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Posted By mikey on 29 Aug 2010 08:35 PM
I am firmly of the opinion that tear off is labor and is not going to be subject to depreciation. However, what I think is depreciable or not makes no difference in the field. Whomever is signing the checks is going to be correct. It is an easy rule.

We are talking about unit prices for an operation. A unit price is thought of as drive out price. Turnkey several other terms.

Lets use this example of replacing a quarter panel on an automobile. You pull up all the numbers for the operation and get a drive out price. This is the  cost amount of the RC loss. Now what is the price that will be paid on an ACV auto policy if the panel had old damage that was never repaired, but this event would have required total replacement, notwithstanding the "old" damage. The question now is any enhancement of the auto involved. The answer is yes.

Property law of all states apply to all property damage claims and some reduction for new for old is allowed. Oop, not in this case because the drive out price was 70% labor involvement.  Are we now saying roof claims and auto claims are both property damage claims...... but, roof claim labor is not depreciated in the unit price like it is in the auto claim?

By the way Chuck, betterment is in the same page of the insurance policy (Homeowners) as the word indemnity. (I think we all know its not in their but we know what it really means and some of us think.... depreciation and betterment is one and the same and most courts may agree.

Posted By ALANJ on 30 Aug 2010 08:35 AM
Maybe I am missing something. But, I didn't see anything in the case that said labor to install was subject to depreciation. This case is a 12 th circuit case. Most hurricane prone states are either in the 5th or 11th circuit. Thus, this 12th circuit case is not binding on the other circuits. If you are ever ask "why does labor to install depreciate" I hope everyone who follows that school of thought has a good answer. Material always depreciates but never labor.

Here is section 19 of the above titled "cause of action"
19

Labor costs for a new roof were "replacement costs" and, therefore, could be depreciated when using the replacement costs less depreciation method of valuing a loss covered by a homeowners' insurance policy.
 

I have two carriers that treat "labor and removal" uniquely.  They will depreciate both labor & materials if the roof is not replaced. They will delete a dumpster cost until the roof is replaced.     They want the labor separated from the replace.  They then withhold 100% of the cost to remove + 100% the cost to haul off  until the roof is actually replaced. The roofer or contractor  submits his actual incurred cost showing his labor rates + documents supporting actual payment of that labor and the use of dumpsters.  Once it is supported,  they will pay the full cost.  You would be amazed how much lower their actual costs are vs prices from Xactimate unit pricing.

Willis, how does the contractor report his actual cost when dumpsters are not used. Many, actually most in Dallas, own their own dump trailers and a truck to tow.  I don't see how it is anyones business as to what the contractor's raw costs are so long as his total price per square is in line with the market rates.  Ray, a painter scrapes and sands not to make the job better, but to make the paint apply properly and not start peeling later.  It is part of the job so is not betterment.  Likewise, tearing off existing layers could not be considered betterment because he got shortchanged on the previous re-roof when the roofer failed to tear off the damaged shingles, although the carrier is incurring an additional cost.  Shingles can not be properly installed and a good warranty given if an overlay is done.  If damage occurs later because of the overlay, the warranty will most likely be voided, therefore it would not be betterment to pay for the tear off.

I have sort of a question that you probably know the answer to: why are shingles depreciated on the current new cost instead of basing it on the price of the shingles at the time they were originally installed?  I recently learned that the warranty on shingles is calculated this way. 30 year laminated shingles at 20 years are depreciated 66% of the 1990 retail price of the shingles which leaves almost no cash to pay for replacement shingles at today's prices.

Posted By rickhans on 04 Sep 2010 02:42 AM

Willis, how does the contractor report his actual cost when dumpsters are not used. Many, actually most in Dallas, own their own dump trailers and a truck to tow.  I don't see how it is anyones business as to what the contractor's raw costs are so long as his total price per square is in line with the market rates.  Ray, a painter scrapes and sands not to make the job better, but to make the paint apply properly and not start peeling later.  It is part of the job so is not betterment.  Likewise, tearing off existing layers could not be considered betterment because he got shortchanged on the previous re-roof when the roofer failed to tear off the damaged shingles, although the carrier is incurring an additional cost.  Shingles can not be properly installed and a good warranty given if an overlay is done.  If damage occurs later because of the overlay, the warranty will most likely be voided, therefore it would not be betterment to pay for the tear off.

I have sort of a question that you probably know the answer to: why are shingles depreciated on the current new cost instead of basing it on the price of the shingles at the time they were originally installed?  I recently learned that the warranty on shingles is calculated this way. 30 year laminated shingles at 20 years are depreciated 66% of the 1990 retail price of the shingles which leaves almost no cash to pay for replacement shingles at today's prices.

Whilst I believe that labor on tear off should not be subject to depreciation and work many claims without the depreciation,

TWIA did apply depreciation for both labor on tear off and install during Ike

 

Robby Robinson 

Well it seems we are seeing the evidence of "Tex adjuster thinking". How many times have you heard these words out of a misinformed Texas Adjusters mouth. "It was too old to repair' so we replaced it". Think of all insured property as real or personal and yoy MAY understand

Now we all know that misguided logic is ripe for lots of depreciation as the complete restoration is about 90% betterment by definition on real or personel property. Now switch to personal property on an old pair of sneakers that has labor and material in the selling price. (" Labor can,t be depreciated !)
How would you pay the claim amount if the property owner had no intention of repairing or replacing the damaged property, real or personal ?

