Labor Depreciation Class Actions Get New Life

 Since last quarter's report, the Sixth Circuit rescued labor depreciation class actions against insurers based on structural damage homeowners claims, at least in Kentucky. In Hicks v. State Farm Fire and Casualty Co., 2018 WL 4961391 (6th Cir. Oct. 15, 2018), the court accepted an interlocutory appeal from a decision of the Eastern District of Kentucky, to answer whether Kentucky law permits deduction of labor depreciation from actual cash value payments. A two-judge panel held that it does not.

The Hicks court first held that the policy was ambiguous because it did not define actual cash value but incorporated a state regulatory definition found to be ambiguous. Because the court found that a layperson could reasonably interpret depreciation to include only materials, the policy was construed in favor of the insured to prohibit labor depreciation from being deducted from actual cash value payments. The court admitted that its decision departed from the