I’ve been following closely a series of class actions around the country alleging that, in calculating the “actual cash value” of property damage under a homeowners or commercial property insurance policy, insurance companies should not be applying depreciation to the labor component of the replacement cost of a damaged structure. When insurers estimate “actual cash value,” they typically estimate the replacement cost of the damage based on the materials, labor and other costs necessary to make the repairs, and then apply depreciation to that amount, to arrive at the actual cash value.

Plaintiffs’ lawyers have filed numerous class actions arguing that labor costs are not depreciable, and that the actual cash value thus should be calculated based on the full cost of labor and depreciated value of materials. If you haven’t been following this issue and would like more background, I suggest you read my August 10, 2015 and March 29, 2015 blog posts. This is, in my view, the hottest area in insurance class actions right now.

One of the benefits of modern technology for those who like to follow important cases closely nationwide is that many state supreme courts are now recording oral arguments and posting them online, or in some instances streaming the argument live (as the Massachusetts Supreme Judicial Court did in a case I recently argued).

The Minnesota Supreme Court recently heard oral argument on the issue of depreciation of labor costs (on a certified question from the Minnesota federal district court) in Wilcox v. State Farm Fire & Casualty Company. (In the interests of full disclosure, I wrote an amicus brief for the American Insurance Association in this case.) The oral argument video was recently posted online. The court dug deeply into both sides of the issue. Here are a few observations I had:

Minnesota Supreme Court photo

  • The court focused some of its initial questioning on how an appraiser of real estate, using the “cost approach” to valuation, will depreciate the full value of the building, including the labor component, as economically appropriate. Plaintiffs’ counsel appeared to concede that this approach is correct for a total loss, but argued that it is not appropriate for a partial loss. Those justices who commented on that issue did not seem persuaded by his argument that partial losses should be treated differently in this respect.
  • There was some discussion about a hypothetical where a roof was nearing the end of its useful life, with some justices appearing to take the view that it would not be an accurate method of calculating the actual cash value of the roof to apply depreciation only to the materials and not to the labor component.
  • Some of the court’s questions focused on how the State Farm policy at issue (like most homeowners’ policies) provides replacement cost coverage if the insured makes the repairs. One justice appeared to suggest that this demonstrates that State Farm is correct about what is intended by actual cash value.
  • There was a fair amount of discussion about how Minnesota’s adoption of the “broad evidence rule” for determining actual cash value impacts the question presented. One justice pointed out that the “broad evidence rule” allows for methods of calculation other than replacement cost less depreciation, which is the method that State Farm used here. He suggested that there may be circumstances where there are issues of fact.
  • One justice asked about a hypothetical scenario in which the repairs involved $200 of materials, but $10,000 of labor, and how that loss would be treated.
  • The chief justice asked whether State Farm would lose if the court found an ambiguity, and why State Farm had not revised its policy language to specifically address the issue.
  • One justice suggested that the plaintiffs’ argument is equating actual cash value with replacement cost.

This was the first time I’ve watched an argument in the Minnesota Supreme Court, so any prognostication I make is not based on experience with that court but my experience with the issue presented. My guess (and I could be wrong) is that the court will rule that depreciation may be applied to labor costs in appropriate circumstances.

Tags: Depreciation
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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 at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

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 my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.

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