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Labor Depreciation Class Actions Get New Life
Since last quarter’s report, the Si xth Circuit rescued labor de preciation class actions
against insurers based on s tructural damage homeowner s claims, at least in Kentucky.
In Hicks v. State Farm Fire and Casualty C o., 2018 WL 4961391 (6th Cir. Oct. 15, 2018),
the court accepted an interlocutory appeal from a decis ion of the Eastern District of
Kentucky, to answer whether Kentucky law permits deduction of lab or depreciation from
actual cash value payments. A two-jud ge panel held that it does not.
The Hicks court rst held that the policy was ambiguous because it did not dene
actual cash value but incorpora ted a state regulatory denition found to be ambigu ous.
Because the court found that a l ayperson could reasonably interpret depreciation to
include only materials, the policy was constr ued in favor of the insured to prohibit labor
depreciation from being deduc ted from actual cash value payments. The court admitted
that its decision departed from the substantial weight of authority, including that of two
sister circuit courts. In re State Farm Fire and Cas ualty Co., 872 F.3d 567 (8th Cir. 2017);
Graves v. Am. Family Mut. Ins. Co., 686 F. App’x 536 (10th Cir. 2017). However, the panel
decision justied its depar ture based on differing state laws measuring actual cash
value, particularly Kentucky’s acceptan ce of the “broad evidence rule” in establishing
value, a distinction roundly condemned by the diss ent. Meanwhile, the insurer led a
petition for en banc rehearing on Oc t. 29.
Barely a month later, the Northern District of Ohi o refused to follow the nonbinding
decision in Hicks, holding under Ohio law that the plain a nd ordinary meaning of “ACV
cannot reasonably be interpreted to exclude labor f rom a depreciation calculation.”
Perry v. Allstate Indem. Co., Case no. 1:16-CV-1522, Case no. 2018 WL 6169311 (N.D.
Ohio Nov. 26, 2018); Cranfield v. State Farm Fire and Cas. Co., Case no. 1:16-CV-1273,
2018 WL 6169200 (N.D. Ohio Nov. 26, 2018). The district court found Hic ks unpersuasive
because a “reasonable insure d individual should conclude that labo r is included in
depreciation.” Rather, the State Fa rm and Allstate cour t followed “the current majority
view among state and federal cour ts that labor should be included in depreciation.”
Time will tell whether these decisions impact any remaining labor depreciation class
actions outside Ohio and Kentucky.
Insurance Class Action Update
2018 3Q
By Mark A. Johnson
The past quarter has seen several new types of class actions against
insurers and new twists on the well-worn theory of total loss claims,
as well as some new life breathed into long-running labor depreciation
class actions.
