It’s been a while since I updated you on the status of class action litigation regarding the application of depreciation to labor costs on property insurance claims. There have been three decisions since my last update, with sharply conflicting results. So what does this mean? I expect that 2016 will bring a significant number of additional class action filings on this issue, including both filings against additional insurers in jurisdictions where the issue has been decided favorable to plaintiffs, and new filings in additional jurisdictions. Until there is more appellate law on this issue that is favorable to insurers’ position, plaintiffs’ attorneys are likely to file more class actions.

  • Arkansas: In Shelter Mutual Ins. Co. v. Goodner, 2015 Ark. 460, 2015 Ark. LEXIS 658 (Ark. Dec. 10, 2015), the Arkansas Supreme Court majority held that, where the insurance policy expressly provided for the application of depreciation to labor costs, this provision was contrary to public policy because “providing for depreciation of labor violates established principles of indemnity . . . .” The court did not explain how depreciation of labor costs violates principles of indemnity. The basic principle of indemnity – that an insured should be placed in the same economic position as prior to the loss, and should not profit from a loss – supports the application of proper depreciation. Without application of the correct amount of depreciation, an insured that replaces, for example, an old roof with a new one with a much longer life expectancy will profit from the loss. The Arkansas Supreme Court had previously ruled, in Adams v. Cameron Mut. Ins. Co., 430 S.W.3d 675 (Ark. 2013), that an insurance policy that did not define the term “actual cash value” was ambiguous and, construing the policy against the insurer, application of depreciation to labor costs was improper. Arkansas has now taken this ruling a step further and concluded that an insurer cannot apply depreciation to labor costs even if the policy explicitly provides for that result. A strong dissent by Justice Wood, joined by Chief Justice Brill, stressed that “public policy lies almost exclusively in the legislative domain,” and the dissent could not “say that this contract term interferes with the public welfare to the extent that we would take the unprecedented step of creating public policy in the absence of legislation.” The dissent also emphasized freedom of contract, and that the insureds chose to purchase actual cash value rather than replacement cost insurance. In my mind, the Goodner decision demonstrates how Arkansas is an outlying jurisdiction on this issue. I would be surprised if other courts follow this decision. Even courts that may be perceived as hostile to the insurance industry rarely will usurp the prerogative of the legislature with respect to public policy.
  • Missouri: In Labrier v. State Farm Fire & Cas. Co., 2015 U.S. Dist. LEXIS 160020 (W.D. Mo. Nov. 30, 2015), a Missouri federal district court denied State Farm’s motion to dismiss a putative class action concerning depreciation of labor costs. The court concluded that: (1) certain Missouri statutes concerning loss payment under property policies applied only to fire losses (and thus were inapplicable to a hail loss); (2) the term “actual cash value” was ambiguous in State Farm’s policy where the policy did not define “actual cash value,” and the court therefore adopted the plaintiff’s definition of “actual cash value” as replacement cost less depreciation; and (3) under a replacement-cost-less-depreciation definition of “actual cash value,” the term “depreciation” was ambiguous with respect to whether labor costs could be included in estimating the depreciation. The court appeared to recognize that State Farm’s application of depreciation made more economic sense when applied to specific examples, but nevertheless found ambiguity.
  • Pennsylvania: In Papurello v. State Farm Fire & Cas. Co., 2015 U.S. Dist. LEXIS 154536 (W.D. Pa. Nov. 16, 2015), a Pennsylvania federal district court granted State Farm’s motion to dismiss with respect to the putative class claims. With respect to depreciation of labor costs, the court explained that “[w]hen a roof is in issue, as it is here, the ‘plain and ordinary’ meaning of the ‘property’ to which the Policy refers is the finished product in issue – the result or physical manifestation of combining knowhow, labor, physical materials (including attendant costs, e.g., the incurrence of taxes), and anything else required to produce the final, finished roof itself.” The court explained that the “property” to be depreciated could not refer to only the materials, as the plaintiffs asserted. This was because it was the full value of the finished roof that suffered depreciation over time, not merely the materials. The court further found that the plaintiffs’ position would convert actual cash value coverage into a form of replacement cost coverage (which was payable only where replacement was completed).

The next significant decision on this issue appears likely to come from the Minnesota Supreme Court, which has heard oral argument on the issue (see my November 8, 2015 blog post), but has not yet issued a decision.

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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.