Property insurance companies should review their practices with respect to depreciation in California following a new class action lawsuit filed against Farmers Insurance Company in Los Angeles Superior Court.  It looks like this case may remain in the state court because the defendants are California companies and the class is limited to California residents.

The complaint (I don’t have a link to it but e-mail me if you would like a copy) focuses on a California statute enacted in 2004, which defined actual cash value, for a partial loss to a structure, or loss to contents, as follows:

In case of a partial loss to the structure, or loss to its contents, [actual cash value is] the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and 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.

Cal. Ins. Code § 2051(b) (emphasis added).  The plaintiff’s theory is that “physical depreciation” based on the “condition” of property should be limited to “actual wear and tear,” and cannot be based on the age or obsolescence of a building component or contents item.  (But isn’t age part of “condition”?)  The plaintiff claims that Farmers calculated depreciation based only on the age of items on a “straight line” method.  The plaintiff alleges that Farmers could not have evaluated the “condition” of contents items because it never inspected them and relied only on a proof of loss submitted by the plaintiff.  The plaintiff also claims that Farmers applied depreciation to items that are not “subject to repair or replacement during the useful life of th[e] structure.”

The complaint also focuses on a California Department of Insurance regulation providing as follows:

When the amount claimed is adjusted because of betterment, depreciation, or salvage, all justification for the adjustment shall be contained in the claim file. Any adjustments shall be discernable, measurable, itemized, and specified as to dollar amount, and shall accurately reflect the value of the betterment, depreciation, or salvage. 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. The basis for any adjustment shall be fully explained to the claimant in writing.

10 C.C.R. § 2695.9(f) (emphasis added).  It is interesting that the regulation states that insurers may take into account the “age of the property,” contrary to other allegations made in the complaint.  

California’s statutes and regulations governing depreciation in this respect are relatively unique.  I’m aware of one prior putative class action that involved similar issues.  Although these issues might not have any legs as a basis for a class action if the case reaches the class certification stage (the statutes and regulations plainly require an individualized, claim-by-claim analysis), property insurers would be wise to carefully review how their adjusters are handling depreciation in California. 

Tags: California, Farmers
Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and most of the class actions I’ve defended have been brought against insurance companies. I’ve also handled some involving products liability, managed care, health care, utilities, financial services, higher education and environmental issues.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at work, you might find me running lines or watching a musical with my teenage daughter who hopes to be a Broadway star (or taking her to voice or dance lessons) or reading a good book.

Read more about Wystan Ackerman
Show more Show less
Related Posts
Auto Insurance Total Loss Class Action: Ninth Circuit Affirms Denial of Class Certification
February 15, 2022
Upcoming Webinar on COVID-19 Business Interruption Insurance Class Actions
May 16, 2020
Labor Depreciation Class Action: New Eighth Circuit Decision
September 28, 2017