Depreciation on ACV is OK, Court Says in Knocking Down Class Action vs. Cincinnati

A property insurer is on solid ground in applying depreciation to actual cash value, as long as the policy makes that plan clear, a federal appeals court said in shooting down a proposed class-action lawsuit against Cincinnati Casualty Co.

The policyholder, a Florida-based investment firm with property in Kentucky, also purchased an additional policy that would have covered the $45,000 depreciation deduction. But the firm blew it by failing to make repairs within two years of the loss, as required by the policy, the U.S. 6^th Circuit Court of Appeals wrote in a March 25 opinion in Schoening Properties vs. Cincinnati Casualty.

Schoening’s argument in the appeal “ignores the basic principle that ‘insurance which covers the full cost of repair without deduction for assured depreciation’ demands a higher premium, as it “force[s] [the insurer] to pay for erecting what is in effect a new building,'” the court wrote, quoting from previous federal court decisions and a treatise on the issue.

While insurance companies have often lost appeals due to unclear or ambiguous policy language, that was not the case here. The commercial policies for Schoening make it clear that the policyholder may not claim a payment without deduction for depreciation, the court noted.

“It may claim only a payment for actual cash value, less a ‘deduction that reflects depreciation.'”

The ruling upheld a federal district court decision from the Southern District of Ohio. The final opinion and Schoening’s complaint do not explain exactly where the property is or the cause of the incurred loss.

“The seminal legal dispute before the Court is whether Defendant’s standard form policy language allows for depreciation on partial losses in which Defendant’s estimate and claim payment were based on proposed repairs to damaged insured structures,” reads Schoening’s complaint in the 2024 lawsuit.

The trial court and the appellate judges found that all of the investment firm’s arguments fell short. Schoening’s interpretation of the insurance contract makes little sense against the backdrop of the contract as a whole, the court said.

The move to make the suit a class action also failed. As Cincinnati’s legal team argued, the proposed class of plaintiffs hailed from different states where contract law treated ambiguity in contracts differently.

The opinion can be seen here. Schoening’s complaint is here.

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