In Lains v. American Family Mutual Insurance Company,1 a federal district court in Washington considered two issues involving actual cash value:

  1. whether American Family improperly considered age in depreciating the insureds’ personal property loss, and
  2. whether American Family improperly depreciated labor costs as applied to the insureds’ dwelling loss. The American Family policy defined “actual cash value” as “the amount it costs to repair or replace property with property of like kind and quality less depreciation for physical deterioration and obsolescence.”

The policy did not define the term depreciation.

Regarding the personal property loss, the district court agreed with the insureds that American Family improperly considered age in depreciating their personal property. The district court reasoned that the policy’s definition of actual cash value was clear and unambiguous: depreciation can be determined by physical deterioration and obsolescence, but not age. The Lains decision underscores the importance of reading the insurance policy, and not just blindly accepting the insurer’s use of age as the method for calculating depreciation.

Regarding the dwelling loss, the district court concluded that the policy was ambiguous whether labor is depreciable. The district court construed the term in favor of the insureds, meaning it was improper for American Family to depreciate labor costs in determining the actual cash value of their dwelling loss.2 Lains is another case to fall in line with what is a growing list of decisions in which courts have concluded that it is improper to depreciate labor costs in calculating actual cash.3
1 Lains v. American Family Mut. Ins. Co., No. 14-1982, 2016 WL 4533075 (W.D. Wash. February 9, 2016).
2 Id. at *2-3.
3 See, e.g., Boss v. Travelers Home & Mar. Ins. Co., 2016 WL 3983833 (W.D. Mo. July 25, 2016); Bailey v. State Farm Fire and Cas. Co., No. 14-53, 2015 WL 4113137 (E.D. Ky. July 7, 2015); Adams v. Cameron Mut. Ins. Co., 430 S.W.3d 675 (Ark. 2013).