Court Finds Animals Incapable of Vandalism or Malicious Mischief for Insurance Purposes (and all other purposes, too)

Alex Silverman | Property Casualty Focus | October 31, 2019

I am willing to go out on a limb and say that if asked whether an animal, say, a raccoon, is capable of committing malicious criminal acts, most humans would agree that the issue is beyond dispute. But, alas, most humans would be wrong (apparently it very much can be disputed). There is good news, however. The nation’s courts have been quietly tackling the issue, and, thankfully, they have been able to allay any fear of a raccoon uprising occurring in the near future. A federal court in Pennsylvania recently had occasion to address the issue, and it reconfirmed that animals are indeed incapable of committing “vandalism” or “malicious mischief,” both generally and for purposes of obtaining first-party insurance coverage. See Capital Flip, LLC v. Am. Modern Select Ins. Co., No. 2:19-cv-00180 (W.D. Pa. Sept. 19, 2019).

The Capital Flip case stems from a dispute between Capital Flip LLC and its insurer, American Modern Select Insurance Co. Capital Flip owned property in the Pittsburgh area insured under a “dwelling policy” issued by American Modern. In April 2018, Capital Flip discovered that raccoons (or, perhaps, one especially malicious raccoon) had entered the property and caused substantial interior damage. Capital Flip sought coverage for the damage under the American Modern policy, which covered specific “perils insured against,” including losses arising from “vandalism or malicious mischief.”

According to Capital Flip, the damage was covered because it resulted from “vandalism” or “malicious mischief” committed by the so-called culprit raccoon. American Modern denied the claim and advised Capital Flip that damage caused by animals cannot possibly constitute loss arising from “vandalism or malicious mischief” within the meaning of the policy. Unconvinced by this reasoning, Capital Flip commenced this action against American Modern, asserting claims for breach of contract and bad faith.

In its motion to dismiss, American Modern argued that Capital Flip’s claims failed as a matter of law because raccoons are incapable of committing “vandalism” or engaging in “malicious mischief.” But as noted, reasonable humans can apparently disagree in this respect. Indeed, Capital Flip reasoned, because the policy did not specifically define “vandalism” or “malicious mischief,” it was at least possible that these terms could encompass damage caused by animals. Alternatively, Capital Flip argued that the policy was ambiguous and must be construed in its favor given that these terms were undefined. At a minimum, Capital Flip asserted that this issue was unsuitable for resolution on a motion to dismiss because, unsurprisingly, no Pennsylvania court had ever decided whether an animal is capable of engaging in “vandalism” or “malicious mischief.”

After considering the parties’ arguments, the court declared for the first time in the history of the Commonwealth of Pennsylvania that animals are, as a matter of law, incapable of behaving in the manner required to implicate insurance coverage for “vandalism or malicious mischief.” While the policy did not define “vandalism” or “malicious mischief,” the court found Capital Flip’s reading of these terms to be untenable, and undermined by basic contract interpretation principles. As the court observed, the ordinary dictionary definitions of “vandal,” “mischief,” and “malicious” all require the subject to act with some level of conscious deliberation. The Pennsylvania penal code applicable to Criminal Mischief was similar in this regard. The court explained that accepting any contrary interpretation would require a determination that animals are capable of behaving in ways that simply defy the laws of nature. Refusing to accept such a reading, the court held that the terms “vandalism” and “malicious mischief” clearly and unequivocally presuppose conduct by a human actor.

Other courts have addressed whether damage caused by animals is included within the “vandalism and malicious mischief” coverage of an insurance policy. The Capital Flip court found that each of them has declined to interpret these terms as including animal behavior. Luckily for us humans, it appears that these courts found no evidence to suggest that animals are capable of forming the intent required to engage in the sort of willful conduct contemplated by the “vandalism or malicious mischief” language in insurance policies. Interestingly, in one such case, a New York court held that it only “reluctantly” concurred with other cases finding that coverage for vandalism or malicious mischief is limited to human acts. See Roselli v. Royal Ins. Co. of Am., 538 N.Y.S.2d 898 (Sup. Ct. Monroe Cty. 1989). The Roselli court may have been privy to information about animals these other courts were not, but it reached the same result nonetheless. The Capital Flip court also agreed with that result. Accordingly, it granted American Modern’s motion to dismiss, finding the sole premise of Capital Flip’s claims — that the dwelling policy covers damage caused by malicious raccoons — was legally unsustainable.

