Auto-Owners Insurance Unlawfully Withheld Labor Costs from Property Damage Claims, Lawsuit Alleges

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A proposed class action claims Auto-Owners Insurance Company has unlawfully deducted the value of non-material depreciation from homeowners’ property damage claims and thereby underpaid them.

More specifically, the lawsuit claims Auto-Owners unlawfully withheld the costs of both the materials and the labor required to replace policyholders’ homes as depreciation despite the fact that “labor does not depreciate in value over time.”

The plaintiffs, whose Winthrop Harbor, Illinois home was damaged from a fire, claim that although the terms of their Auto-Owners’ insurance policy did not allow for such, the defendant withheld from the value of their claim the costs of labor as depreciation and thereby underpaid them for the full cost of returning their property to its pre-loss condition.

“Auto-Owners’ withholding of labor costs as depreciation associated with the repair or replacement of the [plaintiffs’] property resulted in the [plaintiffs] receiving payment for their losses in an amount less than they were entitled to receive under [their policy],” the complaint states. “Auto-Owners breached its obligations under [the plaintiffs’ policy] by improperly withholding the cost of labor as depreciation.”

Auto-Owners, the lawsuit explains, sells property insurance coverage for homes, mobile homes and buildings in 26 states, including Arizona, Illinois, Kentucky, Utah and Wisconsin, where the laws are “materially identical” with regard to the claims at issue in the case.

Per the suit, the plaintiffs purchased an Auto-Owners policy that provided insurance coverage for accidental direct physical loss to the dwelling and other structures located on their property. After suffering fire damage to their home in August 2020, the plaintiffs filed a timely claim with Auto-Owners, who determined the loss was covered by the terms of their policy, the suit relays.

According to the suit, Auto-Owners calculates the actual cash value payments made to policyholders by estimating the cost to repair or replace the structure with new materials, i.e., the replacement cost value (RCV), and then subtracting the estimated depreciation. The lawsuit alleges that although some insurance policies allow for the withholding of labor costs as depreciation, the plaintiffs’ policy and the policies at issue in the case do not.

Auto-Owners, the case says, used commercially available computer software known as Xactimate to calculate the payment owed to the plaintiffs. While the Xactimate estimate for the plaintiffs’ property amounted to $32,616.18, which included the cost of materials and labor, Auto-Owners subtracted a deductible of $500 provided in the policy and an additional $14,699.20 for depreciation, the suit relays. Per the suit, the amount withheld for depreciation unlawfully included the costs of both materials and labor when the plaintiffs’ policy did not allow for labor costs to be included as depreciation.

The case argues that Auto-Owners is similarly not permitted to withhold repair labor as depreciation under the policy forms at issue in Arizona, Illinois, Kentucky, Utah, and Wisconsin.

The plaintiffs claim Auto-Owners’ conduct has caused them to be paid “less than they were entitled to receive” under the terms of their property insurance policy.

The lawsuit looks to cover the following proposed class:

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