The Michigan Department of Insurance and Financial Services (DIFS) published a bulletin on their view of insurers including the depreciation of nontangible items in their policies. The Department has learned that some property insurance policies include depreciation of labor and other nontangible items in their definition of actual cash value.
As we know in insurance, ACV typically means replacement cost minus depreciation, and it generally would apply only to physical or tangible items. Labor and other intangible items do not deteriorate, age, or otherwise decline in value, even if the insured physical property does.
Michigan Insurance Code MCL 500.2236(5) states that insurance forms may not contain inconsistent, ambiguous, or misleading clauses, or the Director of DIFS may disapprove or prohibit the issuance of the form. Since the depreciation of nontangible items is typically not included in insurance forms, the inclusion of them could mislead or deceive insureds.
Insurers that issue forms that depreciate intangible items should be clear and transparent about the practice. In order to ensure transparency DIFS requires that all policies issued or renewed on January 1, 2025, or after, that include the depreciation of labor and other intangible items should be issued as a standalone endorsement that specifically names the intangible items subject to depreciation.
The endorsements should be optional coverage and available for a reduced premium. Policies that include the depreciation of nontangible items in the definition of "actual cash value" or "depreciation" will not be approved by the Director.
The bulletin can be found here.