Today the Minnesota Supreme Court issued its opinion in Wilcox v. State Farm Fire & Casualty Company, a putative class action alleging that State Farm, in estimating the “actual cash value” of property damage under homeowners’ insurance policies, improperly applied depreciation to the labor component of the replacement cost of damaged structures. A question pertaining to whether depreciation can properly be applied to labor costs was certified by Minnesota’s federal district court to the state supreme court. In a prior post, I covered the oral argument in the Minnesota Supreme Court. I represented the American Insurance Association as an amicus curiae in this case.

Today, the court held that “absent specific language in the insurance policy that identifies a method of calculating actual cash value, the trier of fact must determine whether depreciation of embedded labor components ‘logically tend[s] to the formation of a correct estimate of the loss.” (Slip op. at 3.) In other words, the court concluded that determining the correct amount of the “actual cash value,” based on all applicable factors, is an issue that should generally be decided by an appraisal panel or the finder of fact at trial, typically based on expert testimony. The court further concluded that this determination “depends on the facts and circumstances of the particular case (id. at 10), which means that class certification on this issue is unlikely. This decision is more favorable to insurers’ positions than some of the other recent decisions on this issue (see my January 18 blog post for more on those).

Key points from this decision include:

  • The court ruled that “actual cash value” is not ambiguous because it is “a legal term of art that refers to the ‘actual loss’ sustained by the insured.” (Slip op. at 7.) The term “actual cash value” is well-defined by case law in most jurisdictions.
  • The court relied on its prior adoption of the “broad evidence rule” for determining actual cash value. It explained that the “broad evidence rule” is “a flexible approach that allows the trier of fact to consider ‘every fact and circumstance which would logically tend to the formation of a correct estimate of the loss.’” (Slip op. at 7.) The court explained that “the broad evidence rule does not dictate whether labor is depreciable or is not depreciable.” Rather, it is a factor to consider, and “certain embedded labor costs may be depreciable, depending on the facts and circumstances of the particular case.” (Id. at 8.)
  • The court rejected the position that depreciation of embedded labor costs is illogical, explaining that “arguments about whether labor-cost depreciation is ‘logical’ according to accepted methods of appraisal in a given case are best presented to an appraisal panel or via expert testimony before a jury.” (Id. at 9.) The court noted that “[t]he appraisal of real estate includes elements of both art and science,” and “[i]t is not the role of the judiciary to define best practices for appraisers without regard for the facts and circumstances of the case presented.” (Id. at 9.)
  • The court also noted that insurers can revise their policy language to specifically address this issue.

Overall, this is a significant victory for insurers who are defending putative class actions on this issue across the country. The court’s ruling that the question of whether embedded labor costs are appropriately depreciated is a case-by-case determination means that class certification is likely to be denied. This is because any common issues of law and fact (if any exist) likely will not predominate over individual issues concerning the nature and extent of the damage to each individual property, and the appropriate calculation of the actual cash value of the damage at issue.

SPECIAL DISCLAIMER: Because this case is one in which Robinson & Cole LLP represented an amicus curiae, we reiterate that the intent of this blog is to serve as an informational resource for readers, not advertising for our legal services. Every case is different and the result achieved in the case described above may differ from the result in some other case, which may involve different facts, different applicable law or a different jurisdiction. Case results depend upon a variety of factors unique to each case. Case results do not guarantee or predict a similar result in any future case undertaken by the same lawyer(s). This blog does not constitute legal advice and you should always consult your own lawyer about your own case.

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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.