Basham v. United Services Automobile Association et al
ORDER granting #12 Motion for Judgment on the Pleadings by Judge R. Brooke Jackson on 7/28/17. (jdyne, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge R. Brooke Jackson
Civil Action No. 16-cv-03057-RBJ
UNITED SERVICES AUTOMOBILE ASSOCIATION,
ORDER GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS
After a hailstorm damaged her home, Ann Basham filed a homeowner’s insurance claim
with USAA. Her policy provides a two-step method for settling property damage claims above
$5,000. First, USAA pays only the “actual cash value” for the loss, which is defined as “the
amount it would cost to repair or replace covered property, at the time of loss or damage, with
material of like kind and quality, subject to a deduction for deterioration, depreciation and
obsolescence.” ECF No. 12-1 at 8; ECF No. 12-2 at 8. 1 The policy warns that the actual cash
value of damaged property “may be significantly less than its replacement cost.” ECF No. 12-1
at 8. Second, if the homeowner completes the repair or replacement within one year and submits
timely notice, USAA will pay for this replacement cost without a deduction for depreciation and
The Court “may consider documents referred to in the complaint if the documents are central to the
plaintiff’s claim and the parties do not dispute the documents’ authenticity.” BV Jordanelle, LLC v. Old
Republic Nat’l Title Ins. Co., 830 F.3d 1195, 1201 n.3 (10th Cir. 2016) (quoting Alvarado v. KOB–TV,
LLC, 493 F.3d 1210, 1215 (10th Cir. 2007)).
the like. ECF No. 12-2 at 8. Ms. Basham partially repaired her home and was reimbursed for
her additional expenses on those items. However, she was stuck with the lesser actual cash
value—after a depreciation deduction—for the property damage that she did not fix.
Ms. Basham accepts that USAA can deduct depreciation of the materials that make up an
item of property in calculating its actual cash value. But she believes USAA violated her policy
and the law by taking a depreciation deduction for the cost of labor as well. She has filed a
putative class action against USAA alleging breach of contract, unjust enrichment, and violation
of the Colorado Consumer Protection Act and Colo. Rev. Stat. §§ 10-3-1115 and 1116. Compl.,
ECF No. 1-1. Defendant has moved for judgment on the pleadings. ECF No. 12. The motion is
An insurance policy is a contract and is construed using the general principles of contract
interpretation. Allstate Ins. Co. v. Huizar, 52 P.3d 816, 819 (Colo. 2002). Clear and
unambiguous provisions must be given their plain meaning. Id. To determine whether an
ambiguity exists, the Court asks whether the document’s plain language is reasonably susceptible
to more than one interpretation. Pinnacol Assurance v. Hoff, 375 P.3d 1214, 1222 (Colo. 2016).
Ambiguous provisions should be construed in favor of providing coverage to the insured.
Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003). Still, the Court
may not rewrite a contract’s language to extend or limit its terms. See Cyprus Amax Minerals
Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003).
USAA’s policy is unambiguous. Actual cash value means “the amount it would cost to
repair or replace covered property,” which is evaluated (1) “at the time of loss or damage,” (2)
“with material of like kind and quality,” and (3) “subject to a deduction for deterioration,
depreciation and obsolescence.” ECF No. 12-1 at 1. “Lists commonly distinguish between
separate items by the introduction of commas or semicolons, and that’s exactly what we have
here.” Payless Shoesource, Inc. v. Travelers Companies, Inc., 585 F.3d 1366, 1370 (10th Cir.
2009) (Gorsuch, J.). These commas signal the “independence” of each modifying clause from
the one before. Id. Each of these parallel phrases refers back to the cost of repairing or replacing
As relevant here, actual cash value is thus “the amount it would cost to repair or replace
covered property . . . subject to a deduction for . . . depreciation.” Id. Covered property, such as
a roof, is often the product of both materials and labor. Accordingly, repair and replacement
costs comprise the cost of materials (e.g., shingles and nails), and the cost of labor (e.g., roofing
contractors). Both the cost of materials and the cost of labor are therefore subject to a
Despite this straightforward definition, plaintiff strains to find ambiguity in the policy.
