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Mitchell v. State Farm Fire and Casualty Co.

United States District Court, N.D. Mississippi, Oxford Division

September 24, 2018

LORINE MITCHELL PLAINTIFF
v.
STATE FARM FIRE AND CASUALTY COMPANY DEFENDANT

          MEMORANDUM OPINION AND ORDER

          MICHAEL P. MILLS UNITED STATES DISTRICT JUDGE

         Presently before the Court is Defendant's Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim [8]. Plaintiff filed a response in opposition. The Court has reviewed and considered the parties' submissions and is now prepared to rule.

         Factual Background

         Plaintiff, Lorine Mitchell, maintains a residence in Waterford, Mississippi. Plaintiff insured the dwelling under a Homeowners Policy provided by Defendant, State Farm Fire and Casualty Company, and paid the requisite annual premiums for the coverage. The policy provides the following provisions for structural damages claims:

COVERAGE A - DWELLI1NG
1. A1 - Replacement Cost Loss Settlement - Similar Construction.
a. We will pay the cost to repair or replace with similar construction and for the same use on the premises shown in Declarations, the damaged part of the property covered under SECTION 1 - COVERAGES, COVERAGE A - DWELLING, except for wood fences, subject to the following:
(1) until actual repair or replacement is completed, we will pay out only the actual cash value at the time of the loss of the damaged part of the property, up to the applicable limit of liability shown in the Declarations, not to exceed the cost to repair or replace the damaged part of the property;
(2) when the repair or replacement is actually completed, we will pay the covered additional amount you actually and necessarily spend to repair or replace the damaged part of the property, or an amount up to the applicable limit of liability shown in the Declarations, whichever is less;
(3) to receive any additional payments on a replacement cost basis, you must complete the actual repair or replacement of the damaged part of the property within two years after the date of loss, and notify us within 30 days after the work has been completed . . ..

         According to Defendant, obtaining benefits under the policy is a “two-step” process. First, Defendant initially pays the actual cash value (“ACV”) “up to” and “not to exceed” the insured's coverage limit or the cost to repair. Then, only after repairs have been completed, the insured may request and recover additional funds to cover excess necessary expenses incurred.

         In Spring 2017, while insured under the policy, Plaintiff's dwelling suffered storm damage. On or about May 13, 2017, Plaintiff notified Defendant of the loss and made a claim under the policy. Defendant then had an adjuster inspect the property to determine the loss and damages suffered. The adjuster determined that the damage was covered under the policy and prepared an initial estimate for the cost of repair.

         On May 24, 2017, Defendant notified Plaintiff that the payment she was receiving was the ACV as calculated by Defendant. ACV, defined in the Building Estimate Summary Guide provided to Plaintiff after a claim, is the “repair or replacement cost of the damaged part of the property less depreciation and deductible.” In calculating ACV, the Defendant deducted depreciation from the replacement cost value (RCV). RCV and depreciation are also defined in the Building Estimate Summary Guide. RCV is the “[e]stimated cost to repair or replace damaged property.”

         Depreciation is “[t]he decrease in the value of property over a period of time due to wear, tear, condition, and obsolescence.” Defendant's initial repair cost estimate listed the ACV for Plaintiff's claim as $646.19. This number was derived by taking the RCV, $3, 246.42, and subtracting both the estimated depreciation of $1, 600.23 and the $1, 000 deductible. The estimate lists the inspected areas separately and includes a line item for the estimated RCV; the applied tax; the age, life, and condition of the property; the percentage applied for depreciation; and the ACV.

         Plaintiff alleges that Defendant's method of calculating the ACV resulted in payment significantly lower than the amount Plaintiff should have received under the Policy. Plaintiff argues that Defendant, in calculating the ACV, depreciated costs associated with labor when labor is not susceptible to aging, wearing, or tearing. Specifically, certain line items, such as line item 2 (composition shingle roofing), accounted for both labor and materials and then the estimated depreciation percentage was applied to the entire line item. However, other line items that listed pure labor, such as line item 1 (remove shingle roofing), were not subjected to labor cost depreciation. Based on Defendant's practice to depreciate labor costs, Plaintiff contends that her ACV payment was less than the amount she was entitled to receive under the policy.

         Plaintiff, in her complaint, alleges that: Defendant breached a contractual duty to pay Plaintiff and members of the proposed class the true ACV of their claims when Defendant depreciated labor costs (Count I); Defendant was negligent and/or grossly negligent when it breached its duty to “fully, fairly, adequately, and correctly investigate and adjust Plaintiff's loss and claims” by conducting unreasonable adjustments, by failing to fully pay the true ACVs of claims, and by arbitrarily interpreting the Policy (Count II); and Defendant's conduct constituted bad faith because Defendant failed to fully inform Plaintiff and members of the proposed class of their rights under the policy, failed to properly adjust, and deprived those insured of the true amounts owed under the policy by depreciating labor costs (Count III). Plaintiff also seeks a declaratory ...


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