Perry v. Allstate Indem. Co.

• Decision Date: 18 March 2020
• Docket Number: No. 18-4267,18-4267
• Citation: 953 F.3d 417
• Parties: Andrea PERRY, individually and on behalf of all other Ohio residents similarly situated, Plaintiff-Appellant, v. ALLSTATE INDEMNITY COMPANY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

953 F.3d 417

Andrea PERRY, individually and on behalf of all other Ohio residents similarly situated, Plaintiff-Appellant,

v.ALLSTATE INDEMNITY COMPANY, et al., Defendants-Appellees.

No. 18-4267

United States Court of Appeals, Sixth Circuit.

Decided and Filed: March 18, 2020

KAREN NELSON MOORE, Circuit Judge.

When Andrea Perry’s home sustained water damage, she made a claim under her Allstate insurance policy for the cost of repairs or replacement. Both Perry and Allstate agree that the damage is covered under the policy, and they agree on the total estimated cost. The single issue they dispute is whether Allstate is entitled to deduct the cost of labor as part of calculating "depreciation" to arrive at its net payment. Ohio law, fortunately, provides a simple answer. When an insurance policy is ambiguous, Ohio law requires courts to interpret the policy strictly against the insurer, so long as the insured’s interpretation is reasonable. We hold, as many have, that Perry’s reading of the term "depreciation" is a reasonable interpretation of an ambiguous policy, and thus that Allstate may not include the cost of labor in calculating depreciation under its policy. We accordingly REVERSE the judgment of the district court dismissing this action and REMAND for further proceedings consistent with this opinion.

I. BACKGROUND

Perry’s home suffered water damage and required extensive repairs. R. 1-1 (Compl. at 4, ¶¶ 9–10) (Page ID #58). To pay for the damage, she filed a claim with her insurer, Allstate Indemnity Company. Id. at 4, ¶¶ 11–13 (Page ID #58). Allstate did not dispute that Perry’s home was seriously damaged, or that it was required to pay for repairs or replacement. Id. at 4, ¶ 14 (Page ID #58). And the parties agree that the total estimated cost to repair or replace Perry’s home is $32,965.09. Id. at 4, ¶ 17 (Page ID #58). After making deductions for "depreciation," Allstate provided Perry with a net payment of $28,394.74. Id. at 5, ¶ 23 (Page ID #59). The source of the disagreement is Allstate’s deduction of labor costs as part of the calculation of depreciation.¹

Perry’s payout was calculated on an "actual cash value" ("ACV") basis. Her Allstate insurance policy provides, "If you do not repair or replace the damaged, destroyed or stolen property, payment will be on an actual cash value basis. This means there may be a deduction for depreciation." R. 16-2 (Insurance Policy at 16) (Page ID #183). The policy does not define "depreciation."

Allstate contends that "depreciation" must account for the cost of both materials and labor . Perry does not dispute that "depreciation" includes the cost of materials, but claims that the term "depreciation" is ambiguous with respect to labor costs. The district court accepted Allstate’s definition and granted its motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Perry timely appealed.

II. STANDING

As an initial matter, Allstate argues that Perry has standing only to pursue her claims against Allstate Indemnity Company, the division that issued her insurance policy. Perry concedes that the remaining Allstate entities are not parties to the policy at issue in this case. Therefore, Perry lacks standing to pursue her claims against those entities because her injury is not traceable to them. See Lujan v. Defenders of Wildlife , 504 U.S. 555, 559–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). It does not matter that Perry brought this suit as a putative class action on behalf of policyholders of the other Allstate entities.² The rule works the other way around. "[P]otential class representatives must demonstrate ‘individual standing vis-à-vis the defendant; [they] cannot acquire such standing merely by virtue of bringing a class action.’ " Soehnlen v. Fleet Owners Ins. Fund , 844 F.3d 576, 582 (6th Cir. 2016) (quoting Fallick v. Nationwide Mut. Ins. Co. , 162 F.3d 410, 423 (6th Cir. 1998) ). As Perry is the only named plaintiff in the action, no other named plaintiffs exist to create standing against the remaining Allstate entities. On remand, the district court should dismiss without prejudice Perry’s claims against the remaining Allstate entities.

III. DEPRECIATION OF LABOR COSTS

Now we turn to the merits. The question on appeal is whether Perry’s insurance policy permits Allstate to depreciate labor costs in calculating ACV. Allstate argues that it was entitled to depreciate labor costs, in addition to the cost of materials, in calculating ACV. Perry says the policy is ambiguous. The district court sided with Allstate and granted Allstate’s motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). We review de novo the decision to dismiss Perry’s complaint. See Robbins v. New Cingular Wireless PCS, LLC , 854 F.3d 315, 318 (6th Cir. 2017).

Neither the insurance policy nor the Ohio Administrative Code defines "depreciation." And the Ohio Supreme Court has not weighed in on this question. Thus, "depreciation" is left undefined and, Perry argues, is ambiguous. We agree that the policy is ambiguous and hold that Allstate improperly depreciated labor costs in calculating ACV.

