Labor Depreciation: Why Your Insurance Company Can't Depreciate Work Costs

Of all the ways insurance companies shortchange claim payouts, depreciating labor may be the most indefensible. The concept is simple: you cannot buy "used labor." A roofer charges the same rate whether they're installing shingles on a new home or replacing 20-year-old shingles on yours. There is no "depreciated" version of a plumber's hourly rate.

What Is Labor Depreciation?

When an insurance company calculates your actual cash value (ACV) payment, they subtract depreciation from the replacement cost. Properly done, depreciation should only apply to materials that have actually lost value due to age and wear. A 20-year-old asphalt shingle has less useful life remaining than a new one — that depreciation makes sense.

But many carriers apply depreciation to the labor portion of the estimate as well. They calculate a blanket percentage — say 25% or 40% — and apply it to the entire estimate, including all labor costs. This can represent thousands of dollars on a typical claim.

The Legal Landscape

A growing number of state courts have ruled that depreciating labor is improper. Notable decisions have come from:

• Arkansas — Shelter Mut. Ins. Co. v. Goodner
• Georgia — multiple rulings
• Kentucky — Hicks v. State Farm
• Oklahoma — Redlin v. Grinnell Mut.
• Illinois, Hawaii, and others

In California, the regulations require that depreciation be based on the "condition" of the damaged property. Labor doesn't have a "condition" — it's a service, not a physical object that wears out. This creates a strong argument against labor depreciation in California, though the issue hasn't been definitively resolved by the state's highest court.

How to Challenge Labor Depreciation

1. Ask the carrier for an itemized depreciation schedule that separates materials from labor.
2. If they applied a blanket percentage, demand they recalculate with labor excluded from depreciation.
3. Research your state's case law on labor depreciation — this is an evolving area.
4. Put your challenge in writing, citing the relevant case law or regulatory language.
5. If the carrier refuses, consider invoking appraisal or consulting an attorney.