An Illinois appeals court turned thumbs down to State Farm depreciating labor as a component of replacement cost on a homeowners policy when calculating an insured’s recovery on an actual cash value basis, Bloomberg reported Oct. 7. The court in Sproull v. State Farm Fire and Casualty analyzed whether labor, as a component of replacement cost, may be depreciated when calculating actual cash value. The Illinois Department of Insurance Regulations describe actual cash value as replacement cost of property at time of loss less depreciation while the insurance policy is silent as to the definition of that term or the manner in which replacement cost is depreciated to arrive at actual cash value. The court held that the damaged structure and materials are subject to a reasonable deduction for depreciation, while intangible labor is not. The ruling is in relation to the Sproull’s filing a putative class action complaint in Madison County, Illinois, on Sept. 23, 2016, alleging that State Farm breached its contractual obligations to the plaintiff and to similarly situated policyholders by improperly and deceptively depreciating the cost of intangible components of replacement cost, such as labor.
