Adams v. Cameron Mutual Insurance Co.
2013 Ark. 475
Ark.2013Background
- Adamses owned a home insured by Cameron Mutual under an indemnity policy (coverage period June 1, 2008–June 1, 2009) with a $49,900 limit; losses are paid at “actual cash value,” a term not defined in the policy.
- A 2009 tornado damaged the Adamses’ dwelling; Cameron’s adjuster calculated repair costs and deducted depreciation (including on certain labor-only items) to arrive at a payment of $39,204.88.
- Adamses filed a class-action breach-of-contract claim alleging Cameron improperly depreciated labor costs when computing actual cash value.
- The federal district court certified the question to the Arkansas Supreme Court: may an insurer depreciate labor costs in calculating “actual cash value” when the policy does not define that term?
- The Arkansas Supreme Court held the term “actual cash value” was ambiguous and, construing the policy against the insurer, ruled that labor costs may not be depreciated when the term is undefined.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an insurer may depreciate labor costs when computing “actual cash value” under an indemnity policy that does not define the term | Adams: “Actual cash value” ambiguity must be construed for insured; depreciation applies to physical materials only, not labor, so labor should be paid in full | Cameron: Parties chose an ACV policy; ACV = replacement cost minus depreciation and depreciation can apply to all parts of replacement cost, including labor; limiting depreciation to materials would overcompensate insureds and raise premiums | Court: Term ambiguous; under contra proferentem and principle of indemnity, labor costs may not be depreciated when “actual cash value” is undefined; answer — No |
Key Cases Cited
- ProAssurance Indem. Co. v. Metheny, 425 S.W.3d 689 (Ark. 2012) (policy language is construed in its plain, ordinary sense)
- Philadelphia Indem. Ins. Co. v. Austin, 383 S.W.3d 815 (Ark. 2011) (ambiguity construed in favor of insured; common usage of terms governs interpretation)
- Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017 (Okla. 2002) (Oklahoma court held depreciation of labor permissible; discussed and rejected)
- Rochester Am. Ins. Co. v. Short, 252 P.2d 490 (Okla. 1953) (explains indemnity principle: insurer should put insured in as good condition as before the loss)