A new Alaska law explicitly makes it illegal to depreciate the expense of labor in residential property insurance claims unless very specific conditions are met.

Section 89 of Senate Bill 132 adds a new statute to the Alaska Insurance Code:

Sec. 21.60.030. Depreciation of labor.

In a residential property policy, the valuation of the expense of labor may not be depreciated, except where offered as a stand-alone endorsement that specifically identifies the intangible items subject to depreciation. An endorsement offered under this section must be:

  • an optional coverage, and
  • provide a proportionate reduction in premium.

This new law means that insurers cannot depreciate labor costs when calculating the value of a loss for residential property damage. The narrow exceptions are that depreciation of labor is allowed only if:

  1. It is offered through a separate endorsement,
  2. The endorsement clearly identifies the labor elements to be depreciated, and
  3. The endorsement is optional and tied to a reduced premium for the insured.

This provision places Alaska among a growing number of states limiting the common insurer practice of depreciating labor costs, particularly when it reduces claim payments under actual cash value (ACV) policies. By requiring optional endorsements and clear identification, it emphasizes transparency and consumer choice, although I doubt most consumers understand this issue. It takes a great deal of experience to fully understand the implications of what depreciation of labor means. The cost accountants at insurance companies certainly understand, and that is why insurers press on this issue. 

This new law is also enforceable under Alaska’s unfair claims settlement practices statute, which was also amended. Specifically:

Sec. 21.36.125(a)(18) – Insurers may not:

“offer a valuation that depreciates the expense of labor in violation of AS 21.60.030.”

This means such depreciation not only violates the valuation statute but also constitutes an unfair claims practice, opening insurers up to regulatory penalties.

A big shout-out goes to Amy Bach and United Policyholders. United Policyholders is truly a national voice for the policyholder on these nuanced insurance issues. United Policyholders wrote an authoritative letter on the topic and supported this legislation.

Thought For The Day

“Modern man lives under the illusion that he knows what he wants, while he actually wants what he is supposed to want.”
—Erich Fromm, The Art