Having restored your understanding of nature and contract interpretation, we leave you with this poem by a New Mexico appellate court:

Alas, it is written in the law
That the animal with the paw
Does not have the mind
To do the damage of this kind.
And so, I’m sorry, the Plaintiff won’t get paid.
That’s how the contract was made.
This policy does not apply
When the [raccoon] runs awry.

Montgomery v. United Sers. Auto. Ass’n, 118 N.M. 742 (N.M. Ct. App. 1994).

Are My Children and Their Spouses Required to Submit to an Examination Under Oath for My Property Damage Claim?

Paul LaSalle | Property Insurance Coverage Law Blog | October 13, 2019

In a recent case, a federal appeals court held that named insureds’ son and daughter-in-law were required to submit to an examination under oath (“EUO”) because they resided in the insureds’ house, and that their failure to do so precluded recovery on the insurance claim.1

In that case, two fires hit the insureds’ home in just seven months. At the time of both fires, the insureds lived with their two sons, their daughter-in-in law, and their grandchild. After the first fire, which was caused by cooking efforts that went awry, the insureds filed an insurance claim. Their insurer subsequently paid them over $600,000, and also paid for the family to live in an apartment temporarily due to the damage to their home.

While the family was still living in the apartment, the insureds filed a second insurance claim seeking approximately $330,000 for additional damage to their home from the second fire. In reviewing the second claim, the insurer hired a private investigator who determined that someone intentionally started the fire. The insurer also discovered that one of the insureds’ sons had been at the house the night of the second fire.

To determine how much coverage, if any, it should provide for the second fire claim, the insurer requested the adult family members to submit to an EUO and asked the insureds to provide tax, bank, phone and Facebook records. The insureds’ son and daughter-in-law refused to make themselves available for a full EUO. Moreover, the insureds never gave the insurer the requested documents.

The insureds filed a breach of contract action when the insurer denied coverage on the second claim. In its defense, the insurer maintained it properly denied the claim because the insureds did not honor the conditions in their insurance policy.

The insureds’ insurance policy required, as a precondition of coverage, that “the insured person … submit to examinations under oath.” The policy defined “insured person” to include the person named in the insurance agreement and that person’s relatives who live in the same house.

The court found that the son and daughter-in-law qualified as insured persons under the policy’s definition. Consequently, their failure to appear for an EUO after repeated requests was a violation of a condition precedent that precluded recovery on their second fire claim. Furthermore, the court held that the named insureds’ failure to provide the requested documents, which were all relevant to whether the insureds committed fraud by starting the second fire, was a violation of the policy’s cooperation clause that also precluded recovery.

If your EUO is requested by an insurer, contact your local Merlin Law Group attorney for proper representation with regard to the EUO.
1 Durasevic v. Grange Ins. Co. of Michigan, No. 18-2035, 2019 WL 3035750 (6th Cir. July 11, 2019).

“Rip-and-Tear Damages” In Construction: A Roadmap For Coverage Where None Existed?

Ashley Veitenheimer | Kane Russell Coleman Logan | May 22, 2019

The insuring agreement in most commercial general liability policies states that the carrier “will pay those sums that the insured becomes legally obligated to pay as damages because of…’property damage’ to which this insurance applies.” In addition, most policies exclude coverage for the defective work of the named insured. Questions have arisen, however, as to whether and when there is coverage for damages commonly known as “rip-and-tear,” which are those damages caused to other property by the necessity of removing, replacing, and correcting defective work.

Prior to 2015, Texas law held that rip-and-tear damages were covered if there was underlying covered property damage in the first instance. See Lennar Corp. v. Markel Amer. Ins. Co., 413 S.W.3d 750 (Tex. 2013). That all changed with U.S. Metals v. Liberty Mutual Ins. Group, Inc., 490 S.W.3d 20, 22 (Tex. 2015). In U.S. Metals, the Court appears to hold that damages are covered even when they are not “because of” property damage, leading to vexing issues for the insurance carrier regarding when the duty to defend is triggered and whether rip-and-tear costs are covered when they are not “because of” property damage.

In U.S. Metals, U.S. Metals sold ExxonMobil 350 flanges for use in constructing diesel units. When ExxonMobil conducted post-installation testing, it discovered that several flanges leaked and did not meet industry standards such that it was necessary to replace them to avoid the risk of explosion. For each flange, this process involved stripping the temperature coating and insulation (which were destroyed in the process); cutting the flange out of the pipe; removing the gaskets (which were also destroyed in the process); grinding the pipe surfaces smooth for re-welding; replacing the flange and gaskets; welding the new flange to the pipes; and replacing the temperature coating and insulation. 

