Graves v. American Family Mutual Insurance Co.
686 F. App'x 536
| 10th Cir. | 2017Background
- Margaret Graves filed an insurance claim after hail damage; her policy provided actual cash value (ACV) at time of loss and replacement cost if repairs completed within one year.
- American Family adjusted and paid ACV for roof and kitchen ceiling, withheld depreciation (including for labor) and deducted the deductible; later paid full replacement cost for the roof after repairs; ceiling repairs were not completed within one year, so replacement-cost funds for the ceiling were denied.
- Graves sued claiming American Family improperly depreciated labor when calculating ACV and unlawfully deferred payment of depreciation until post-repair, seeking class treatment; the district court granted summary judgment for American Family on Graves’ individual claims, mooting class issues.
- The Tenth Circuit reviews de novo, applying Kansas contract law; the policy explicitly defined ACV to be replacement cost “less allowance for physical deterioration and depreciation, including obsolescence.”
- Graves argued depreciation must apply only to materials (not labor); American Family argued ACV may be calculated by depreciating the insured asset’s total replacement cost (materials plus labor).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer may depreciate labor when computing ACV | Graves: depreciation may be applied only to materials; labor cannot be depreciated | American Family: ACV may be calculated by depreciating total replacement cost (materials + labor) per policy language | Insurer may depreciate labor as part of overall asset depreciation; summary judgment for insurer affirmed |
| Whether policy language is ambiguous about depreciation | Graves: phrase "allowance for physical deterioration and depreciation" is ambiguous and should be construed for insured | American Family: language is clear and permits depreciation of the insured asset as a whole | Court: language clear; no ambiguity; ordinary meaning of depreciation applies |
| Whether defendant’s method violated indemnity principle | Graves: depreciating labor produces illogical over- or under-compensation | American Family: depreciating the whole asset avoids unjust enrichment and honors indemnity | Court: depreciating labor prevents overcompensation and is consistent with indemnity principle |
| Whether deferred payment of recoverable depreciation for roof required additional relief | Graves: delay in paying recoverable depreciation (post-repair) entitles her to more | American Family: no additional amount due because ACV calculation was proper and replacement payment followed policy terms | Court: claim fails because initial ACV calculation was lawful and replacement payment complied with policy; no extra relief awarded |
Key Cases Cited
- Redcorn v. State Farm Fire & Casualty Co., 55 P.3d 1017 (Okla. 2002) (depreciation of a roof may include labor because the insured asset is the roof as a whole)
- Thomas v. Am. Family Mut. Ins. Co., 666 P.2d 676 (Kan. 1983) (where policy does not provide for depreciation, ACV cannot be reduced by depreciation)
- Adams v. Cameron Mut. Ins. Co., 430 S.W.3d 675 (Ark. 2013) (term "actual cash value" found ambiguous where policy language unclear)
- Marshall v. Kan. Med. Mut. Ins. Co., 73 P.3d 120 (Kan. 2003) (policy terms construed in plain, ordinary meaning; courts should not strain to find ambiguity)
- AMCO Ins. Co. v. Beck, 929 P.2d 162 (Kan. 1996) (policy interpretation is a question of law reviewed de novo)
- Stickley v. State Farm Mut. Auto. Ins. Co., 505 F.3d 1070 (10th Cir. 2007) (federal standards for summary judgment and choice-of-law guidance in diversity cases)