The South Carolina Supreme Court has recently addressed a question that often arises in the handling of first-party property claims, is it proper for the insurer to include labor costs in a depreciation calculation when the labor cost is "embedded" in the item of property? The case is Butler v. Travelers Home & Marine Ins. Co., 2021 S.C. Lexis 51.

Miriam Butler and Joseph Stewart were both homeowners whose homes were damaged in separate fires. Both Butler and Stewart had home insurance policies from subsidiaries of The Travelers Companies (Travelers), and both chose to receive the ACV of the damages to their respective homes rather than repairing or replacing the damaged aspects of their homes.

A general ACV calculation uses one or more of the following methods: (1) market value, (2) replacement cost less depreciation and (3) the broad evidence rule. Travelers implemented the "replacement cost less depreciation method to calculate ACV in this case. In order to calculate ACV, Travelers calculated the depreciation for both materials and labor and subtracted both of those amounts from the replacement cost value to determine what they would offer to Butler and Stewart as the actual cash value for their properties. According to Butler and Stewart, "Travelers did not and has not calculated any portion of Plaintiffs' losses by appraisal or fair market value."