For the past few years, I’ve been involved in several labor depreciation cases around the Southeast, including one right here in Tennessee against Auto-Owners.  The threshold legal question in that case, Lammert et al. v. Auto-Owners Mutual Ins. Co., was whether an insurance company can depreciate the cost of labor when determining its actual cash value payment obligations.  The Supreme Court’s answer was a resounding “No”.

The Lammert case was filed as a class action in federal court in Nashville, but Judge Crenshaw certified this critical legal question to the TN Supreme Court.  Here is the exact question that Judge Crenshaw asked the Supreme Court to answer:

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”?

In answering the question, the Supreme Court first explained the problem with an example, borrowing from a hypothetical we provided in our brief:

The following hypothetical illustrates the dilemma. Suppose that laminate flooring with half of its useful life remaining is damaged by a sewer backup and that the homeowner has an insurance policy providing that the insurance company will cover the actual cash value of damaged property, calculated by deducting depreciation from the replacement cost. Further suppose that it would cost $10,000 to replace the floor, with $5,000 in labor costs and $5,000 in material costs. If depreciation is deducted from material costs alone, then the actual cash value for the floor is $7,500. If depreciation is deducted from the total replacement cost, then the actual cash value of the floor is $5,000.

In the end, the Supreme Court’s based its decision on the general rule that any ambiguity must be construed in favor of the policyholder, and in light of the fact that the policy could be construed in two ways, the Court held as follows:

We conclude that the language regarding depreciation in the policies in question is ambiguous. Under Tennessee law, ambiguities in insurance contracts are strictly construed against the insurance companies and in favor of the insured. Therefore, with the insured’s interpretation controlling, labor may not be depreciated when the insurance company calculates the actual cash value of a property using the replacement cost less depreciation method.

This was a huge win for Tennessee policyholders.  Millions of dollars have been shortchanged over the past several years, and this decision is the first step putting that money into the pockets of who it belonged to in the first place – – the policyholders.

A copy of the opinion can be downloaded here.

In the case of Conley v Tennessee Farmers, the Court of Appeals held that a misrepresentation as to prior foreclosure on an application is sufficient to void coverage as such misrepresentations increased the risk of loss as a matter of law. The Court of Appeals held:

Continue Reading Misrepresentation as to prior foreclosure voids policy, even if innocently made

I draw your attention to the June 25 Tennessee Court of Appeals decision in the case of Dutton v. Tennessee Farmers Mutual Insurance Company which addressed the question of whether misrepresentations made on an initial policy application which unquestionably increased the risk of loss would still operate to void that coverage when multiple renewals of coverage had taken place. Dutton v TN Farmers. The applicants unquestionably made misrepresentations on the policy application which were material, specifically dealing with drug use and convictions for drug related crimes. After the policy was issued (based upon that application), time passed, and multiple renewals occurred. In pertinent part, the changes made to the policy included the deletion of the individual who had the drug related problems. The insured argued the changes to the policy meant the misrepresentations no longer had any bearing on the risk that Tennessee Farmers was insuring.

Continue Reading Misrepresentation at Inception of Policy is Effective to Void Coverage Even After Renewals

In the case of Jefferson County Schools v. Tennessee Risk Management Trust, et al., No. E2017-01346-COA-R3-CV (decided March 15, 2018) (Jefferson County Schools v. TN Risk Management), the Tennessee Court of Appeals addressed the question of whether a Fire Marshal’s directive qualified as an “ordinance or law” for purposes of insurance coverage. Following a major rainstorm, a building at the Jefferson County High School collapsed. Continue Reading What Constitutes an “Ordinance or Law”?

We don’t usually post liability related matters on this blog, but every once and a while there is a ruling that warrants mention.  That ruling was issued today by the Tennessee Supreme Court in Dedmon v. Steelman W2015-01462-SC-R11-CV (click on case for full copy of opinion).  While I may disagree with the result, it is an extremely well written opinion from Judge Kirby.  The bottom line is that the Tennessee Supreme Court unanimously held Tennessee law does allow plaintiffs to use the full, undiscounted amount of medical bills to prove their medical expenses instead of the discounted amounts paid by insurance companies and accepted by medical providers. The defense is no longer even permitted to introduce the amount of the discounted bills period.  I commend the full opinion to your reading, as it contains an excellent overview and history of the collateral source rule, as well as detailed analyses of the differing rationales used by other courts to allow introduction of those discounted and accepted medical expenses.


This past Friday (Aug. 4, 2017), Mississippi’s Insurance Commissioner, Mike Chaney, issued a bulletin that alerts insurers that they should not be depreciating labor in Mississippi unless policy language clearly allows it, and even then, estimates must clearly delineate that labor was depreciated.  I’ve quoted the bulletin below:

Continue Reading MS Insurance Commissioner Issues Bulletin Regarding Labor Depreciation

Parks recently posted about the new Rules adopted by the Tennessee Commissioner of Insurance that go into effect on October 9, 2017.  The first of those rules makes clear the purpose “is to set forth minimum standards for the investigation and disposition of claims.”  (Rule 0780-01-05-.01).  While there are plenty of items worthy of discussion in the Commissioner’s soon-to-be effective Rules, the one that stood out to me  relates to “matching.”  Here’s what the Rule says:

Continue Reading Commissioner Confirms Insurers Must Pay for Matching

I’ve just posted the new regulations promulgated by the Tennessee Department of Commerce and Insurance governing the investigation and disposition of claims arising under certain types of insurance issued to residents in Tennessee.  We’ve attended the hearings that were held on these regulations, and followed the rulemaking process.  Regulation 0780-01-05-.010, entitled Standards for Prompt, Fair and Equitable Settlements Applicable to Fire and Extended Coverage Type Policies with Replacement Cost Coverage, contains two provisions which may expand fire insurer’s obligations when calculating replacement cost:

Continue Reading 2017 TENNESSEE UNFAIR CLAIMS PRACTICES REGULATIONS – Replacement Cost Valuation Rules

On July 11, 2017, the Tennessee Department of Commerce and Insurance filed the final version of new regulations governing the investigation and disposition of claims arising under certain types of insurance issued to residents in Tennessee. These regulations will take effect October 9, 2017. These regulations are not intended to cover claims involving workers’ compensation or healthcare. The regulations are intended to define practices which constitute “unfair claims practices” as determined by the Commissioner. I’ll be making more posts about significant portions of the regulations, but until then, click here for a copy of the regulations may be downloaded here –  TN Unfair Claims Regs.  Stay tuned for more.