In August of 2012, I reported on a newly-filed class action in Arkansas federal court alleging that, in estimates on property insurance claims, application of depreciation to labor costs is improper (see my August 7, 2012 blog post). As an update on this case, Chief Judge P.K. Holmes, III of the Western District of Arkansas recently certified the following question to the Arkansas Supreme Court:
Whether an insurer, in determining the “actual cash value” of a covered loss under an indemnity insurance policy, may depreciate the costs of labor when the term “actual cash value” is not specifically defined in the policy?
Adams v. Cameron Mutual Insurance Company, No. 2:12-cv-02173-PKH, 2013 U.S. Dist. LEXIS 63544 (W.D. Ark. May 3, 2013). Although the court concluded that decisions by the Oklahoma Supreme Court, a Texas federal court, and a Florida Court of Appeal all supported the insurer’s position that depreciation of labor costs was permissible, there was a lack of pertinent guidance in Arkansas law. The court found the issue was sufficiently important and potentially case-dispositive to warrant certification to the state supreme court. (The issue of class certification has not yet been reached in this case.)
The court also denied the insurer’s summary judgment motion, which was premised on an accord and satisfaction defense, based on the insured’s execution of a signed proof of loss. The court wrote that:
The Court cannot find that there was a meeting of the minds between the parties as to whether the Adamses signed the Proof of Loss and accepted payment from Cameron Mutual in full satisfaction of their claims. The signed Proof of Loss does not include any language that would appear to release Cameron Mutual from future claims made by the Adamses in regard to the tornado loss, nor has Cameron Mutual pointed to any language in the Policy which would prohibit the Adamses from making a supplemental claim upon discovering that their losses were actually greater than previously thought. Therefore, a genuine dispute of material fact remains as to whether the parties agreed that the amount tendered by Cameron Mutual, and accepted by the Adamses, fully satisfied Cameron Mutual’s obligations to the Adamses as to any tornado loss. Cameron Mutual has not sustained their burden of showing that summary judgment is appropriate on its asserted affirmative defense, and summary judgment must therefore be denied.
Id. at *16-17.
If the Arkansas Supreme Court answers the certified question in the insured’s favor, I would not be surprised to see additional class action filings on this issue in Arkansas (although the federal district court in this case has not yet decided whether to certify a class). It is also possible that we might see this issue raised in other jurisdictions.