After ExxonMobil sued U.S. Metals and the parties settled, U.S. Metals sought indemnification from its insurer. On appeal, the parties disputed whether the installation of the faulty flanges physically injured the diesel units.  The Court noted that “the installation of the leaky flanges…can certainly be said to have injured – harmed or damaged – the diesel units by increasing the risk of danger from their operation and thus reducing their value.” However, no physical injury resulted because ExxonMobil replaced the flanges in order to avoid the risk of such injury.

The Court concluded that the diesel units were physically injured in the process of replacing the flanges because the flanges were welded to the pipes, and the removal process “necessitated injury to tangible property, and the injury was unquestionably physical.”  That tangible property was the original welds, coating, insulation, and gaskets. Because the diesel units were restored by replacing the flanges, they were impaired property to which Exclusion M applied.[1] Id. But it also concluded that the insulation and gaskets were destroyed in the process and replaced such that Exclusion M did not apply. Therefore, the Court held that these rip-and-tear costs, were covered because the items were physically injured and constituted “property damage.”

After U.S. Metals was decided, the Western District of Texas issued an opinion illustrating the problems the holding created. In Travelers Lloyds Ins. Co. v. Cruz Contracting of Texas, LLC, the Western District relied on the U.S. Metals holding to conclude that rip-and-tear damages were covered. 2017 WL 5202891 (W.D. Tex. Sept. 7, 2017). There, Cruz, the subcontractor, was hired by D & D to install utility systems, which were later discovered to be faulty. D & D alleged that, in order to replace the sewer system installed by Cruz, it had to tear out and redo roadways, curbs, and parkways.

Based on U.S. Metals, the court found that D & D suffered property damage in the form of rip-and-tear damages “to access faulty equipment installed by an insured…”. The problem with this conclusion is that no damages “because of” property damage existed prior to the rip-and-tear process being undertaken. Rather, as the court concedes, the adjoining utility work was “not physically disturbed by Cruz’s defective work” but was “rendered useless by the defective work.” Consequently, the court apparently relied upon the loss of use as the trigger for the insurer’s duty to defend.

This, in turn, raises the pivotal issue of when the alleged property damage actually occurs. In other words, since there was no “property damage” prior to the tear-out and replacement of Cruz’s work – there was merely faulty work (which is typically excluded from coverage) – when did the “covered” property damage occur? The court’s opinion states that the property damage “occurred when the utility systems installed by Cruz failed testing, rendering them inoperable and unusable.”. Although the court relies upon Don’s Buildingfor this proposition, this is a rather questionable conclusion because there was no property damage prior to the damage caused in accessing the faulty work.[2]

Take as an example pipe work that is performed before pouring a concrete floor. No damage exists at the time the pipes are installed; however, there is later discovered a leak in one of the connections that requires replacement. If suit is filed merely alleging that the pipe was faulty and that the concrete needed to be torn out, is this sufficient to trigger a duty to defend in Texas because the rip-and-tear is in itself property damage? And, if so, does the insurer for the connection supplier owe a duty to defend the entire lawsuit when the concrete flooring, pipes, and other building components are damaged in an effort to repair and replace the connection? If that is the case, almost every suit for construction defects may plead a covered claim because it will involve rip-and-tear costs.

Equally confounding it the issue of “when is the occurrence.” If the rip-and-tear is itself the “property damage,” then can an insured create its own trigger for defense by alleging that the installation was improperly performed and required the rip-and-tear damages to replace the faulty connection? These are the questions created by the holding in U.S. Metals that have yet to be answered, but the Cruz holding certainly got this issue wrong. That is because U.S. Metals clearly identifies when the occurrence is:

We have further held that, for purposes of a duty to defend under an occurrence-based policy period, damage due to faulty workmanship “occurs” not at the time the damage manifests (when it is discovered or discoverable) nor when the plaintiff is exposed to the agent that will eventually cause the damage (when it is installed, presumably). Rather, under a straightforward reading of the policy, we concluded that “[o]ccurred means when damage occurred, not when discovery occurred.” Since a defective product that causes damage is not an occurrence until the damage actually happens, it would be inconsistent to now find that a defective product that does notcause damage is nevertheless an occurrence at the time of incorporation.

