The Illinois Supreme Court has determined that a homeowners insurer may not depreciate labor costs in calculating the actual cash value (ACV) after a loss under the policy. The case is Sproull v. State Farm Fire & Cas. Co., 2021 IL 126446.

Jarret Sproull was insured under a homeowner's policy that provided replacement cost coverage for structural damage. Under the policy terms, covered losses were paid in two parts; an ACV payment and then a replacement cost value (RCV) payment if repairs or replacements were completed within two years and the insurer was notified in a timely manner. The policy failed to define "actual cash value."

According to Sproull's complaint, he suffered wind damage to his residence and timely submitted a claim for property damage to State Farm requesting payment for the loss. State Farm's adjuster determined that the building sustained a covered loss with an RCV of over $1,700. In calculating ACV, State Farm took the RCV and subtracted the $1,000 deductible and $394.36, including taxes, for depreciation. The ACV payment came to $317.18. Sproull claimed he was underpaid on his ACV payment because State Farm depreciated labor, which is tangible and thus not subject to wear, tear, and obsolescence. He further argued that labor should not have been depreciated because it was not susceptible to aging or wearing and its value did not diminish over time.