Personal property (without Replacement cost endorsement) would be paid at actual cost value. With the RC endorsement, that would be paid after replacement.

Where in the policy does it say labor is not to be depreciated? If it is a state law, or a rule from the department of insurance,or case law, I understand, but where in the policy does this "labor is not to be depreciated" come from? If I'm told this at JIT meeting, I don't have to be told twice I do what the carrier wants, but I'm interested to know where this comes from? Where is it written? In all things material, I see two components--raw material and labor. Raw materials without the value added of labor either in transformation or transportation has little value (unless it is something like gold which is still not worth much without the labor to extract it from the mountain).

Please do not mix labor on repair with labor in replacement , unless I've got it wrong. There is no betterment on repair; after repair the item is still as old and used up as it was before the repair...only repaired. I don't believe it has anything to do with "labor", except in states where they are less concerned with long public policy against insured making a profit off an insured event. It has to do with the item being the same old item. You don't depreciate the material or labor on a repair unless something old becomes something new.

In the states where there is no holdback, I assume public policy  is more concerned with the windfall of the insurer collecting replacement cost premiums on items that will never be replaced than the windfall of an insured that gets paid for full replacement of a patio cover, he never plans to replace.

Back to actual cost settlement, there should be no requirement for the insured to replace that item. In theory, he is only paid the actual cost value of that item. Even if he hates the item, if it has actual cost value, he has lost that value and should be paid. If it has no value, no loss...no payment.

If you have life insurance, you don't have to get a new life to collect. (That was a joke :-)

If I've got something wrong in my understanding, please enlighten me.

Randy this is what I have admired in you, you have a great mind that can think..... lets talk about real property for all you Texas adjusters that was told something that was not correct. Real property can be raw land, improved sectiond of land with improvements (think buildings) or real property in/.on/ or around this building(Dwelling) three thinks come to mind on only the value of these three. 1. appreciation,2 depreciation or no movement. Now we all know what makes the values move. Forget land as hazard insurance can not be purchased on land. This leaves real and personal property with movement up or down. If the property is sold (this includes insurance hazard claims)

A measure of property not as good as new  is called depreciation and we all know its based on age and condition all over the world. Or the western world who use the old english common law (USA law).

We all understand hazard insurance to not have a profit motive. So how can you say labor and meterial cost to IMPOVE property is not betterment, enhancement and subject to the common law on property. Depreciation % is mearly a measurable guide  agreed or not not agreed between two parties.

I have worked for 3 insurance companys in recent months that take 99% depreciation on old wood shingle roofs that was the "nailable surface for a composition shingle membrane". They would take more as the old wood shingle "deck" has 0% value as a roof that is turning water as it was intended.

To give an example on personal property loss, if the heat from the fire cause the old work out sneaker shoe laces to break and a new pair cost $1.00 I would recommend a payment of 50 cents on an ACV loss policy.

These rules are made by insurance carriers for several reason when their trainers, or worse 3 day schools say "no depreciation on labor"

Thanks Randy, lets watch the roof thumpers jump on this on.

And I can not resist this one..... what do you say to a Texas Adjuster who makes this statement...".. Thats not the way I was trained" I try to show my soft side and whisper "you were trained wrong". Open your mind and just try hard to learn property law and property principals in insurance contracts.

If you live and work in the Texas Coastal counties how much depreciation do you take on a 30 year shingle that is 10 years old. Nope the answer is not 33.3% its 10/25 or 40%.... Why we all know depreciation come of the expected life- not the mfg. limited warranty time. Roofs are worn out before 25 years down this way and really most will go more than 20 years before replacement.

My XM8 changes to carrier values. Sometimes they change in the middle of a storm. I don't know which changes more often, depreciation rules or base service charges.

The class action has already happened in Calif. but other states do things differently. Florida does it's thing, but the carriers I'm certified to work for still want the depreciation decisions to be documented even if there is no "deferred depreciation."

Here's what Calif. Department of Insurance says their courts say:

http://www.insurance.ca.gov/0400-ne...013-07.cfm


SACRAMENTO - California Department of Insurance (CDI) protections for homeowners filing claims has been upheld by the California Superior Court. The Court ruled that insurers may not depreciate the cost of labor when paying on homeowners' insurance claims. That practice by insurers forced homeowners to make up the difference and increased their out-of-pocket expenses to repair damage to their homes.
The ruling comes in response to a 2003 lawsuit filed by insurance trade organizations which challenged almost every section of CDI's amendments to the Fair Claims Settlement Practice Regulations. The Department of Insurance's sweeping amendments increased protection to consumers and set more stringent standards for insurers. All but the "depreciating labor" issue were settled through negotiations. "
This is good news for California homeowners," said Insurance Commissioner Steve Poizner. "When you pay for homeowners' policy and file a claim, you should get the coverage you pay for. We were confident the court would agree."
At issue was whether labor costs could be depreciated. The Court ruling upheld CDI's view that unlike physical property, the labor does not lose value through the passage of time, and therefore can not be depreciated. Whether you are installing new replacement carpet or old replacement carpet, the cost of installing it would be the same.