SPRINGFIELD – State Farm improperly depreciated labor costs like lumber costs when paying for property repairs, the Illinois Supreme Court ruled on Sept. 23.
“Materials deteriorate with time, but labor does not,” Justice Michael Burke wrote.
The ruling means plaintiff Jarret Sproull may pursue certification of a class action in Madison County circuit court.
Chief Circuit Judge William Mudge certified the question to Fifth District appellate judges in 2018, and they answered in Sproull’s favor last year.
Appellate judges and Supreme Court Justices found without dissent that State Farm took advantage of ambiguity in the words “actual cash value.”
Wind damaged Sproull’s home in 2015, and State Farm’s adjuster determined a replacement cost value of $1,711.54.
State Farm subtracted $394.36 for depreciation, leaving $1317.18.
State Farm subtracted a $1,000 deductible and sent Sproull $317.18.
Attorneys Christopher Byron and Christopher Petri of Edwardsville filed suit for him and all similarly situated persons in 2016.
State Farm moved to dismiss it, claiming the method for calculating the payment fully complied with the policy and the law.
Mudge denied the motion, and State Farm moved to certify the question to the Fifth District as a novel issue in Illinois.
Mudge certified it, and Fifth District judges found he correctly denied the motion.
“The policy does not define depreciation, and it does not indicate that labor costs are subject to depreciation,” Justice Judy Cates wrote.
She found it clear that actual cash value “refers to real property, an asset that can lose value over time due to wear and deterioration.”
She found an average homeowner who purchased the policy would reasonably expect depreciation to apply only to physical structures and tangible materials.
State Farm fared no better at the Supreme Court.
“State Farm has chosen not to define depreciation in the policy nor set forth how depreciation is to be calculated,” Justice Michael Burke wrote.
“State Farm has not argued that it is bound to a definition of depreciation or method of calculating it that is supplied by statute or regulation.”
As a result, he wrote, the policy was ambiguous.
He found the Court was required to construe it in Sproull’s favor if his interpretation of depreciation was reasonable, and Sproull passed the test.
Attorney Patrick Cloud of the Heyl Royster firm in Edwardsville represents State Farm, along with Craig Unrath of the firm’s Peoria office.