the ACV. The case addressed below reflects a resolution in a jurisdiction where the rulings were not uniform with regard to calculating ACV.
Eldon Branch owned several rental properties that were insured by Farmers Insurance Company. When one of his properties suffered roof damage caused by hail, he filed a claim with Farmers. Farmers acknowledged coverage for the claim and issued payment. Mr. Branch’s policy contained the following definition:
Actual Cash Value…mean[s] replacement cost of the property at the time of loss less depreciation.
Farmers calculated the ACV payment by depreciating labor costs for tear-off labor and new installation. Mr. Branch filed a lawsuit against Farmers alleging, among other things, that Farmers’ depreciation was in bad faith. When the U.S. District Court in the Western District of Oklahoma ruled against Mr. Branch on the bad faith claims, he filed an appeal.
Mr. Branch asked the appellate court to determine whether the cost to tear off damaged shingles is subject to depreciation, whether the labor cost of installing shingles is subject to depreciation, and whether the district court made a mistake when finding that Farmers’ conduct did not amount to bad faith.
At the time Mr. Branch’s case was before the Tenth Circuit Court of Appeals, there was a conflict in the Western District of Oklahoma regarding the proper application of depreciation to roof replacement claims under an ACV provision. When there are different rulings on the same or similar issue in a particular federal district, a federal court will often look to the particular jurisdiction’s state law. In Mr. Branch’s case, however, Oklahoma state case law did not provide any guidance as to how ACV provisions were evaluated by the state courts.
Ultimately, the appellate court decided that the labor cost to remove the damaged shingles is not depreciable but the labor to install new shingles is depreciable. With regard to Mr. Branch’s bad faith claim against Farmers, the Tenth Circuit Court of Appeals explained:
Because Farmer’s interpretation of the actual cash value provision was a reasonable position taken in litigation of a legitimate coverage dispute, we affirm the district court’s grant of summary judgment against Appellant’s [Mr. Branch’s] fraud and bad faith claims.
At the end of my posts, I remind readers that the case I write about is specific to a particular jurisdiction. This case demonstrates that there are sometimes different rulings on the same issue within a particular jurisdiction. This is why it is important to thoroughly research and consider all possibilities when litigating a property damage claim.