A building consists of products: timber, nails, steel, roofing, sides, plaster, dry wall etc.. Standing alone, the products are worthless piles of materials that stand on a ground. When taken up by people and put together to form a residence or other structure, it is by the work of the people that put together the structural parts of a structure that it becomes a matter of value, a structure. The cost of repairing or replacing the structure will also require manpower. The value of the structure therefore includes both the cost of the material and the work of putting these materials together to make it a structure. Gregory J. Lammert et al. v. Car owner (mutual) insurance company, Nr. M2017-02546-SC-R23 CV, the Supreme Court of Tennessee in Nashville (April 1
The insurance policy
The policy defined the actual cash value as "the cost of replacing damaged property with new property of similar quality and properties reduced by the amount of depreciation applicable to the damaged property immediately before the loss "and stated that" the actual cash value includes a deduction deduction. "
The United States District Court for the Mid District of Tennessee submitted a statutory law question to the Tennessee Supreme Court regarding the interpretation of two insurance policies: "According to Tennessee law, an insurer may make an actual cash payment payment withholding some of the labor as depreciation at the policy (1) defines the actual cash value as "the cost of replacing damaged property with new property of similar quality and properties reduced by the depreciation amount applicable to the damaged property immediately before the loss "or (2) state that" actual cash value includes depreciation deductions? ""
Year 2017, petitioners Gregory J. Lammert, Jamie Lammert, Larry Reasons and Susan Reasons ("homeowners") left a putative class action suit against Respondent Auto-Owners (Mutual) Insurance Company ("auto-owner"), their property insurance company, for breach of contract . The Lammerts owned a home and other structures in Nashville that were insured with car owners during a "Home Insurance." Some of Lammert's buildings were damaged in a hail storm on May 10, 2016.
The property was damaged twice, once in favor in November 2016 and again with wind in March 2017. They filed claims for every loss, which car owners accepted.
The parties disagree on the interpretation of the insurance policies, with homeowners claiming that Auto-Owners should not have written off the cost of the work to repair and replace the damaged property when calculating the actual property's actual cash value.
The question presented in this case concerns whether part of the labor cost of repairing and replacing damaged property can be deducted from the total remuneration cost when calculating the actual cash value of a property. The parties agreed that, according to both principles, the method used to calculate the actual cash value is the compensation cost with deduction for depreciation. Neither policy specifically mentioned labor costs.
Central to the discussion in this opinion are the concepts of compensation, actual cash value and depreciation. Supreme Court of Braddock v. Memphis Fire Insurance Corp. 493 SW2d 453, 459-60 (Tenn. 1973) explained that insurance contracts are compensation agreements, which means that the purpose of the insurance contract is "to replace the insured; to restore him as close as possible to the position he was before the loss." If an insured were to make a profit on a loss by restoring the cost of a new roof for a damaged roof that was fifteen years old, then "
Compensation costs less deductions for depreciation benefit from relative determination. It is also easy to determine. However, the Supreme Court found the method to be inflexible and this property often results in excessive recovery. The problem of excessive recovery during the replacement cost minus the depreciation rule along with temporary uncertainty about the market value led to the development of what is now the most accepted rule, generally referred to as the "broad evidence rule", which is defined as allowing the trier to call in fact for his support to carry out complete remuneration, any fact and circumstance that would logically have a tendency to form a correct estimate of the loss. .
Depreciation is a decrease in the value or price of something; specifically, a decrease in asset value due to use, wear, rejuvenation or age. Depreciation in the insurance legislation is the actual deterioration of a structure due to age and physical wear, calculated at the loss.
The tenants argue that claims for depreciation of both materials and work cut down the insurance coverage by not making the homeowner the whole, while car owners expect to only apply depreciation of material leads to a coincidence for homeowners and thereby also defeats the purpose of compensation.
The Supreme Court noted and perhaps cited the fact that California Insurance Regulations and Vermont Department of Financial Regulation Insurance No. 184 prohibit depreciation of repair and replacement work. On the other hand, the Mississippi Insurance Department Bulletin 2017-8 noted that there is no statutory ban on labor depreciation in that state, but that "the insurer should clearly prescribe the write-off of the labor in the insurance policy."
In the End, this case is in the Court's standard for insurance contract interpretation, since both parties have presented what the Court describes as "credible interpretations of the policy, none of which explicitly state whether labor costs are depreciable in calculating the actual cash value."  Car owners argue for a technical definition of depreciation that is not stated on any of the policy's side. With the term in its ordinary sense, the physical deterioration applies, which is the meaning to which the tenant relates. Concrete policy language for the benefit of the assured conclusion that "depreciation can only be applied to material cost, not to labor costs."
Ultimately, it was not necessary for the Supreme Court to make the decision whether the labor force can be logically depreciated or if compensation is achieved. It is enough that the court stated that the contracts were ambiguous and that, according to its auditing standard, it must be interpreted by the insured.
The language of depreciation in the current policy is ambiguous. According to the Tennessee law, ambiguities in insurance contracts are strictly interpreted against insurance companies and in favor of the insured. Therefore, the insurer's interpretation check cannot be depreciated when the insurance company calculates the actual cash value of a property by means of the replacement cost with deduction for the depreciation method.
The Supreme Court of Tennessee, in contrast to its own declarations that insurance should not allow an insured to benefit from a loss, uses an ambiguity finding to allow the insured to benefit from a loss with an actual cash value policy. To use the court's example, if it costs $ 10,000 to replace a damaged floor, of which $ 5,000 is the cost of the material and $ 5,000 is the cost of the workforce to install the floor and it is depreciated 50%, the insurer will pay only $ 5,000 for the whole the cost of compensation is written off. If only the material was written off, the insured would recover $ 7500 and get a $ 2,500 profit from the loss because he couldn't replace the floor for less than $ 10,000. That is why people buy replacement cost policies. The insurers that issue the policy in Tennessee should define the actual cash value as a replacement cost with deduction of materials and labor, the total value of the damaged property.
© 2019 – Barry Zalma
This article and the entire blog post on this site, digest and summarize cases published by the courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, condensed to facilitate reading and convey the author's views in each individual case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance management, bad faith assurance, and insurance fraud nearly equal for insurers and policyholders. He also serves as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance cover and law firm and more than 50 years in the insurance industry. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual liability magazine / ACE Legend Award.
Over the past 51 years, Barry Zalma has put his life on insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claimants to become insurance managers.
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