The highest court in Tennessee ruled unanimously in favor of the policyholders on Monday April 15, 2019 when it ruled that insurance companies may not depreciate labor when calculating actual cash value. On a certified question from the U.S. District Court for the Middle District of Tennessee in the case of Gregory J. Lammert, et al v. Auto-Owners Mutual Insurance Company, the Tennessee Supreme Court was faced with the following question:
Under Tennessee law, may an insurer in making an actual cash value payment withhold a portion of repair labor as depreciation when the policy (1) defines actual cash value as ‘the cost to replace damaged property with new property of similar quality and features reduced by the amount of depreciation applicable to the damaged property immediately prior to the loss,’ or (2) states that ‘actual cash value includes a deduction for depreciation?
In response to this certified question, Tennessee’s highest court answered: “Based on Tennessee law regarding the interpretation of insurance contracts, we conclude that the language in the policies is ambiguous and must be construed in favor of the insured parties. Therefore, we answer the district court’s question in the negative: The insurer may not withhold a portion of repair labor as depreciation.”
Brandon McWherter and his co-counsel, Joe Snodgass and David McMullan represented the policyholders in the case, which was filed as a class action and will now return to federal court for determination of whether the case should be certified as a class action.
This case came down to whether an insurance company can withhold labor costs when determining its actual cash value payment obligations. While depreciation of material is logical, the policyholders felt depreciation of labor was contrary to common sense and resulted in gross underpayment of claims. Based on the policy language at issue, the Supreme Court agreed, stating It is also reasonable that a homeowner, knowing that replacement costs include both labor and materials to rebuild a roof, would believe that the insurance company would only apply depreciation to the physical materials, those things that actually deteriorated.”
If you are facing an insurance dispute, Brandon McWherter, Clint Scott and Jonathan Bobbitt provide residents of Tennessee with honest and trustworthy representation. You are welcome to call the office at 888-996-9731 or fill out the contact us form found on the website to schedule an appointment.