Cruz, however, held that the “occurrence” happened when the utility systems failed testing without any related property damage. This is one example of the myriad of questions created by the U.S. Metalsholding, relied upon by the Cruz court, and the lower courts’ application of the ruling, which may create the potential for a huge shift in coverage law as to when the duty to defend is triggered.


[1] Exclusion M denies coverage for damages to impaired property, which is defined as property that can be “restored to use by the…replacement” of the faulty flanges. Id.

[2] Interestingly, the Southern District relied upon U.S. Metals to conclude that rip-and-tear damages are covered when the utility of component parts is destroyed “[a]s a consequence of their having been encased in bad concrete.” See Lauger Cos., Inc. v. Mid-Continent Cas. Co., 2017 WL 8677353 (S.D. Tex. Aug. 2, 2017). This creates the same problems as Cruz and gives rise to the same concerns of when the duty to defend is actually triggered.

Eleventh Circuit Rules That Insurer Must Defend Contractor Despite “Your Work” Exclusion, Where Damage Timing Unclear

Michael S. Levine and David M. Costello | Hunton Andrews Kurth | April 16, 2019

The Eleventh Circuit has reversed an insurer’s award of summary judgment after finding that uncertainty about when the alleged property damage occurred raised questions about whether the damage came within the scope of the “Your Work” exclusion. More specifically, the court found unclear whether the damage occurred before or after the contractor abandoned the job, thereby triggering an exception to the “Your Work” exclusion for damage to work that had “not yet been completed or abandoned.”  The decision illustrates how timing can be a critical factor when it comes to triggering coverage for work and completed operations.

In Southern-Owners Insurance Company v. MAC Contractors of Florida, LLC, a pair of trustees hired MAC Contractors (doing business as KJIMS Construction) to serve as the general contractor for a custom residence.  After construction began, disputes between the trustees and KJIMS caused the contractor to abandon the job before completing the project.  The trustees followed with a lawsuit alleging, among other things, that KJIMS had damaged wood floors and a metal roof, which KJIMS had promised to remediate but never did.

KJIMS’s general liability insurer, Southern-Owners, initially agreed to defend the lawsuit, but later withdrew its defense citing the policy’s “Your Work” exclusion. The insurer sought a declaration that the policy’s “Your Work” exclusion barred coverage because the alleged property damage arose out of KJIMS’s abandoned work.  According to its terms, the “Your Work” exclusion bars coverage for “property damage to your work arising out of it or any part of it and included in the products-completed operations hazard.”  The “products-completed operations hazard” was defined to mean all “bodily injury and property damage occurring away from premises you own or rent and arising out of your product or your work except . . . [w]ork that has not yet been completed or abandoned.”

On summary judgment, the district court agreed with the insurer and held that the exclusion barred coverage for property damage once the insured abandons the project on which it was working. But on appeal, the Eleventh Circuit reversed.  The panel reasoned that the exclusion does not bar coverage for property damage that occurs before an insured’s work has been abandoned.  The court then held that although the complaint alleged that KJIMS abandoned its work, the complaint did not clearly allege when the property damage occurred and could be reasonably construed to allege that the damage occurred before KJIMS abandoned the work.  As a result, the Eleventh Circuit held that the exclusion did not clearly bar coverage and, thus, the insurer had a duty to defend.

It is widely understood that policy-based ambiguities often result in a construction favoring the insured and coverage. However, factual ambiguities in the claim itself may also result in sufficient uncertainty to trigger an insurer’s duty to defend, even against unambiguous policy language, since the insurer must defend if there is a potential for coverage.  The timing of critical events is one area that is especially susceptible to factual uncertainty.  Insureds should therefore pay close attention to the alleged timing of such events and be ready to hold their insurers to their broad duty to defend.

Tennessee Supreme Court Holds That Replacement Cost Less Depreciation Does Not Allow for Depreciation of Labor When Calculating Actual Cash Value of a Property Loss

Heidi Hudson Raschke | Property Casualty Focus | May 2, 2019

Insurance policies are designed to indemnify an insured by putting the policyholder in the same position he or she would have been in had no loss occurred. In the context of property insurance policies, damaged property is typically valued based on its estimated actual cash value (ACV) if it is not repaired or replaced. In order to calculate ACV, an insurer will often calculate the replacement cost (RCV) based on the cost to repair or replace the property with materials of like kind and quality, and then depreciate that amount to account for age, wear, obsolescence, or market value. When making that calculation, there can be a question as to whether labor should be appreciated. In Lammert v. Auto-Owners (Mutual) Insurance Co., No. M2017-02546-SC-R23-CV (Tenn. Apr. 15, 2019), the Supreme Court of Tennessee joined the states that have ruled that labor cannot be depreciated.

