Sproull v. State Farm Fire & Casualty Co.
172 N.E.3d 1186
Ill. App. Ct.2020Background
- Plaintiff Jarret Sproull submitted a homeowners claim after wind damage; State Farm paid an initial actual cash value (ACV) using an Xactimate estimate that depreciated both materials and labor on some line items.
- State Farm’s policy provided a two-step replacement-cost settlement (ACV now; recoverable depreciation after repair) but did not define “actual cash value” or state whether labor is depreciable.
- Sproull sued as a putative class, alleging breach of contract and deception because State Farm depreciated labor when calculating ACV.
- The trial court denied State Farm’s motion to dismiss, found the term “actual cash value” ambiguous, and certified under Rule 308 the question whether an insurer may depreciate all components of replacement cost (including labor) when the policy does not define ACV.
- The Fifth District answered the certified question: when the policy does not define ACV and the regulation states ACV = replacement cost of property at time of loss less depreciation, only tangible property/materials (not intangible labor) may be depreciated in calculating ACV.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May insurer depreciate labor when policy does not define ACV? | Sproull: No; ACV refers to tangible property and labor is an intangible service that should not be depreciated. | State Farm: Yes; regulation defines ACV as replacement cost less depreciation and does not limit depreciation to materials, so labor may be depreciated. | No. Court: ACV, as used in the policy and regulation, refers to property/materials; labor (an intangible service) may not be depreciated. |
| Does 50 Ill. Adm. Code §919.80(d)(8)(A) authorize depreciation of labor? | Sproull: The regulation refers to replacement cost of property and should be read to apply to tangible property only. | State Farm: The regulation permits depreciation of any components of replacement cost; nothing limits it to materials. | The regulation’s phrase “replacement cost of property … less depreciation” pertains to tangible property; it does not authorize depreciating labor absent clearer contract language. |
| Is the policy ambiguous about ACV and how should it be construed? | Sproull: The absence of an ACV definition makes the term ambiguous and should be construed for the insured. | State Farm: The term has a plain meaning and its method complies with the regulation; no ambiguity. | Although the policy lacks a definition, the court applied the ordinary meaning of ACV and concluded a reasonable insured would not expect labor to be depreciated; decision favors insured. |
Key Cases Cited
- Smith v. Allemannia Fire Ins. Co., 219 Ill. App. 506 (Ill. App. 1920) (early Illinois rule treating ACV as reproduction/replacement cost less depreciation)
- C.L. Maddox, Inc. v. Royal Ins. Co. of Am., 208 Ill. App. 3d 1042 (Ill. App. 1991) (ACV means reproduction/replacement cost minus depreciation, not market value)
- Carey v. American Family Brokerage, Inc., 391 Ill. App. 3d 273 (Ill. App. 2009) (reiterating replacement cost less depreciation as proper ACV measure)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90 (Ill. 1992) (insurance-policy interpretation principles; give effect to parties’ intent; ambiguous terms construed for insured)
- Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill. 2d 11 (Ill. 2005) (contract-construction rules apply to insurance policies)