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Graves v. American Family Mutual Insurance Co.

United States District Court, D. Kansas

July 22, 2015

MARGARET GRAVES, individually, and on behalf of all others similarly situated, Plaintiffs,


ERIC F. MELGREN, District Judge.

Plaintiff Margaret Graves filed this suit for herself and all similarly-situated policyholders against Defendant American Family Mutual Insurance Company ("American Family"). Graves alleges that American Family violated the terms of her homeowners insurance policy and Kansas law by depreciating labor costs to arrive at the actual cash value owed to her for hail damage to her roof and water damage to her kitchen ceiling. Before the Court is American Family's Motion for Summary Judgment (Doc. 10). American Family argues that it properly determined the actual cash value of Graves's claim by depreciating labor costs according to the insurance policy language and thus Kansas law. For the reasons discussed below, the Court agrees and grants summary judgment.

I. Factual and Procedural Background[1]

Prior to this suit, Graves owned a homeowners insurance policy managed by American Family. On May 28, 2013 a storm caused damage to Graves's roof and kitchen ceiling. Early in October 2013, Graves made a claim to American Family for the damage. On certain conditions, Graves's policy reimburses the policyholder for the replacement cost of damaged property. But if the policyholder does not completely repair or replace the damaged property, the policy provides that American Family "will pay the actual cash value at the time of loss of that part of the building damaged up to the limit applying to the building, but not exceeding the replacement cost of the damaged building."[2] Graves's policy defines "actual cash value" as "[t]he amount which it would cost to repair or replace damaged property with property of like kind and quality, less allowance for physical deterioration and depreciation, including obsolescence."[3]

Later in October, Darren Meyer, a Property Claim Field Senior Adjuster employed by American Family, met Graves at her home and observed the storm damage. On October 15, 2013, Mr. Meyer sent Graves an estimate for the replacement cost of the damaged property. Based on that assessment and the terms of Graves's policy, American Family paid Graves a total of $4, 010.27, representing the actual cash value of her loss. In determining the actual cash value payment, American Family depreciated both the costs of materials and labor. Mr. Meyer also sent Graves a letter providing additional information about the claims process. The letter explained that to claim replacement coverage, Graves must: (1) notify American Family within 180 days after the loss of her decision to replace and (2) within one year of the loss, she must actually replace the damaged property and provide to American Family all invoices and receipts. If she failed either to timely make a claim for replacement coverage or to complete repair work, she is unable to recover any loss value amount above the actual cash value payment.

On May 12, 2014, Graves informed American Family, through its agent, of the completion and total cost of roof repairs. Graves provided receipts and proof of actual repair. On receiving the receipts and proof of actual repair to Graves's roof, American Family paid Graves a replacement coverage amount. The payment roughly equaled the amount that it initially depreciated from the roof repair estimate to determine her actual cash value payment. After combining the actual cash value payment, deferred payment upon proof of repair, and subtracting the $1, 000 policy deductible, Graves received a total $7, 354.31.

Though she repaired her roof, Graves was unable to secure ceiling repairs within one year of the storm. Accordingly, she lost any right to claim replacement costs for the loss associated with her ceiling and recovered only the actual cash value for the ceiling damage.

On June 25, 2014, Graves filed a class-action complaint in state court seeking damages and an order declaring unlawful American Family's practice of depreciating the cost of labor in determining actual cash value. On August 22, 2014, American Family removed the action. On October 9, 2014, American Family moved for summary judgment.

II. Legal Standard

Summary judgment is appropriate if the moving party demonstrates that there is no genuine issue as to any material fact, and the movant is entitled to judgment as a matter of law.[4] A fact is "material" when it is essential to the claim, and issues of fact are "genuine" if the proffered evidence permits a reasonable jury to decide the issue in either party's favor.[5] The movant bears the initial burden of proof, and must show the lack of evidence on an essential element of the claim.[6] The nonmovant must then bring forth specific facts showing a genuine issue for trial.[7] These facts must be clearly identified through affidavits, deposition transcripts, or incorporated exhibits-conclusory allegations alone cannot survive a motion for summary judgment.[8] The court views all evidence and reasonable inferences in the light most favorable to the party opposing summary judgment.[9]

III. Analysis

American Family argues that it is entitled to summary judgment because it properly calculated the interim payment amount for Graves's policy claim using the property's actual cash value prior to completion of repairs or replacement of the damaged property. American Family contends that, consistent with Kansas law and the Kansas Insurance Department's recommendation, Graves's policy language allows the depreciation of labor costs in determining actual cash value.[10] American Family further argues that no court has disallowed depreciation within insurance policies that define "actual cash value" similar to the definition found in Graves's policy. Graves responds that the policy language only allows depreciation concerning items that can be subject to physical deterioration; labor, Graves explains, is not subject to physical deterioration and therefore cannot be depreciated.

No Kansas court has addressed the specific issue of this case-whether an insurer may depreciate the cost of labor when calculating the actual cash value for a covered partial loss, where the policy's definition of "actual cash value" specifically provides for depreciation. But this Court is not altogether left without guidance from Kansas precedent. Kansas law explains that this Court ought to look to the policy language and consider whether a reasonable insured would understand its provisions to authorize the insurer's actions.[11] When examining insurance policies, the court must construe the policy to ascertain the parties' intent.[12] Generally, the court must consider that the purpose of an insurance contract is to indemnify the insured against loss.[13] But in discerning the parties' specific intent, the court must determine what a reasonable person in the insured's position would understand the language to mean.[14] If that language is unambiguous, it must be taken in its plain, ordinary, and popular sense, [15] without consideration of extrinsic evidence.[16] Terms will be deemed ambiguous only through a "natural and reasonable interpretation of [the provision's] language."[17] If that interpretation suggests ambiguity-that the policy's terms either conflict or are susceptible to multiple constructions- "the construction most favorable to the insured must prevail."[18]

Both parties argue that a reasonable interpretation of the policy's terms support their position. American Family argues that the definition of "actual cash value" clearly anticipates that it will depreciate labor costs as part of "the cost to repair or replace damaged property." American Family also notes that the Kansas Insurance Department endorses this interpretation. Graves responds that, under her policy, "actual cash value" allows depreciation only for tangible items susceptible to "physical deterioration and depreciation" and not intangible services, like labor. The fact that the parties provide opposing interpretations of the policy and argue that their interpretation alone is reasonable does not necessarily make it so and, more to the point, make the policy ...

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