Loss settlement provisions in most policies have two options - replacement cost and actual cash value. With replacement cost, the property is replaced with new property. With actual cash value settlement, the age and condition of the damaged property is taken into consideration, and the replacement cost value is depreciated based on those conditions. There are several calculators available that help determine the life span of a variety of goods making the calculation for depreciation straightforward. However, there is one element that is not straightforward, and that is labor.

Labor is not a tangible item; you don’t buy labor, it’s a cost associated with actual physical labor, and the labor to install a roof doesn’t become less valuable over time. The labor to replace a damaged roof is at today’s prices, and the value of that labor is not worn or obsolete. However, some insurers depreciate the value of labor from property settlements, while others do not. Numerous insureds have filed suit against their insurers with varying results, and some states have statutes specifically dictating whether or not labor can be depreciated in a property settlement. This chart provides information on cases, statutes, department bulletins, and other information.

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