Since last quarter's report, the Sixth Circuit rescued labor depreciation class actions against insurers based on structural damage homeowners claims, at least in Kentucky. In Hicks v. State Farm Fire and Casualty Co., 2018 WL 4961391 (6th Cir. Oct. 15, 2018), the court accepted an interlocutory appeal from a decision of the Eastern District of Kentucky, to answer whether Kentucky law permits deduction of labor depreciation from actual cash value payments. A two-judge panel held that it does not.
The Hicks court first held that the policy was ambiguous because it did not define actual cash value but incorporated a state regulatory definition found to be ambiguous. Because the court found that a layperson could reasonably interpret depreciation to include only materials, the policy was construed in favor of the insured to prohibit labor depreciation from being deducted from actual cash value payments. The court admitted that its decision departed from the substantial weight of authority, including that of two sister circuit courts. In re State Farm Fire and Casualty Co., 872 F.3d 567 (8th Cir. 2017); Graves v. Am. Family Mut. Ins. Co., 686 F. App'x 536 (10th Cir. 2017). However, the panel decision justified its departure based on differing state laws measuring actual cash value, particularly Kentucky's acceptance of the "broad evidence rule" in establishing value, a distinction roundly condemned by the dissent. Meanwhile, the insurer filed a petition for en banc rehearing on Oct. 29.
Barely a month later, the Northern District of Ohio refused to follow the nonbinding decision in Hicks, holding under Ohio law that the plain and ordinary meaning of "ACV cannot reasonably be interpreted to exclude labor from a depreciation calculation." Perry v. Allstate Indem. Co., Case no. 1:16-CV-1522, Case no. 2018 WL 6169311 (N.D. Ohio Nov. 26, 2018); Cranfield v. State Farm Fire and Cas. Co., Case no. 1:16-CV-1273, 2018 WL 6169200 (N.D. Ohio Nov. 26, 2018). The district court found Hicks unpersuasive because a "reasonable insured individual should conclude that labor is included in depreciation." Rather, the State Farm and Allstate court followed "the current majority view among state and federal courts that labor should be included in depreciation."
Time will tell whether these decisions impact any remaining labor depreciation class actions outside Ohio and Kentucky.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