On her reading, the depreciation clause could be understood to modify the word “material” in the
immediately prior phrase: “with material of like kind and quality.” The policy would then
extend coverage to “material . . . subject to a deduction for . . . depreciation.” But material itself
cannot be decreased by depreciation. Instead, the depreciation deduction comes out of the only
costs mentioned in this sentence: the overall “amount it would cost to repair or replace covered
property.” The policy could have forbidden depreciation of labor costs if it said something like:
repair and replacement costs are “subject to a deduction for . . . depreciation of materials only.”
But that is not what the policy says.
The principles of indemnity support the plain reading of this insurance policy. “[A]n
actual cost policy is designed to avoid placing the insured in a better position than he or she was
in before the” property damage. Dupre v. Allstate Ins. Co., 62 P.3d 1024, 1030 (Colo. App.
2002). In general, “the actual value of the property” depends on “the condition it was in at the
time of loss, taking into consideration its age and condition,” and is “not necessarily what it
would cost to erect a new building.” State Ins. Co. v. Taylor, 24 P. 333, 337 (Colo. 1890).
After the parties submitted their briefs, the Tenth Circuit issued an opinion applying these
concepts to a similar two-step replacement cost policy with an initial actual-cash-value payment.
See Graves v. Am. Family Mut. Ins. Co., No. 15-3187, 2017 WL 1416278 (10th Cir. Apr. 21,
2017) (unpublished). The court reasoned that “if [the insurance company] could depreciate only
the cost of materials in determining the actual cash value of [the insured’s] loss, she would
receive a windfall based on labor costs she never incurred.” Id. at *3. “Such a result is contrary
to the principle of indemnity because she would be in a better position than she was before the
damage occurred. Had she wanted to recover the full replacement cost under her policy she
should have had the repairs completed by the one-year deadline.” Id. This logic applies with
equal force here.
Like the value of a property’s materials, the value added by labor is depreciable. To
Suppose that a person wants to buy a grand piano. The piano materials
themselves—wood, metal, and the like—may have a value of only $500. But
building a piano requires great skill and hours of labor. Because of this labor, the
value of the finished piano is $5000. The labor has increased the price of the
finished good, and it has merged into part of a completed product. And as this
finished good—the piano—depreciates in value, the value of the labor that went
into building it depreciates as well.
Brown v. Travelers Cas. Ins. Co., No. 15-50-ART, 2016 WL 1644342, at *4 (E.D. Ky. Apr. 25,
2016). It is the same with all tangible property. A heap of asphalt, fiberglass, and mineral
granules is not worth much. But combine these ingredients in the right manner and you might
make a shingle. Similarly shingles, nails, ridge vents, underlayment, and flashing materials don’t
do much good lying in your front yard. But install them on the top of your house and you’ve got
a useful roof. Whenever property is the indivisible product of materials (stuff) and labor (work),
its physical components and the assembly of those pieces will decay over time.
Plaintiff disagrees with this framing, arguing that USAA has depreciated “labor” when
“labor does not depreciate.” ECF No. 20 at 12. Of course labor does not depreciate; labor is a
service, not an asset. See Depreciation, Black’s Law Dictionary (10th ed. 2014) (defining
depreciation as “[a] reduction in the value or price of something; specif[ically], a decline in an
asset’s value because of use, wear, obsolescence, or age”). However, labor can increase the
value of an asset, like shingles, or create a new asset, like a roof.
I am therefore not persuaded by the few opinions finding the embedded labor portion of
an asset’s value nondepreciable. The leading opinion, by a dissenting Justice of the Oklahoma
Supreme Court, rejects the characterization of a roof as “a single product” because you “cannot
go to the lumber yard or the retail store and buy a roof.” Redcorn v. State Farm Fire & Cas. Co.,
55 P.3d 1017, 1022 (Okla. 2002) (Boudreau, J., dissenting). But I see no difference between onsite or off-site labor producing an asset. A roof has value, and gives a home value, beyond the
cost of its materials whether it is custom-built or prefabricated.