To Depreciate Labor or Not

In this case, the petitioners filed a putative class action seeking a ruling that Auto-Owners impermissibly depreciated labor when calculating ACV under certain homeowners policies. When calculating ACV, Auto-Owners acknowledged that it depreciated both materials and labor.

There were two policies at issue. One defined ACV as “the cost to replace damaged property with new property of similar quality and features reduced by the amount of depreciation applicable to the damaged property immediately prior to the loss.” The second policy did not define ACV, but stated that actual cash value includes a deduction for depreciation. The policyholders argued that these definitions do not allow for depreciation of labor “because labor is intangible, and ‘prior to the loss’ likewise eliminates labor costs because the labor costs at issue are post-loss costs.” The policyholders also pointed to the definition of “depreciation,” which was defined as “a decrease in value because of age, wear, obsolescence or market value,” to argue that labor cannot be depreciated “because it does not age, wear out, become obsolete, or (generally speaking) decrease in market value.” In response, Auto-Owners argued that the policies are not ambiguous and “that depreciation of a property is taken from the total replacement cost, which includes both labor and materials.”

The district court determined that the dispute over whether labor can be depreciated is a question of state law for which there was no controlling precedent, and certified the following question to the Tennessee Supreme Court:

Under Tennessee Law, may an insurer in making an actual cash value payment withhold a portion of repair labor as depreciation when the policy (1) defines actual cash value as “the cost to replace damaged property with new property of similar quality and features reduced by the amount of depreciation applicable to the damaged property immediately prior to the loss,” or (2) states that “actual cash value includes a deduction for depreciation”?

The Question of Indemnity

The question of coverage is always determined by the policy terms and conditions. Insurance policies are interpreted based on their plain language. However, if the language at issue is susceptible to more than one reasonable interpretation, a policy will be considered ambiguous and is most often construed in favor of the insured and coverage.

The Tennessee Supreme Court noted that “[c]entral to the discussion in this opinion are the concepts of indemnity, actual cash value, and depreciation.” Insurance policies, as contracts of indemnity, are intended “to reimburse the insured; to restore him as nearly as possible to the position he was in before the loss” (quoting Braddock v. Memphis Fire Ins. Corp., 493 S.W.2d 453, 459-60 (Tenn. 1973)). When property is damaged, “if an insured were able to replace a loss ‘with a substitute identical in kind and quality’ then ‘complete indemnity’ would be accomplished” (quoting McAnarney v. Newark Fire Ins. Co., 159 N.E. 902, 904 (N.Y. 1928)). Because such substitution is often not possible, “indemnity is instead accomplished through recovery of the actual cash value of a damaged property.”

The court observed that there are several methods for calculating ACV, including market value, replacement cost less depreciation, and the broad evidence rule. In this case, the parties agreed that the method for calculating ACV was replacement costs less depreciation.

What they disagree on is whether depreciation applies only to the materials or to both materials and labor. The homeowners claim that applying depreciation to both materials and labor defeats the indemnity purpose of insurance by not making the homeowners whole, while Auto-Owners counters that applying depreciation only to materials results in a windfall to the homeowners, thus also defeating the purpose of indemnity.

The court reviewed decisions from around the country that have come down on either side of the question presented. Some courts find that labor cannot be depreciated. See, e.g., Titan Exteriors, Inc. v. Certain Underwriters at Lloyd’s, London, 297 F. Supp. 3d 628 (N.D. Miss. 2018); Arnold v. State Farm Fire & Cas. Co., 268 F. Supp. 3d 1297 (S.D. Ala. 2017); Brown v. Travelers Cas. Ins. Co. of Am., No. 15-50-ART, 2016 WL 1644342 (E.D. Ky. Apr. 25, 2016); Lains v. Am. Family Mut. Ins. Co., No. C14-1982-JCC, 2016 WL 4533075 (W.D. Wash. Feb. 9, 2016). Other courts find that labor can be depreciated, or at least that the depreciation of labor can be considered when determining ACV. See, e.g.Graves v. Am. Family Mut. Ins. Co., 686 F. App’x 536 (10th Cir. 2017); In re State Farm Fire & Cas. Co., 872 F.3d 567 (8th Cir. 2017); Henn v. Am. Family Mut. Ins. Co., 894 N.W.2d 179 (Neb. 2017); Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017 (Okla. 2002). In addition, “[t]he Minnesota Supreme Court took a third approach to answering the issue by determining that the depreciation of labor costs is an issue of fact rather than law” (citing Wilcox v. State Farm Fire & Cas. Co., 874 N.W.2d 780, 785 (Minn. 2016)).

