Henn v. American Family Mut. Ins. Co.
894 N.W.2d 179
Neb.2017Background
- Plaintiff Rosemary Henn submitted a hail-damage claim under an American Family replacement-cost homeowners policy; insurer acknowledged coverage and issued an estimate.
- Policy allowed either (1) actual cash value (ACV) at time of loss or (2) full replacement cost upon completion of repairs, but did not define "actual cash value" or "depreciation" or describe calculation methods.
- American Family paid an ACV interim payment that reflected depreciation taken from the total cost estimate (materials plus labor); Henn did not pursue the replacement-cost difference.
- Henn sued, alleging underindemnification because American Family depreciated labor when computing ACV; case was removed to federal court and that court certified the question to the Nebraska Supreme Court.
- Certified question: May an insurer, when ACV and depreciation are undefined in the policy and the policy does not expressly state labor will be depreciated, depreciate labor costs in computing ACV?
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy term "actual cash value" is ambiguous regarding depreciation of labor | Henn: "Actual cash value" is ambiguous and should not permit depreciation of labor; depreciation of labor undercuts indemnity | American Family: "Actual cash value" unambiguously represents replacement cost less depreciation, which necessarily applies to total repair cost (materials + labor) | Court: "Actual cash value" unambiguous here; depreciation may be applied to labor |
| Whether depreciating labor under a replacement-cost policy leads to underindemnification | Henn: Depreciating labor leaves insured with unrecoverable out-of-pocket loss and is inconsistent with indemnity | American Family: ACV is an interim, depreciated payment to "start repairs"; insured, not insurer, bears the cash difference to complete replacement | Court: Depreciating both materials and labor does not underindemnify; ACV is meant to be a depreciated amount of replacement cost and may include labor depreciation |
Key Cases Cited
- Reisig v. Allstate Ins. Co., 264 Neb. 74, 645 N.W.2d 544 (Neb. 2002) (one approach to ACV calculation; market value/replacement cost analyses)
- Olson v. Le Mars Mut. Ins. Co., 269 Neb. 800, 696 N.W.2d 453 (Neb. 2005) (ACV is not a substantive damages measure; limited rule about not deducting depreciation in certain partial-damage actual-cash-value policies)
- Erin Rancho Motels v. United States F. & G. Co., 218 Neb. 9, 352 N.W.2d 561 (Neb. 1984) (approved use of broad evidence rule and fair market value in ACV determinations)
- D & S Realty v. Markel Ins. Co., 284 Neb. 1, 816 N.W.2d 1 (Neb. 2012) (under replacement-cost policy, insured bears cash difference; ACV functions as seed money to start repairs)
- Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017 (Okla. 2002) (majority held labor may be depreciated under broad evidence rule; analyzed roof as product of materials and labor)