The District of Columbia Department of Insurance published a bulletin addressing the use of depreciation of labor and other nontangible items in property insurance policies.

Some insurers in the state use policy forms that include the depreciation of labor expenses and other intangible items within the definition of actual cash value. The Department states that depreciation is a decline in a property’s value because of use, wear, obsolescence, or age, and that labor does not lose value or break down over time.

Depreciating labor expenses shifts a large part of labor repair costs from the insurer to the insured. The Department believes that the depreciation of labor and other nontangible items constitutes an unfair claims settlement practice, and will not approve any form that includes it. Nontangible items are defined as labor, taxes, fees, overhead, and profit.