The court noted that the most recent appellate court to address the issue was the Sixth Circuit Court of Appeals in Hicks v. State Farm Fire & Casualty Co., 751 F. App’x 703 (6th Cir. 2018). In that case, “the Sixth Circuit concluded that under Kentucky law, the term ‘actual cash value’ was ambiguous, not because it was undefined but because the word ‘depreciation’ as used in the statutory definition of ‘actual cash value’ was itself ambiguous.” The court based this finding of ambiguity on the fact that the parties presented two reasonable interpretations of the word depreciations — one allowing depreciation of both labor and materials, and one allowing depreciation of materials only. The Sixth Circuit found that those cases allowing depreciation of both labor and materials were typically in states following the broad evidence rule for determining ACV.

While Auto-Owners argued that Tennessee is a broad evidence state, the Supreme Court stated that it had never adopted the broad evidence rule. Rather, it had “merely acknowledged that the broad evidence rule and the replacement-cost-less-depreciation method both accomplished indemnity.” Moreover, the court determined that whether Tennessee is a broad evidence state is not at issue since the parties agreed that actual cash value was to be calculated based on the replacement cost method.

Turning to general principles for interpreting insurance contracts, the Tennessee Supreme Court found that “both parties have presented plausible interpretations of the policies, neither of which explicitly states whether labor expenses are depreciable when calculating the actual cash value.” The court decided that Auto-Owners argued for a “technical definition” of depreciation that is not evident on the face of the policies, while taken in its “ordinary sense” depreciation means “physical depreciation,” which is the meaning that the court found had been attributed to it by the policyholders. As a result of its determination that the provisions were susceptible to more than one reasonable interpretation, the court found the provisions ambiguous and construed them in favor of the insured, holding that “depreciation can only be applied to the cost of materials, not to labor costs.”

Auto-Owners argued “that if the homeowners’ interpretation is correct, then indemnity is not accomplished because instead of receiving the actual value of their property in terms of money, the insured would never receive less than the cost of the labor, even if the labor was worth more than the actual property prior to the loss.” In contrast, the policyholders argued that “depreciating labor costs would underindemnify the insureds because they would bear the out-of-pocket costs of reinstalling the damaged asset.” The court did not address the indemnification dispute holding:

Ultimately, it is not necessary for this Court to reach the decision of whether labor can logically depreciate or whether indemnity is accomplished. It is enough that we find the contracts ambiguous and that under our standard of review, the interpretation of the insured must prevail. We conclude that the answer to the district court’s certified question is no, the insurance company cannot withhold a portion of the labor costs as depreciation under either policy.

Unanswered Questions

As an initial matter, it is worth noting that this decision left open the question of whether Tennessee is a broad evidence state. The regulations promulgated by the Tennessee Department of Insurance further leaves this question open. While it provides that “[w]hen the insurance policy provides for the adjustment and settlement of losses on an actual cash value basis on residential fire and extended coverage, the insurer shall determine actual cash value as follows: replacement cost of property at time of loss less depreciation, if any,” it also states that “[i]n cases in which the insured’s interest is limited because the property has nominal or no economic value, or a value disproportionate to replacement cost less depreciation, the determination of actual cash value as set forth above is not required.” Tenn. Comp. R. & Regs. 0780-01-05-.10(2) (effective Oct. 2017). Giving an insurer an alternative to calculating ACV, when replacement cost less depreciation does not seem to provide an appropriate valuation, suggests that broad evidence can be considered in at least some instances in Tennessee.

The case also arguably leaves open the question of whether labor can be depreciated if an insurance policy specifically defines depreciation as including the depreciation of labor. In this decision, the court noted multiple times in reaching its decision that the policies did not state whether labor expenses could be depreciated. Without controlling language in the policy, the court held that the insurance provisions were susceptible to more than one interpretation, making them ambiguous and construed in favor of the insured and coverage. If, however, the policy defined depreciation as including labor, it is not clear from the face of the opinion that such a provision would not be upheld. Again, the scope of coverage should be governed by the specific language of the policy.