The Tennessee Supreme Court addressed a certified question from the United States District Court for the Middle District of Tennessee regarding whether an insurance company can depreciate the cost of labor when calculating actual cash value payments for property damage claims.

The homeowners in this case had home insurance policies with Auto-Owners (Mutual) Insurance Company and suffered damage to their properties. Under both of the policies presented in the lawsuit, the insurance company calculated the actual cash value of the damaged property by first calculating the replacement cost of the damaged property and then adjusting that number by depreciating both labor and material costs. The homeowners filed suit and argued that the insurance company's practice of depreciating labor costs was a breach of their contracts. The insurance company countered that labor costs are depreciable under the terms of the policies.

The Supreme Court determined that the language of the policies was ambiguous, that is, susceptible to two or more reasonable interpretations, regarding whether labor costs could be depreciated. Under Tennessee law, when an insurance policy is ambiguous, the policy is construed against the insurance company as the author of the policy. Consequently, the ambiguous policy language in this case had to be interpreted in favor of the homeowners, meaning that labor costs could not be depreciated when calculating actual cash value.