858 S.E.2d 407
S.C.2021Background:
- Two homeowners (Butler and Stewart) suffered fire damage and held homeowner policies from Travelers subsidiaries providing replacement-cost value (RCV) but paying actual cash value (ACV) if the insured elects not to repair.
- Both plaintiffs elected ACV payments; Travelers calculated ACV by taking estimated RCV and subtracting "depreciation" applied to both materials and labor (including embedded labor).
- Plaintiffs do not dispute using RCV less depreciation as a method or the specific labor-depreciation amounts; they challenge only whether an insurer may depreciate embedded labor when ACV is undefined in the policy.
- The federal district court found South Carolina appellate precedent inadequate on the question and certified to the South Carolina Supreme Court under SCACR Rule 244.
- The Supreme Court analyzed contract interpretation principles and practical difficulties in measuring ACV (often a fiction because no market exists for used/aged building components) and defined "depreciation" in the insurance context.
- Court held that depreciating embedded labor when using the RCV-minus-depreciation method is permissible under South Carolina law; reasonableness and correctness of a particular depreciation estimate remain factual questions for the factfinder.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May an insurer depreciate labor (including embedded labor) when calculating ACV by subtracting depreciation from RCV when the policy does not define "actual cash value"? | Butler/Stewart: No — depreciating labor improperly reduces ACV; labor should not be depreciable when embedded. | Travelers: Yes — ACV may be calculated as RCV less depreciation, and depreciation can reasonably include embedded labor. | Yes. South Carolina law does not prohibit depreciating embedded labor when using RCV-minus-depreciation to calculate ACV; reasonableness of specific calculations is a question of fact. |
Key Cases Cited
- S.C. Elec. & Gas Co. v. Aetna Ins. Co., 238 S.C. 248 (1961) (discussed depreciable material costs versus undepreciable replacement elements)
- Williams v. Gov't Emps. Ins. Co., 409 S.C. 586 (2014) (insurance-policy terms are contracts and construed under contract law)
- Harleysville Group Ins. v. Heritage Communities, Inc., 420 S.C. 321 (2017) (clear contract language governs; no extrinsic construction needed)
- Whitlock v. Stewart Title Guar. Co., 399 S.C. 610 (2012) (ambiguities in insurance policies construed for insured)
- Elberon Bathing Co., Inc. v. Ambassador Ins. Co., Inc., 389 A.2d 439 (N.J. 1978) (identifies three general methods for measuring ACV)
- Wilcox v. State Farm Fire & Cas. Co., 874 N.W.2d 780 (Minn. 2016) (embedded-labor-cost depreciation reasonableness is a factual question)
- Accardi v. Hartford Underwriters Ins. Co., 838 S.E.2d 454 (N.C. 2020) (observed that differentiating labor and materials when depreciating may make little sense)