Answering a certified question, the South Carolina Supreme Court held that the insurer could calculate actual cash value (ACV) by including an estimate of the depreciation of embedded labor costs. Butler v. Travelers Home & Marine Ins. Co., 2021 S. C. LEXIS 51 (S.C. May 12, 2021).      Two insureds had their homes damaged in separate fires. Each held homeowners' policies with Travelers. The policies provided replacement cost value coverage to repair or replace damaged portions of homes. In the event that the insures chose not to immediately repair or replace the damaged home, the policies afforded payment to the insured for the actual cash value instead of replacement cost value. Both insured elected not to immediately repair or replace their homes, thereby deciding to accept a cash payment for the ACV of the damaged property. Neither was satisfied with the payment and both filed suit in federal district court.     Travelers determined the ACV payment by estimating the replacement cost value (RCV) of the damage and then subtracting depreciation. The certified question presented by the federal district court was whether Travelers could depreciate the labor component of the costs of repair or replacement when determining the ACV.      The court noted that to calculate RCV, a determination was made on the extent of the damage and then soliciting bids to have the damage repaired or replaced. ACV, on the other hand, was difficult to determine in a specific situation. There was normally no market for aged and partially deteriorated portions of homes.      Here, Travelers began by estimating the RCV of the damaged property, and from that number it subtracted a separate estimate of lost value, or depreciation. It was unclear how Travelers went about determining the appropriate amount for depreciation. but it did include labor costs in the depreciation calculation.      The court found that labor costs were "embedded" with the property. To illustrate, the cost of a new roof included the cost of shingles and nails. Initially, the shingles and nails had labor costs because workers had to make them. By the time the shingles and nails were sold to the roofer, however, those labor costs were "embedded" in the market price the roofer paid to purchase them. Thus, the roofer paid one price for the shingles and one price for the nails. There was no differentiation between the cost of materials in those products and the cost of labor used to make them. Similarly, the cost of a new roof included paying workers to remove the old roof and install the new one. The market had one price for the roof because the material and labor costs were "embedded" in it.      Here, the value of the damaged property was reasonably calculated as a unit. Therefore, the court answered the certified question "yes." It made no sense for an insurer to include depreciation for materials and not for embedded labor.      The court noted, however, that if the insured believed its insurer made an incorrect calculation on ACV, a question of fact was presented for a fact finder to determine.      

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