Another dissenting Justice in Redcorn reasoned that the insured had a roof with sixteenyear-old shingles before the damage, so his insurance policy entitled him “to have on his house
sixteen-year-old shingles, or their value in money.” Id. at 1023 (Summers, J., dissenting). In my
view, however, requiring an insurer to pay for the installation of used shingles provides the full
replacement cost for the labor component of an old roof rather than its actual depreciated value;
in plaintiff’s words, “it will cost the same in labor to replace [a] worn and ragged roof as it would
a roof that was only one year old.” ECF No. 20 at 12. This payout would over-indemnify
plaintiff relative to the pre-loss value she was due.
These considerations also lead me to disagree with the courts in Adams v. Cameron
Mutual Insurance Co., 430 S.W.3d 675 (Ark. 2013), and Bailey v. State Farm Fire & Cas. Co.,
No. CIV.A. 14-53-HRW, 2015 WL 1401640 (E.D. Ky. Mar. 25, 2015), both of which adopted
the dissenting Oklahoma Justices’ approaches.
Plaintiff’s case citations are unpersuasive for additional reasons. Five of these cases
involve policies that “do not define actual cash value” or otherwise “provide how actual cash
value will be calculated.” 2 The two others plaintiff cites concern policies that explicitly limit
depreciation to “physical deterioration and obsolescence” alone. 3 A similar number of cases,
however, have construed policies with these exact features to allow depreciation of labor costs. 4
Boss v. Travelers Home & Marine Ins. Co., No. 2:16-CV-04065-NKL, 2016 WL 3983833, at *1 (W.D.
Mo. July 25, 2016); see also Brown, 2016 WL 1644342, at *1; LaBrier v. State Farm Fire & Cas. Co.,
147 F. Supp. 3d 839, 843 (W.D. Mo. 2015), appeal docketed, No. 16-3562 (8th Cir. Sept. 9, 2016);
Bailey, 2015 WL 1401640, at *5; Adams, 430 S.W.3d at 676.
See Lains v. Am. Family Mut. Ins. Co., No. C14-1982-JCC, 2016 WL 4533075, at *1 (W.D. Wash. Feb.
9, 2016); Riggins v. Am. Family Mut. Ins. Co., 106 F. Supp. 3d 1039, 1039 (W.D. Mo. 2015).
See, e.g., Matchniff v. Great Nw. Ins. Co., 224 F. Supp. 3d 1119, 1129 (D. Or. 2016) (policy did not
define actual cash value); Papurello v. State Farm Fire & Cas. Co., 144 F. Supp. 3d 746 (W.D. Pa. 2015)
(same); Henn v. Am. Family Mut. Ins. Co., 894 N.W.2d 179, 181 (Neb. 2017) (same); Wilcox v. State
Farm Fire & Cas. Co., 874 N.W.2d 780 (Minn. 2016) (same); Redcorn v. State Farm Fire & Cas. Co., 55
P.3d 1017 (Okla. 2002) (same); Graves, 2017 WL 1416278 (policy had deduction for physical
deterioration and obsolescence); Ware v. Metro. Prop. & Cas. Ins. Co., 220 F. Supp. 3d 1288 (M.D. Ala.
At most it appears that courts disagree on how to interpret policies with two characteristics that
might favor plaintiff’s reading. But this Court need not pick a side in this debate because
plaintiff’s policy lacks those characteristics—it does define actual cash value, and it does not
provide for depreciation based solely on physical deterioration and obsolescence.
Given the specific policy language here and background insurance principles, “a
reasonably prudent insured would understand ‘depreciation’ to mean a decline in an asset’s
overall value.” Graves, 2017 WL 1416278, at *4. USAA therefore did not impermissibly
depreciate labor costs in determining the actual cash value of plaintiff’s losses, so no additional
amount was due under the policy. Because all of plaintiff’s claims assume her entitlement to
payment for labor costs without a depreciation deduction, all of these claims must be dismissed.
For the reasons set forth above, Defendant’s Motion for Judgment on the Pleadings [ECF
No. 12] is GRANTED. Ms. Basham’s complaint is dismissed with prejudice. As the prevailing
party, defendant is awarded its reasonable costs pursuant to Fed. R. Civ. P. 54(d)(1) and
DATED this 28th day of July, 2017.
BY THE COURT:
R. Brooke Jackson
United States District Judge
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