Gregory J. Lammert v. Auto-Owners (Mutual) Insurance Company
572 S.W.3d 170
Tenn.2019Background
- Homeowners (Lammerts and Reasons) insured with Auto-Owners suffered storm damage and submitted claims that Auto-Owners adjusted on an actual cash value (ACV) basis using the replacement-cost-less-depreciation method.
- Auto-Owners computed ACV by estimating total replacement cost (materials + labor) and subtracting depreciation from the total, thereby depreciating labor as well as materials.
- Homeowners sued, contending labor costs are not depreciable under their policies; district court certified the controlling question of Tennessee law to the Tennessee Supreme Court under Rule 23.
- The Lammerts’ policy defined ACV as “cost to replace damaged property with new property of similar quality and features reduced by the amount of depreciation applicable to the damaged property immediately prior to the loss;” the Reasons’ policy stated ACV “includes a deduction for depreciation.” Neither policy expressly referenced labor.
- The central legal dispute: whether depreciation may be applied to repair/replacement labor when calculating ACV under replacement-cost-less-depreciation policies.
- The Tennessee Supreme Court held the policy language ambiguous and, construing ambiguities for the insured, answered the certified question: insurers may not withhold a portion of repair labor as depreciation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May an insurer depreciate repair/replacement labor when calculating ACV under a replacement-cost-less-depreciation policy? | Depreciation applies only to tangible damaged property (materials) because labor is intangible, does not age/wear, and the policy phrasing ("damaged property" and "prior to the loss") limits depreciation to pre-loss physical deterioration. | Depreciation is a numerical reduction applied to replacement cost as a whole; replacement cost includes labor, so deducting depreciation from total (materials + labor) is reasonable and prevents overindemnification. | Policy language is ambiguous; under Tennessee contract rules ambiguities construe against insurer, so labor may not be depreciated when computing ACV. |
Key Cases Cited
- Braddock v. Memphis Fire Ins. Corp., 493 S.W.2d 453 (Tenn. 1973) (insurance as indemnity; ACV as means to restore insured to pre-loss position)
- Third Nat’l Bank v. Am. Equitable Ins. Co. of New York, 178 S.W.2d 915 (Tenn. Ct. App. 1943) (ACV defined as actual value in money)
- Elberon Bathing Co. v. Ambassador Ins. Co., 389 A.2d 439 (N.J. 1978) (comparison of ACV methods: market value, replacement cost less depreciation, broad evidence rule)
- Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017 (Okla. 2002) (majority: labor and materials depreciable under broad evidence; dissent: labor not depreciable)
- Adams v. Cameron Mut. Ins. Co., 430 S.W.3d 675 (Ark. 2013) (policy ambiguous; court siding with view that labor is not depreciable)
- Henn v. Am. Family Mut. Ins. Co., 894 N.W.2d 179 (Neb. 2017) (labor and materials depreciable; replacement cost reflects both)
- Wilcox v. State Farm Fire & Cas. Co., 874 N.W.2d 780 (Minn. 2016) (depreciability of embedded labor is a fact-dependent inquiry under the broad evidence approach)