The Supreme Court of Tennessee has decided that when calculating the actual cash value (ACV) of property damage, the labor cannot be depreciated. The case is Lammert v. Auto-Owners (Mut.) Ins. Co., No. M2017-02546-SC-R23-CV, 2019 Tenn. LEXIS 169 (Apr. 15, 2019).

Gregory and Jamie Lammert owned a home and other structures that were insured through Auto-Owners (Mutual) Insurance Company (Auto-Owners) with a “Dwelling Insurance Policy.” Some of the insured buildings were damaged in a hail storm in 2016. They filed a claim with Auto-Owners who informed the insureds that the claim would be settled on an actual cash basis. Using a replacement-cost-less-depreciation method, Auto-Owners calculated that it would cost $12,146.55 to repair and replace the damaged parts with new materials. Auto-Owners subtracted $2,160.19 for depreciation and told the Lammerts that the actual cash value of their property was $9,986.36. Auto-Owners confirmed that both labor and the materials had been depreciated.

Similarly, Larry and Susan Reason were insured with Auto-Owners under a “Homeowners Insurance Policy.” Their property was damaged twice, once during a hailstorm and once during a windstorm, in 2016 and 2017 respectively. The claims were accepted. Auto-Owners used the replacement-cost-less-depreciation method and deducted depreciation for labor and materials when calculating actual cash value.