Can an Insurer Depreciate the Covered Loss Amount When Terms Are Vague?

The Nebraska Supreme Court took on that question in a case of first impression in Henn v. American Family Mutual Insurance, Co., 295 Neb 859, (February 17, 2017).

In September of 2011, Rosemary Henn submitted a homeowner’s claim under her insurance policy issued by American Family. It was to pay for damage to her home because of a hail storm. The language in the policy said an insured can recover, after a covered loss, the cost to repair the damaged part or replace it, provided the repairs or replacement are completed. If the repairs are not completed, American Family will pay the actual cash value of the damaged part of the building at the time of the loss. So, under the policy, the insured can either get the actual cash value of the damaged part of the building, up to the policy limits, or get the full repair or replacement costs when the repairs or replacement is completed.

After inspection of the damage, American Family sent Henn a written estimate that explained the calculations for replacement cost value, actual cash value, and depreciation. After the calculations and subtraction of her deductible, Henn got a check for $1,976. Henn filed suit, saying the actual cash value was ambiguous. The U.S. District Court found there was no controlling precedent in the decisions of the Nebraska Supreme Court to answer the question, so it certified this question to the Nebraska Supreme Court: “May an insurer, in determining the ‘actual cash value’ of a covered loss, depreciate the cost of labor when the terms ‘actual cash value’ and ‘depreciation’ are not defined in the policy and the policy does not explicitly state that labor costs will be depreciated?”

The Supreme Court looked at Henn’s claim that the language in the insurance contract was ambiguous, American Family disagreed. The Court said ambiguous policies will be construed in favor of the insured, but there is no legal requirement that each word used in an insurance policy must be specifically defined in order to be unambiguous. The Court examined multiple approaches and jurisdictions’ holdings on similar questions. After extensive analysis, the Court answered the question of whether an insurer can depreciate the cost of labor in determining the actual cash value of a covered loss in the affirmative, adding it found the term “actual cash value” is unambiguous.

The Metier Law Firm is committed to assisting people with personal injury claims throughout Colorado, Wyoming and Nebraska, and we frequently serve as co-counsel to law firms nationwide. Tom Metier recently secured the largest personal injury verdict in Colorado.