Actual Cost Value Includes Depreciation of Repair Labor Costs

    The court granted the insurer’s motion to dismiss after determining that benefits paid for actual cost value (ACV) did not include repair or replacement labor costs. Shahan v. Allstate Vehicle & Prop. Ins. Co., 2022 U.S. Dist. LEXIS 135488 (W.D. La. July 29, 2022).

    Hurricane Laura damaged the insured’s home. She filed a claim with Allstate under her homeowners policy. Allstate issued payment. The insured filed suit alleging Allstate wrongfully withheld amounts by depreciating labor when calculating the ACV of the damaged property. Allstate moved to dismiss.

    The policy was a replacement cost policy where the insured would receive the actual cash value of her insured property when it was damaged or destroyed by a covered peril. ACV was calculated by taking the repair/replacment which included both material and labor, and then deducting for depreciation. If no repairs or replacements were made, the insured was paid the ACV. If repairs or replacement was done, Allstate reimbursed the insured for the depreciation deduction. The insured challenged Allstate’s refusal to pay 100% of the future labor costs, without any depreciation, even if the insured did not replace or repair the damaged property. 

    Some courts agreed with the insured’s interpretation that ACV was indemnity coverage intended to return the policyholder back to the status quo, which would never be accomplished if repair labor was withheld. This court did not agree with the insured, however. 

    There was no ambiguity in the policy. The insured attempted to create an ambiguity where none existed. The policy here could not be interpreted to pay the insured for all future labor costs, which have not yet, nor may they ever be, incurred. Depreciation was the actual value of the damaged property reduced by a time factor depending upon the life expectancy of the property. ACV was the replacement of that property, less the depreciation.