In cases where our jurisdiction is based on diversity, we apply the substantive law of the state in which the district court sits according to the decisions of the state’s highest court. Kepley v. Lanz , 715 F.3d 969, 972 (6th Cir. 2013). Our case arises under Ohio law, so we must look to the decisions of the Ohio Supreme Court. Where, as here, the Ohio Supreme Court has not spoken on an issue, we look to the decisions of its lower courts, to the extent they are persuasive, to predict how the Ohio Supreme Court would decide the issue. Id. ; Bailey v. V & O Press Co. , 770 F.2d 601, 604 (6th Cir. 1985). The results of that search are inconclusive. Although two Ohio appellate courts have held in published decisions in different contexts that labor costs are not depreciable, two other appellate courts came out the opposite way in unpublished decisions, and no Ohio appellate court has addressed depreciation in this context. See Ohio Edison Co. v. Royer , 92 N.E.3d 912, 917 (Ohio Ct. App. 2018) (excluding labor costs from depreciation of damages in the context of a tort claim for destruction of a utility pole); Illuminating Co. v. Wiser , 114 N.E.3d 240, 246 (Ohio Ct. App. 2018) (same); Ohio Edison Co. v. Soule , No. S-17-052, 2018 WL 6016743, at *10 (Ohio Ct. App. Nov. 16, 2018) (unpublished) (finding that labor costs were depreciable in the context of a tort claim for destruction of a utility pole); Helfrich v. Helfrich , No. 97APF08-975, 1998 WL 63528, at *3 (Ohio Ct. App. Feb. 10, 1998) (unpublished) (stating that separating labor costs from material costs for the replacement of concrete in a child support case was "fundamentally unsound"). The only Ohio courts to have addressed the precise question of depreciating labor costs in calculating ACV are two trial courts. They came to opposite conclusions. See Ingram v. Liberty Ins. Corp. , No. 16CV005538, at p. 6 (Ohio Ct. Com. Pl. Mar. 13, 2018) (unpublished); Parker v. Am. Family Ins. Co. , No. CV-16-865773, at pp. 6–8 (Ohio Ct. Com. Pl. June 13, 2019) (unpublished). We simply have no clear answer from Ohio law on whether labor costs are depreciable in calculating ACV. We therefore turn to Ohio’s general rules of contract interpretation and insurance law.

Under Ohio law, if an insurance policy is ambiguous, the policy is construed strictly against the insurer. Andersen v. Highland House Co. , 93 Ohio St.3d 547, 757 N.E.2d 329, 332–33 (2001). "[I]t will not suffice for [the insurer] to demonstrate that its interpretation is more reasonable than the policyholder’s." Id. at 333 (quotation omitted). Instead, "in order to defeat coverage, the insurer must establish not merely that the policy is capable of the construction it favors, but rather that such an interpretation is the only one that can fairly be placed on the language in question." Id. at 332 (quotation omitted) (emphasis added). If the policy is ambiguous, and the insured’s interpretation is reasonable, the insured prevails.

We recently held in Hicks v. State Farm Fire & Casualty Co. , a case arising under Kentucky law, that nearly identical policy language was ambiguous. 751 F. App'x 703 (6th Cir. 2018).³ Under Kentucky law, policies are ambiguous if they are susceptible to more than one reasonable interpretation. Id. at 709 (citing Bituminous Cas. Corp. v. Kenway Contracting Inc. , 240 S.W.3d 633, 641 (Ky. 2007) ). "A layperson confronted with State Farm’s policy," we held, "could reasonably interpret the term depreciation to include only the cost of materials." Id. Like Ohio law, Kentucky law dictates that an ambiguous insurance policy must be construed strictly against the insurer and in favor of the insured, so long as the insured’s proposed interpretation is reasonable. See Bidwell v. Shelter Mut. Ins. Co. , 367 S.W.3d 585, 588–89 (Ky. 2012). Therefore, we interpreted "depreciation" to exclude labor costs. Hicks , 751 F. App'x at 710.

As here, the insurance policy in Hicks did not define "depreciation." Neither did the Kentucky Administrative Regulations. But, like here, the regulations did define ACV. See 806 KY. ADMIN. REGS. 12:095(9)(2) (2007). Kentucky’s regulations define ACV as "replacement cost of property at the time of the loss less depreciation, if any." Id. Ohio’s regulations define ACV as "replacement cost of property at the time of loss, including sales tax, less any depreciation." OHIO ADMIN. CODE § 3901-1-54(I)(2)(a) (2016). Allstate makes much of the fact that the Kentucky regulations say "depreciation, if any," while the Ohio regulations say "any depreciation." In its view, "any depreciation" means all types of depreciation. We read "any depreciation" as simply saying "whatever depreciation there happens to be." Allstate’s interpretation just begs the question of what "depreciation" means in the first place.⁴

Moreover,...