In Henn v. American Family Mut. Ins. Co., Henn’s roof was damaged in a hailstorm.  She sued American Family and sought class certification when American Family depreciated labor costs in calculating actual cash value.  Under the policy, the insured will receive an actual cash value payment. If the insured repairs or replaces the damaged property, the insured can recover the difference between the replacement cost value and actual cost value payments. If the insured does not repair or replace the damaged property, the insured is entitled to receive only the actual cash value. The policy does not define “actual cash value” or depreciation, or describe the methods employed to calculate “actual cash value.” The policy also does not explain how American Family determines the difference between replacement cost value and actual cost value.

American Family sought summary judgment and the federal district court certified the following question to the Nebraska Supreme Court:

“May an insurer, in determining the ‘actual cash value’ of a covered loss, depreciate the cost of labor when the terms ‘actual cash value’ and ‘depreciation’ are not defined in the policy and the policy does not explicitly state that labor costs will be depreciated?”

The Nebraska court reviewed the cases in Oklahoma, Arkansas and Kentucky, Pennsylvania, Florida and Indiana.  The court said it can consider any relevant evidence in its calculation of actual cash value, including materials and labor. Further, in that absent specific language in the policy, the insured does “not pay for a hybrid policy of actual cash value for roofing materials and replacement costs for labor.” The property is a product of both materials and labor. Payment of actual cash value, which depreciates both materials and labor, does not underindemnify the insured.