Chicago Business Litigation Lawyer Blog
The Illinois Supreme Court recently issued its decision in a putative class-action lawsuit concerning the practice of State Farm of depreciating the cost of labor when paying out claims to holders of homeowner policies. In a 6-0 decision, the Illinois Supreme Court held that insurers may not depreciate labor costs when determining the “actual cash value” (ACV) of a covered loss where the policy does not define that term.
The case stems from a dispute following a homeowner’s insurance claim by the plaintiff Jarret Sproull under his policy issued by State Farm. Sproull’s home was damaged by wind in 2015. Sproull contacted State Farm and made a claim under his homeowner’s policy. Under Sproull’s policy, State Farm agreed to pay “only the actual cash value at the time of the loss of the damaged part of the property” initially and then the actual cost of repair or replacement after repairs were completed. Using a program called “Xactimate,” State Farm estimated a replacement cost value of $1,711.54 to repair the damage to Sproull’s home. After subtracting $1,000 for the deductible and $394.36 for depreciation and taxes, State Farm calculated an actual cash value of $317.18 and cut Sproull a check for that amount.
Believing that State Farm improperly calculated his actual cash value by depreciating labor in addition to materials, Sproull filed a putative class-action complaint in state court alleging that State Farm breached its contract by improperly depreciating the cost of intangible components of replacement cost, such as labor and concealing its practice from policyholders.
State Farm sought dismissal of Sproull’s complaint by arguing that its method of calculating actual cost value was mandated by an Illinois Department of Insurance (DOI) regulation which defined actual cash value as “replacement cost of property at time of loss less depreciation, if any.” The policy itself did not define the term actual cash value. The trial court denied the motion, finding the phrase “actual cash value” to be ambiguous in the context of State Farm’s policy. Continue reading ›