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I live in Louisiana and have worked all over the country and have never depreciated labor.....

Use the word Betterment instead of depreciation. Changes the whole picture of looking at damage repairs. I can,t think of many losses that do not have some betterment; unless they have a dimished value, because of a loss.

State laws do not and can not dictate the value of property, real or personal. Insurance adjusters are quick to jump at measurable units for all property and wonder off course by trying to put all the measurable losses into a data base that will give the correct answer, or the software program used.

All clear thinking people understand ACV and RC. All understand wear & tear. All understand depreciated value, but many adjuster,s wrestle with the cost of manufactoring  an article or constructing a building's labor as depreciable. Stop thinking in terms of depreciation of the whole object. Start thinking about the definition of "betterment" when you have a question about the ACV of a loss.

Why would a building that has a life of 100 years, but needs a new roof membrane ever 20 years to keep the stucture sound not be entitled to depreciate the labor cost for a roof that was replaced 10 years before the end of its useful life?

Why would a designers suit that cost $1,000.00 and made of the same material as a department store suit that cost $350.00 be subject to the same % of depreciation at the end of its useful life;  all thought made by differant tailors?

Where I live, in California, there is a statute that you can only depreciate materials, not labor. (it is quoted on the first post of this thread).

So we don't have a choice. The spirit of that law, is that you could have a "one day old" roof destroyed by fire, or a "30 year old" roof destroyed by fire. both of them need labor, and the insured has to pay that labor to get the roof replaced regardless of how old the materials were.

If the shingles were toward the end of their useful life, the materials get depreciated but not the labor in California.

I have had managers in the past who (correctly) argued that labor was part of the task, and should be depreciated - but we can't do that in CA. 
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Let's take someone who had a garbage roof made of something funky that was part of a class action lawsuit, and the material is no longer available. And the LKQ material selected is somewhat of an upgrade. To me, that is betterment.

For case law on ACV depreciation of roof removal

Branch vs. Farmers
http://ca10.washburnlaw.edu/cases/2...0-6385.htm

Also mentions  Davis vs. Mid Centruy which decided roof removal was about “debris removal” rather than labor.

Calif. 2051  reduces the line between ACV and RCV blurring the principles of indemnity  toward betterment.

http://www.irmi.com/Expert/Articles...lma03.aspx

RandyC

Would someone try to use the labor is not depreciated agrument on the $350. and $1k suit and explain your reasoning to a claim supervisor that contents anything made by man looses value by use and condition as well as trends.

Randy, thanks for those links. Good reading.

Hi Odie, right now in Oklahoma you are depreciating all of that stuff, if you are depreciating the labor and materials. 

Materials DOES INCLUDE SOME LABOR to make it, as you have pointed out, and the California law mentions this as "intrinsic" labor.   And we are allowed to depreciate that (because it is an integral part of the material, you cannot separate it out).

See the underlined part below: 
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A Department of Insurance regulation that prohibits an insurer from including the cost of labor in the calculation of depreciation when property is repaired or replaced will be enforced by the department beginning May 1, 2007.

The regulation is Section 2695.9(f)9(1) which is part of the amendments to the Fair Claims Settlement Practices Regulations that were adopted in June 2006. Section 2695.9(f)(1) provides:

"Under a policy, subject to California Insurance Code Section 2071, where the insurer is required to pay the expense of repairing, rebuilding or replacing the property destroyed or damaged with other of like kind and quality, the measure of recovery is determined by the actual cash value of the damaged or destroyed property, as set forth in California Insurance Code Section 2051. Except for the intrinsic labor costs that are included in the cost of manufactured materials or goods, the expense of labor necessary to repair, rebuild or replace covered property is not a component of physical depreciation and shall not be subject to depreciation or betterment."

Hi Trader, your example is contents. The labor and materials thing rarely enters into a contents claim.

If I can dry-clean the guy's suit then he is returned to his previous condition and no adjustment for ACV would be required. If I buy him a new suit, and it has gone through 25% of it's life, I would apply that 25% to the total cost of a new suit although in California they made that determination of ACV kind of complex, you are supposed to determine the Fair Market Value for that used item (a similar one held for sale) and that works for some items where there is a market.

You are absolutely right about condition, and trends. Furniture in the home of a retired couple may be in better condition after 10 years than a young family full of kids at 1 year. Trends, fashion, and again that is sort of a focus on what is something really worth as a used item.

It's easy with cars, there is a market for them and easy to database with the bluebook. And of course the cars in the blue book have price adjustment for condition.

Our criteria in California is "what would a seller under no duress, and a buyer under no duress pay for the used item"  that is it's fair market value.   If it's condition is low, and it's out of style, it has a low market value. And the opposite is true, and I think your point is well taken, you can't just blindly go down a contents list and depreciate based on expected years of useful life. 

There will always be exceptions, and if you don't remain alert for those exceptions you will have a hard time negotiating a settlement, especially if it is a 3rd party claim with ACV only, or first party without RCV once the item is replaced.

Has anyone ever explained that all property that can be insured is written on an actual cash value basis. If any readers disagree, please explain how it could  be otherwise.

Bob, you have answered any question you and others may have on property insurance losses. The amount of the loss is always the the ACV of the property. HOWEVER for an additional premium(delux policy-special etc) you may purchase RCC on real or personal property ( except on automobiles)in the event of a loss, WHEN the property has been replaced the payment is made.(this rule is not followed 100% of times)

The insurance industry keeps records on ever cent spend on ACV losses and RCC losses and this must be shown on the Statement of Loss for rate making purposes for future claims.

Some of the property that CAN NOT be insured for RCC are: Automobiles, pleasure craft, growing crops, grain in storage, bridges, pipelines, oil in storage, most inland marine risk .