On June 28, the Missouri Court of Appeals upheld a lower court’s decision finding Lexington Insurance Company (“Lexington”) breached its policy with homeowner Cynthia Franklin. Franklin’s home has sustained damage in a May 2016 storm for which she submitted a claim with Lexington. Lexington utilizes a two-step adjusting process in which it first determines the ACV of a covered loss and issues an ACV payment. Then, if an insured requests additional reimbursement for repair and replacement costs over the amount previously paid, Lexington assesses the appropriateness of payment. In processing Franklin’s claim, Lexington withheld over $5,000 in actual cash value, citing to “depreciated labor costs.” Lexington, in a letter dated July 7, 2016, explained that Franklin could recover “applicable depreciation for dwelling/building items” if she submitted paid repair invoices. After completing additional repairs, Franklin failed to forward any invoices or receipts. The claim was then closed by Lexington in October of 2017.
In February 2018, Franklin sued, arguing that the policy itself was silent as to whether labor depreciation was included in the actual cash value of a claim, and as such she was entitled to recover the withheld amount. In his deposition, the desk adjuster for Franklin’s claim testified that he was unaware that the field adjuster had subtracted depreciated labor costs before suit had been filed, and if he had known, he would have requested correction from the adjuster and issued a higher ACV.
Bearing in mind this testimony, and citing to law around the country regarding policy ambiguity, the lower court and the Missouri Court of Appeals held that Lexington’s two step adjustment process meant Franklin was not required to elect between ACV and replacement costs. Further, in determining whether labor depreciation was included within the definition of depreciation allowed to be subtracted from the base ACV, the Court of Appeals agreed with the lower court that the policy’s failure to explicitly include labor depreciation within its definition of “depreciation” meant the insurer could not include it. Considering the policy’s silence and Lexington’s typical practices, the Court held Franklin was entitled to recover the withheld amount.