Posted In: Insurance Recovery
Insurance Blog: Recent Sixth Circuit Decision Leads to a Victory for Homeowners Insurance Policyholders
on March 23, 2020
On March 18, 2020, the Sixth Circuit handed down a pro-policyholder decision in a dispute over the calculation of a loss occurring under a homeowners’ insurance policy. In a split decision, the Court held that an insurer may not include the cost of labor in calculating depreciation when determining the cost of repairs to the insured property.
In Perry v. Allstate Indemnity Co., et al., the policyholder incurred severe water damage to the insured home that ultimately necessitated the need for substantial and costly repairs. After filing a claim under their homeowners’ insurance policy, issued by Allstate Indemnity Company (“Allstate”), both parties reached a mutual agreement with respect to the total estimated cost of repairs. However, Allstate took the position that deductions for depreciation were warranted based on policy language providing that, “If you do not repair or replace the damaged, destroyed . . . property, payment will be on an actual cash value basis. This means there may be a deduction for depreciation.”
Because the policy failed to define “depreciation,” the Sixth Circuit was left with the challenge of deciding which party’s proposed interpretation should be adopted in accordance with Ohio law. While the policyholder argued that “depreciation” does not include labor costs, Allstate contended that it is necessary for depreciation to account for the cost of both materials and labor.
Ultimately, the Sixth Circuit agreed with the policyholder’s position, holding that Allstate had improperly depreciated labor costs when calculating the total cost for repairs. In reaching this decision, the Court reasoned that the insured’s interpretation of “depreciation” falls in line with current national trends, noting that such interpretation “has been recognized as reasonable by numerous state and federal courts, including our own, because depreciation traditionally refers to the value lost from physical wear and tear.”
This decision represents a significant win for policyholders, and should be generally applicable to other policies employing similar language. As a result, policyholders should carefully review their insurance policies and scrutinize their insurers’ loss calculations to make sure they are maximizing their recovery and receiving the full benefit of the policy they purchased.
If you have any questions regarding this recent decision, or are in need of legal assistance in dealing with your own insurance policies, please contact the insurance recovery attorneys at Brouse McDowell, LPA.
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