United States District Court, D. Colorado
ORDER GRANTING MOTION FOR JUDGMENT ON THE
BROOKE JACKSON, UNITED STATES DISTRICT JUDGE
hailstorm damaged her home, Ann Basham filed a
homeowner's insurance claim with USAA. Her policy
provides a two-step method for settling property damage
claims above $5, 000. First, USAA pays only the “actual
cash value” for the loss, which is defined as
“the amount it would cost to repair or replace covered
property, at the time of loss or damage, with material of
like kind and quality, subject to a deduction for
deterioration, depreciation and obsolescence.” ECF No.
12-1 at 8; ECF No. 12-2 at 8. The policy warns that the actual
cash value of damaged property “may be significantly
less than its replacement cost.” ECF No. 12-1 at 8.
Second, if the homeowner completes the repair or replacement
within one year and submits timely notice, USAA will pay for
this replacement cost without a deduction for depreciation
and the like. ECF No. 12-2 at 8. Ms. Basham partially
repaired her home and was reimbursed for her additional
expenses on those items. However, she was stuck with the
lesser actual cash value-after a depreciation deduction-for
the property damage that she did not fix.
Basham accepts that USAA can deduct depreciation of the
materials that make up an item of property in calculating its
actual cash value. But she believes USAA violated her policy
and the law by taking a depreciation deduction for the cost
of labor as well. She has filed a putative class action
against USAA alleging breach of contract, unjust enrichment,
and violation of the Colorado Consumer Protection Act and
Colo. Rev. Stat. §§ 10-3-1115 and 1116. Compl., ECF
No. 1-1. Defendant has moved for judgment on the pleadings.
ECF No. 12. The motion is granted.
insurance policy is a contract and is construed using the
general principles of contract interpretation. Allstate
Ins. Co. v. Huizar, 52 P.3d 816, 819 (Colo. 2002). Clear
and unambiguous provisions must be given their plain meaning.
Id. To determine whether an ambiguity exists, the
Court asks whether the document's plain language is
reasonably susceptible to more than one interpretation.
Pinnacol Assurance v. Hoff, 375 P.3d 1214, 1222
(Colo. 2016). Ambiguous provisions should be construed in
favor of providing coverage to the insured. Cyprus Amax
Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299
(Colo. 2003). Still, the Court may not rewrite a
contract's language to extend or limit its terms. See
Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d
294, 299 (Colo. 2003).
policy is unambiguous. Actual cash value means “the
amount it would cost to repair or replace covered property,
” which is evaluated (1) “at the time of loss or
damage, ” (2) “with material of like kind and
quality, ” and (3) “subject to a deduction for
deterioration, depreciation and obsolescence.” ECF No.
12-1 at 1. “Lists commonly distinguish between separate
items by the introduction of commas or semicolons, and
that's exactly what we have here.” Payless
Shoesource, Inc. v. Travelers Companies, Inc., 585 F.3d
1366, 1370 (10th Cir. 2009) (Gorsuch, J.). These commas
signal the “independence” of each modifying
clause from the one before. Id. Each of these
parallel phrases refers back to the cost of repairing or
replacing covered property.
relevant here, actual cash value is thus “the amount it
would cost to repair or replace covered property . . .
subject to a deduction for . . . depreciation.”
Id. Covered property, such as a roof, is often the
product of both materials and labor. Accordingly, repair and
replacement costs comprise the cost of materials (e.g.,
shingles and nails), and the cost of labor (e.g., roofing
contractors). Both the cost of materials and the cost of
labor are therefore subject to a depreciation deduction.
this straightforward definition, plaintiff strains to find
ambiguity in the policy. On her reading, the depreciation
clause could be understood to modify the word
“material” in the immediately prior phrase:
“with material of like kind and quality.” The
policy would then extend coverage to “material . . .
subject to a deduction for . . . depreciation.” But
material itself cannot be decreased by depreciation. Instead,
the depreciation deduction comes out of the only costs
mentioned in this sentence: the overall “amount it
would cost to repair or replace covered property.” The
policy could have forbidden depreciation of labor costs if it
said something like: repair and replacement costs are
“subject to a deduction for . . . depreciation of
materials only.” But that is not what the policy
principles of indemnity support the plain reading of this
insurance policy. “[A]n actual cost policy is designed
to avoid placing the insured in a better position than he or
she was in before the” property damage. Dupre v.
Allstate Ins. Co., 62 P.3d 1024, 1030 (Colo.App. 2002).
In general, “the actual value of the property”
depends on “the condition it was in at the time of
loss, taking into consideration its age and condition,
” and is “not necessarily what it would cost to
erect a new building.” State Ins. Co. v.
Taylor, 24 P. 333, 337 (Colo. 1890).
the parties submitted their briefs, the Tenth Circuit issued
an opinion applying these concepts to a similar two-step
replacement cost policy with an initial actual-cash-value
payment. See Graves v. Am. Family Mut. Ins. Co., No.
15-3187, 2017 WL 1416278 (10th Cir. Apr. 21, 2017)
(unpublished). The court reasoned that “if [the
insurance company] could depreciate only the cost of
materials in determining the actual cash value of [the
insured's] loss, she would receive a windfall based on
labor costs she never incurred.” Id. at *3.
“Such a result is contrary to the principle of
indemnity because she would be in a better position than she
was before the damage occurred. Had she wanted to recover the
full replacement cost under her policy she should have had
the repairs completed by the one-year deadline.”
Id. This logic applies with equal force here.
the value of a property's materials, the value added by
labor is depreciable. To illustrate:
Suppose that a person wants to buy a grand piano. The piano
materials themselves-wood, metal, and the like-may have a
value of only $500. But building a piano requires great skill
and hours of labor. Because of this labor, the value of the
finished piano is $5000. The labor has increased the price of
the finished good, and it has merged into part of a completed
product. And as this finished good-the piano-depreciates in
value, the value of the labor that went into building it
depreciates as well.
Brown v. Travelers Cas. Ins. Co., No. 15-50-ART,
2016 WL 1644342, at *4 (E.D. Ky. Apr. 25, 2016). It is the
same with all tangible property. A heap of asphalt,
fiberglass, and mineral granules is not worth much. But
combine these ingredients in the right manner and you might
make a shingle. Similarly shingles, nails, ridge vents,
underlayment, and flashing materials don't do much good
lying in your front yard. But install them on the top of your
house and you've got a useful roof. Whenever property is
the indivisible product of materials (stuff) and labor
(work), its physical components and the assembly of those
pieces will decay over time.
disagrees with this framing, arguing that USAA has
depreciated “labor” when “labor does not
depreciate.” ECF No. 20 at 12. Of course labor does not
depreciate; labor is a service, not an asset. See
Depreciation, Black's Law Dictionary (10th ed. 2014)
(defining depreciation as “[a] reduction in the value
or price of something; specif[ically], a decline in an
asset's value because of use, wear, obsolescence, or
age”). However, labor can increase the value of an
asset, like shingles, or create a new asset, like a roof.
therefore not persuaded by the few opinions finding the
embedded labor portion of an asset's value
nondepreciable. The leading opinion, by a dissenting Justice
of the Oklahoma Supreme Court, rejects the characterization
of a roof as “a single product” because you
“cannot go to the lumber yard or the retail store and
buy a roof.” Redcorn v. State Farm Fire & Cas.
Co., 55 P.3d 1017, 1022 (Okla. 2002) (Boudreau, J.,
dissenting). But I see no difference between on-site or
off-site labor ...