Sproull v. State Farm Fire and Casualty Co.
184 N.E.3d 203
Ill.2021Background:
- Jarret Sproull sued State Farm alleging it depreciated labor when calculating actual cash value (ACV) for structural damage and concealed that practice; his homeowner policy paid ACV first and RCV upon repair but did not define “actual cash value.”
- State Farm’s adjuster used Xactimate and applied depreciation to certain line items’ labor; Sproull alleged this underpaid ACV and incoherently discouraged repairs.
- State Farm moved to dismiss, arguing Illinois law/regulation (ACV = replacement cost less depreciation) permits depreciating all components, including labor; trial court denied dismissal and certified a question for interlocutory review.
- The Illinois Appellate Court (5th Dist.) answered the certified question: when a policy does not define ACV, depreciation may be applied to structure/materials but not to intangible labor.
- The Illinois Supreme Court affirmed, holding the policy and incorporated regulation ambiguous about labor depreciation, construing ambiguity in favor of the insured and answering the certified question in the negative; cause remanded for further proceedings.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May an insurer depreciate labor in calculating ACV when the policy does not define ACV? | Depreciation means wear/age of tangible items only; labor is intangible and not subject to wear, so labor cannot be depreciated. | ACV = replacement cost of property less depreciation; “property” includes the finished product (materials + labor), so depreciation may be applied to all components. | Policy/regulation ambiguous; construed for insured—depreciation may be applied to structure/materials but not to intangible labor when ACV is undefined. |
Key Cases Cited
- Redcorn v. State Farm Fire & Casualty Co., 55 P.3d 1017 (Okla. 2002) (Oklahoma Supreme Court holding labor may be depreciated under ACV using the broad-evidence approach)
- Mitchell v. State Farm Fire & Casualty Co., 954 F.3d 700 (5th Cir. 2020) (Fifth Circuit holding ACV ambiguous and construing against insurer; labor not depreciable under that ambiguity)
- Perry v. Allstate Indemnity Co., 953 F.3d 417 (6th Cir. 2020) (Sixth Circuit construing ACV/regulation ambiguity in insured’s favor; labor depreciation not permitted)
- Lammert v. Auto-Owners (Mut.) Ins. Co., 572 S.W.3d 170 (Tenn. 2019) (Tennessee Supreme Court holding ambiguous policy must be construed for insured; ordinary meaning of depreciation limited to materials)
- Accardi v. Hartford Underwriters Ins. Co., 838 S.E.2d 454 (N.C. 2020) (North Carolina Supreme Court holding depreciation may apply to whole asset, including labor)
- Butler v. Travelers Home & Marine Ins. Co., 858 S.E.2d 407 (S.C. 2021) (South Carolina Supreme Court treating labor as embedded in the finished product and endorsing labor depreciation)
- Henn v. American Family Ins. Co., 894 N.W.2d 179 (Neb. 2017) (Nebraska Supreme Court applying broad-evidence/market value approaches and allowing labor as relevant to ACV)
- In re State Farm Fire & Casualty Co., 872 F.3d 567 (8th Cir. 2017) (Eighth Circuit applying state law to permit depreciation of overall asset value)
- Dickler v. CIGNA Prop. & Cas. Co., 957 F.2d 1088 (3d Cir. 1992) (Third Circuit treating “depreciation” in property-insurance context as physical deterioration)