The Supreme Court of North Carolina has held that the term Actual Cash Value (ACV) in a homeowners insurance policy is unambiguous and is calculated by considering both labor and material costs. The case is Accardi v. Hartford Underwriters Ins. Co., No. 42A19 (N.C. Feb. 28, 2020).
Thomas Accardi owned a home that was insured by a homeowners insurance policy provided by Hartford Underwriters Ins. Co. (Hartford.) The Accardi home was damaged in a hailstorm in September of 2017. The storm caused damage to the roof, siding, and garage of the home which all required repair and restoration.
The North Carolina Department of Insurance consumer guide to homeowner's insurance states that when a homeowner selects homeowners insurance, they can choose to insure based on ACV or replacement cost value (RCV) basis with ACV being the amount it would cost to repair or replace damage after depreciation, and RCV being the amount it would cost to replace or rebuild with materials of similar kind and quality, at today's prices, without deducting for depreciation. The insurance policy in play here was a hybrid of those two, providing that the insurer would initially pay the ACV and then reimburse the plaintiff for any extra money paid to repair or replace the item, up to the RCV. A separate endorsement for roof damage stated that ACV would be calculated by deducting depreciation from the cost to repair or replace the damaged roof.
Accardi filed a claim requesting payment for the damage, and Hartford confirmed that the damage was covered under the policy and sent an adjuster to inspect the property. After the inspection, the adjuster prepared an estimate of the cost to repair or replace the damaged property, which estimated the losses to be $10,287.28 in losses and damages, including costs for materials, sales tax on materials, and labor. Hartford reduced that amount by the $500 deductible, and calculated depreciation of $3,043.92, which included the depreciation of labor and materials. Accardi objected to this assessment, arguing that Hartford was required to separately calculate the materials and labor costs, and depreciate only the cost of materials. Accardi filed suit and Hartford filed a motion to dismiss the action for failure to state a claim, arguing that the plain meaning of ACV includes the depreciation of both labor and materials. The business court concluded that "the term ACV as used in [t]he [p]olicy is not 'reasonably susceptible to more than one interpretation,' and that the term ACV unambiguously includes depreciation for labor costs."
The North Carolina Supreme Court affirmed the decision of the business court, and held that although the policy failed to define ACV, the roof coverage endorsement provided a definition that "must be read in harmony with the remainder of the policy." The court also held that the term "depreciation" as used in the policy was unambiguous, and thus included both material and labor costs, and so rejected Accardi's argument that labor does not depreciate in value over time. The court noted that it does not make sense to differentiate between the depreciation of labor and materials when a house is valued as a whole, not as a sum of its components. The court also declined to find that the term "depreciation" was ambiguous, and as all ambiguous policy terms, should be construed against the insurer, finding that to decide that labor cannot depreciate would provide an extra benefit to the policyholder, and put an unassumed liability upon the company.
Editors Note: Other jurisdictions in North Carolina have ruled on the same issue, but have ended up with split decisions. Because of this, and because this is the first decision of its kind in the state, this case will likely be looked to for support the calculation of ACV by depreciating both material and labor costs by other insurers and courts deciding similar cases.