Franklin v. Lexington Ins. Co., No. WD 84816, 2022 WL 2310031, at *14 (Mo. Ct. App. June 28, 2022)
Most policies do not define the phrase “actual cash value. Absent a definition Missouri Courts have held that the phrase means “the difference in the fair market value of the damaged property immediately before and after the loss Generally, Missouri law does not allow the replacement cost of property into evidence when calculating ACV. Absent a policy definition, or an agreement between the parties, admissible evidence on ACV should come from real estate appraisers who have determined the decrease in fair market value. However, the standard formula in calculating ACV used by all carriers is Replacement Cost Minus Depreciation (RCMD). In Franklin, the insured and insurer had agreed to use RCMD to calculate ACV, and the carrier, over the insured’s objection, depreciated labor in arriving at the amount due the insured for the ACV payment, which the Court held was not allowed.
The Court’s favorable ruling for the insured was predicated on the fact that the Lexington policy was ambiguous on the issue of withholding labor cost depreciation from an ACV payment, and that the policy was silent on any definition for depreciation. The Court correctly explained that ordinary policyholders would not expect labor costs to be depreciated from an ACV payment. To the contrary, the Court explained, “the belief that labor does not depreciate is a plausible conception for a wealth of thoughtful, knowledgeable judges, and it is even more so for lay insureds with no special competence in property or insurance matters.” The Court did provide the guidance that if a carrier wants to depreciate labor, such a provision can be included in the policy.
The Court recognized that other state and federal jurisdictions have allowed carriers to depreciate labor but did not find that caselaw persuasive. So, for the time being, unless a policy contains within its text, a provision allowing for the depreciation of labor when calculating an ACV payment, this practice should be discontinued.