The Depreciation of Labor is Legal in Pennsylvania
April 19, 2016. May an insurer depreciate labor when calculating actual cash value in a first party insurance claim?
The answer is yes. A recent federal court decision from the Western District of Pennsylvania has answered yes to that question; we here in the Timoney Knox Insurance Industry Group agree wholeheartedly with the conclusion, and the rationale.
Property insurance is intended to put policyholders in the position they would be in had no loss occurred; consequently, those same policyholders are not entitled to recover more than the property is worth at the time of the loss. This concept was expressed clearly in Papurello v. State Farm Fire & Cas. Co., Civ. A. 15-1005, 2015 U.S. Dist. LEXIS 154536, at *36 (W.D. Pa. Nov. 16, 2015). Under this reasoning, Pennsylvania law allows depreciation of labor in determining the actual cash value owed to a policyholder for a loss where the policy authorizes depreciation. The conclusion is consistent with Pennsylvania appellate court reasoning as well. See Kane v. State Farm Fire & Cas. Co., 841 A.2d 1038 (Pa. Super. 2003). All is not lost for policyholders; they can recover the withheld depreciation, including that for labor, if they repair or replace the damaged property. This is consistent with decades-old case law.
In short – in Pennsylvania — the depreciation of materials and labor necessary to repair/replace damaged property is reasonable and legal.