Insurance companies will no longer be able to write insurance policies which depreciate labor costs when determining actual cash value in Washington. The Washington Insurance Commissioner just made a rule preventing insurance companies from nickeling and diming of their customers by depreciating labor costs. This ruling becomes effective on January 1, 2022.

The November 12, 2021, ruling found in part:

When a homeowner has property damage covered under their homeowners insurance policy, the insurance company investigates the loss, valuates the damage, and then issues an Actual Cash Value (ACV) payment. The ACV payment is replacement cost less depreciation. After the repairs are fully completed, the insurance company releases the withheld depreciation to the insured to fulfil their obligation to cover the replacement cost as defined in the policy. Besides applying depreciation to the loss of value due wear and tear, deterioration, and obsolesce to physical material items, some insurance companies are applying depreciation to the labor costs associated with the repair process.

The practice of depreciating labor costs on insurance payments for property damage claims floats a significant part of the labor repair costs to the consumer and their repair contractor, unfairly shifting a burden to the consumer during the repair process and likely against the principle of indemnity. The Commissioner has seen a steady rise of policy forms that are writing this practice into their definition of Actual Cash Value. The Commissioner implemented rulemaking to prohibit the depreciation of labor on property claims.

Hopefully other state insurance commissioners will follow the lead of Commissioner Kreidler. This ruling stops all insurance companies from this practice of reducing coverage and selling on price. It places insurers on even footing when it comes to claims costs. It is good public policy for policyholders needing money to pay for repairs and good for insurance companies by making the competition fair regarding the products which are sold.

Thought For The Day

Thanks to the abundance of shellfish in Puget Sound, Washington State is the largest oyster producer in the country.
—Tom Douglas