Publications

Last month’s Alert reported on an Arkansas Supreme Court decision holding that state law prohibits including the depreciation of labor costs in calculating the actual cash value of a covered loss even where a policy provision expressly allows for such depreciation.  Shelter Mut. Ins. Co. v. Goodner, 2015 WL 8482788 (Ark. Dec. 10, 2015).  In Shelter Mutual, the court relied solely on a prior decision in which the term “actual cash value” was undefined and thus deemed ambiguous.  See Adams v. Cameron Mut. Ins. Co., 430 S.W.3d 675 (Ark. 2013).   This month, the Minnesota Supreme Court reached the opposite conclusion, ruling that where a policy does not define “actual cash value,” the trier of fact may determine whether the depreciation of labor costs should be considered.  Wilcox v. State Farm Fire & Cas. Co., 2016 WL 516707 (Minn. Feb. 10, 2016).

The Minnesota Supreme Court ruled that the “actual cash value” provision was not ambiguous, notwithstanding the absence of a definition or specified calculation method.  The court reasoned that “actual cash value” is a legal term of art that refers to the “actual loss” incurred by the policyholder.  The court held that a trier of fact is afforded broad discretion to adopt a “flexible approach” that considers “every fact and circumstance which would logically tend to the formation of a correct estimate of the loss.”  Where, as here, labor depreciation is not expressly precluded from consideration, the court held that there is no basis for disallowing it as a relevant factor.   In endorsing a fact-specific approach, the court emphasized that labor cost depreciation “is only one of many factors to be considered by the trier of fact; and its relevance depends on the facts and circumstances of the particular case.”