Actual Cash Value Does Not Permit Depreciation of Labor Costs in Mississippi

The Federal District Court in Mississippi held in Titan Exterior, Inc. v. Certain Underwriters at Lloyd, London, 2018 WL 1057139, _____ F.Supp.3d _____ (No. Dist. Miss. February 26, 2018) that the concept of ACV did not allow for depreciation of labor costs. In this case, the insurer calculated an ACV payment by utilizing the replacement cost value less depreciation methodology. The insurer first determined the cost to replace the damaged property and then subtracted depreciation to determine its actual cash value. The policy did not define “actual cash value” or “depreciation.” The insurer argued that the plain meaning of the term “value” included labor depreciation in as much as the concept of value meant the value of the entire property, including both materials and labor when calculating depreciation. The court rejected this argument, finding that the policy was ambiguous because some states had approved labor depreciation while other states rejected labor depreciation. Finding both positions reasonable, the court held that ACV, when defined as “replacement cost value less depreciation,” and when “depreciation” was not further defined in the policy, an ambiguity existed which had to be construed in favor of the insured.