A common question by insureds has to do with depreciation, and how it is defined when calculating an Actual Cash Value (“ACV”) payment for property loss. For an underlying discussion of Depreciation Values, I direct you to Chip Merlin’s post on November 21, 2016: Determining Depreciation–Are Policyholders Getting Ripped Off?
Recently, the Nebraska Supreme Court ruled that labor costs can also be depreciated when calculating an actual cash value payment.1 The court found the term ‘actual cash value’ to be unambiguous, defining the term as the “depreciated value of a property immediately prior to a damage causing event.” While most will agree that materials lose value over time due to wear and tear, the concept of labor deteriorating over time requires some mental gymnastics.
In support of its ruling, the Nebraska Supreme Court relied not only upon the court’s own precedence, but also the growing trend in other jurisdictions to allow depreciation for labor.
1 Henn v. American Family Mutual Ins. Co., case No.: S-16-597, 295 Neb. 859 (Neb. Jan. 17, 2017).