In one of my prior blog posts, I shared with readers that in California, labor costs are not subject to depreciation when calculating actual cash value (ACV). More recently, I was asked about drywall. Are insurance companies allowed to depreciate drywall in calculating ACV as part of a repair estimate? Well, the answer can be found in two California statutes.

California Insurance Code section 2051(b) provides the appropriate measure for determining ACV:

In case of a partial loss to the structure, or loss to its contents, the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair a reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less. In case of a partial loss to the structure, a deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure.1

Then there is California Code of Regulations section 2695.9(f) from Title 10 which states:

Any adjustments for betterment or depreciation shall reflect a measurable difference in market value attributable to the condition and age of the property and apply only to property normally subject to repair and replacement during the useful life of the property.2

So, the key takeaway here is that depreciation should only be applied to materials or items normally subject to repair and replacement during its useful life. Most, if not all, husbands are familiar with the "Honey Do List" for tasks around the house. How often would a husband hear "Hey honey, the drywall is looking pretty shabby these days, how about we tear down the drywall and hang up some new drywall?" I think it would be safe to say practically never. Homeowners may choose to repaint the walls inside the home, replace carpet or other flooring (which is all subject to depreciation), but it is not the norm to replace drywall with new unless there is demo work with a remodel or restoration.

As applied to a property insurance claim, at least in California, an insurance company should not be depreciating drywall in calculating actual cash value. If you see that happening in your claim, question it. Or, if you find something not making a whole lot of sense, it’s never a bad idea to consult with an insurance professional.

1 Cal. Ins. Code section 2051(b).
2 10. C.C.R. section 2695.9(f).