No Depreciation of Labor In Wyoming When Determining Actual Cash Value of Property Insurance Losses

The Wyoming Commissioner of Insurance issued a Bulletin mandating that labor is not to be depreciated when determining actual cash value. The entire text of the bulletin states:

Bulletin 4-19-2023
April 19, 2023

TO: All Property and Casualty Insurers, Producers, and Adjusters
FROM: Jeffrey P. Rude
Commissioner of Insurance
DATE: April 19, 2023
RE: DEPRECIATION OF LABOR AND ADJUSTMENT OF INSURANCE CLAIMS

This Bulletin is intended to provide guidance regarding determining costs when adjusting insurance claims involving damage to property other than claims under a motor vehicle policy.

Pursuant to Wyo. Stat. § 26-13-124, an insurer is required to settle claims based upon all the available information obtained after a reasonable investigation. It is understood that the cost of materials and labor may vary from place to place and that settlement of claims may be affected by the location specific costs associated with the repair. Because of these differences in costs based on the location of the damaged property, what is the ‘usual and customary‘ expenses associated with any given repair may vary by location. Insurers should be prepared to provide documentation of how they determined the usual and customary costs of materials associated with any repair to property based on what is the usual and customary charges in the area where the repair is being done. After conducting a reasonable investigation regarding the usual and customary costs of materials in a given location, depreciation may be deducted from the total amount paid to the consumer in Actual Cash Value (ACY) policies where the contract language allows for the deduction of depreciation.

However, the cost associated with an insurance claim regarding damage to property involves not only the cost of the materials, but also the cost of the labor involved to install the materials and make the necessary repairs. The cost of labor may also vary according to the location of the damaged property. As with the usual and customary costs associated with materials, the insurer should be prepared to provide documentation regarding how labor rates were determined in the location where the repairs are being made. As stated above, the cost of materials may be depreciated in ACY policies when the contract language allows for depreciation. The depreciation is allowed under the theory that the existing materials of the property have experienced wear and tear and are therefore less valuable than new materials. However, the cost of labor is separate from the materials and does not undergo wear and tear. Because labor does not undergo wear and tear like materials, it has been a longstanding position of the Department that labor may not be depreciated when adjusting a claim for damage to property. Accordingly, any policy form filed with the Department should not contain language allowing for the depreciation of labor. Any policy forms filed with language allowing for depreciation of labor will not be approved by the Department until the language regarding depreciation of labor has been removed.

For any adjustment to insurance claims involving damage to property, insurers selling either ACV or replacement cost policies should be prepared to identify the policy language upon which they rely if they intend to pay an amount less than the actual cost of the repair, including the basis for the amount of depreciation applied. Finally, an insurer should be prepared to provide documentation that they communicated the basis of their decision to pay less than the full amount of the repair to the consumer, and, where appropriate, that they provided the consumer the opportunity to utilize a more competitively priced contractor or materials, prior to incurring expenses beyond what would be paid by the insurer.

If there are any questions regarding the above, please feel free to contact the Staff Attorney, Becky McFarland, at 307-777-6889 or Tana Howard, Deputy Commissioner, at 307-777-6896.

Insurance bulletins are documents issued by state insurance departments to provide guidance, clarification, or the department’s interpretation of insurance laws and regulations. Bulletins are used to explain new regulations, discuss how the department will enforce certain laws or rules, announce changes to filing requirements or procedures, or provide other relevant information to insurers and other regulated entities.

Bulletins are issued under the authority of the state insurance commissioner or director. They represent the official position of the insurance department on the matters discussed in the bulletin, but they are not law. Bulletins do not have the full force and effect of law like a statute or properly promulgated regulation. However, they provide a clear statement of how the insurance department interprets the law and intends to apply it.

In a post, Insurance Commissioners and Regulators Need to Protect Policyholders From Disappearing Actual Cash Value Benefits, I noted that insurance commissioners need to do exactly what Insurance Commissioner Jeff Rude did to protect Wyoming policyholders:

The current landscape of insurance policies with significant coverage gaps, particularly concerning rewriting actual cash value coverage, presents a significant challenge for consumers. This situation arises from a regulatory environment where state insurance regulators, despite their mandate, seem to be falling short in their duty to safeguard consumer interests. The exemption of insurers from anti-trust laws, granted on the condition of effective state regulation, further underscores the critical role these regulators play. Yet, the question looms large: Why is there a lack of proactive measures to address these glaring coverage gaps caused by rewriting policy language away from traditional protections?

The upcoming National Association of Insurance Commissioners (NAIC) meeting next week in Orlando, Florida, offers a pivotal platform for addressing these concerns. With Amy Bach of United Policyholders serving as a NAIC Consumer Liaison Representative, there is a strong advocate for consumer rights in the room. It is anticipated that the meetings will shine a spotlight on these issues, prompting a much-needed discussion on the role of state insurance regulators and the steps necessary to bridge these coverage gaps.

Perhaps more insurance commissioners will follow his lead to prevent further erosion of the traditional concepts of actual cash value and indemnity. I encourage others to raise this with your insurance commissioner. Our law firm will certainly be doing so as The Policyholder’s Advocate even when the policyholders do not know that we are advocating for them. Active citizen participation is fundamental to the functioning and vitality of a democracy.

Thought For The Day

Our lives begin to end the day we become silent about things that matter.
—Martin Luther King Jr.