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HENN v. AMERICAN FAMILY MUT. INS. CO.

Cite as 295 Neb. 859

Rosemary Henn, individually and on

of others similarly situated, plaintiff, v.

American Family Mutual 

Company, defenda

___ N.W.2d ___

Filed February 17, 2017. No. S-16-597.

1. Insurance: Contracts. A court interpreting an insurance policy must 

first determine, as a matter of law, whether the contract is ambiguous.

2. Insurance: Contracts: Appeal and Error. In an appellate review of an 

insurance policy, the court construes the policy as any other contract to 

give effect to the parties’ intentions at the time the writing was made. 

Where the terms of a contract are clear, they are to be accorded their 

plain and ordinary meaning.

3. ____: ____: ____. When an insurance contract is ambiguous, an appellate court will construe the policy in favor of the insured.

4. Contracts: Words and Phrases. A contract is ambiguous when a word, 

phrase, or provision in the contract has, or is susceptible of, at least two 

reasonable but conflicting meanings.

5. Insurance: Contracts: Words and Phrases. Regarding words in an 

insurance policy, the language should be considered not in accordance 

with what the insurer intended the words to mean but according to what 

a reasonable person in the position of the insured would have understood them to mean.

6. Insurance: Contracts. While an ambiguous insurance policy will be 

construed in favor of the insured, ambiguity will not be read into policy 

language which is plain and unambiguous in order to construe against 

the preparer of the contract.

7. Insurance: Contracts: Words and Phrases. There is no legal requirement that each word used in an insurance policy must be specifically 

defined in order to be unambiguous.

8. ____: ____: ____. Actual cash value is not a substantive measure of 

damages, but, rather, a representation of the depreciated value of the 

property immediately prior to damages.

Nebraska Supreme Court Online Library

www.nebraska.gov/apps-courts-epub/

02/17/2017 09:09 AM CST
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9. Insurance: Contracts. For purposes of indemnification, actual cash 

value must not equal the amount required to complete the repairs or 

replacement of the property. Instead, actual cash value is intended 

only to provide a depreciated amount of the replacement cost to start 

the repairs.

10. ____: ____. Under a replacement cost policy, the insured, not the 

insurer, is responsible for the cash difference necessary to replace the 

old property with the new property. And upon submitting the required 

materials for replacement cost value, the insured will receive the difference necessary to replace the old property with the new property.

11. ____: ____. Both materials and labor constitute relevant facts to consider when establishing the value of the property immediately prior to 

the loss.

12. ____: ____. Absent specific language in an insurance policy, a court 

may consider any relevant evidence in its calculation of actual cash 

value, including materials and labor.

13. ____: ____. An insured is properly indemnified when the amount calculated for actual cash value equals the depreciated value of the property 

just prior to the loss, which includes both materials and labor.

Certified Question from the U.S. District Court for the 

District of Nebraska. Judgment entered.

Eric R. Chandler, of Law Offices of Eric R. Chandler, P.C., 

L.L.O., and Erik D. Peterson and M. Austin Mehr, of Mehr, 

Fairbanks & Peterson Trial Lawyers, P.L.L.C., for plaintiff.

Bartholomew L. McLeay and Brooke H. McCarthy, of Kutak 

Rock, L.L.P., and Michael S. McCarthy and Marie E. Williams, 

of Faegre, Baker & Daniels, L.L.P., for defendant.

Daniel P. Chesire, of Lamson, Dugan & Murray, L.L.P., for 

amici curiae American Insurance Association et al.

Mark C. Laughlin and Robert W. Futhey, of Fraser Stryker, 

P.C., L.L.O., for amicus curiae State Farm Fire and Casualty 

Company.

Heavican, C.J., Wright, Cassel, Kelch, and Funke, J

Inbody and Bishop, Judg
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Heavican, C

INTRODUCTION

The U.S. District Court for the District of Nebraska has 

certified the following question to this court: “May an insurer, 

in determining the ‘actual cash value’ of a covered loss, depreciate the cost of labor when the terms ‘actual cash value’ and 

‘depreciation’ are not defined in the policy and the policy does 

not explicitly state that labor costs will be depreciated?” We 

answer this question in the affirmative.

The question arises from a putative class action filed in 

the U.S. District Court, in case No. 8:15CV257, involving a 

dispute over the interpretation of a homeowner’s insurance 

policy. Rosemary Henn asserts claims for breach of contract, unjust enrichment, violations of Nebraska’s Consumer 

Protection Act, fraudulent concealment, and equitable estoppel. 

Henn argues American Family Mutual Insurance Company 

(American Family) wrongfully failed to compensate her and 

others similarly situated by depreciating labor costs in calculation of actual cash value for loss or damage to a structure or 

dwelling under its homeowner’s insurance policies.

The dispute centers on whether labor costs can be depreciated in determining the actual cash value of covered damaged 

property under a homeowner’s insurance policy. The parties 

agree that actual cash value is replacement cost minus depreciation, but disagree as to whether the labor component can 

be depreciated.

No class has yet been certified, and progression of the case 

has been stayed pending the outcome of this certified question.

BACKGROUND

The following facts were obtained from the briefs submitted by the parties and from the district court’s certificate and 

memorandum order.

In September 2011, Henn submitted a homeowner’s claim 

under her insurance policy issued by American Family. The 

claim was submitted due to damage that occurred to her 

home’s roof vent caps, gutters, siding, fascia, screens, deck, 
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and air-conditioning unit during a hailstorm on August 18, 

2011. The insurance policy, American Family’s “Nebraska 

Homeowners Policy-Gold Star Special Deluxe Form” No. 

26-BE4992-01, is a replacement cost policy. American Family 

determined that the hail loss was covered by Henn’s policy.

The policy provides, in relevant part, that an insured may 

recover, following a covered loss, “the cost to repair the 

damaged portion or replace the damaged building, provided 

repairs to the damaged portion or replacement of the damaged 

building are completed,” or “[i]f at the time of loss, . . . the 

building is not repaired or replaced, [American Family] will 

pay the actual cash value at the time of loss of the damaged 

portion of the building up to the limit applying to the building.” Therefore, under the policy, the insured has two options 

for recovery following a covered loss: (1) receive “the actual 

cash value at the time of loss of the damaged portion of the 

building up to the limit applying to the building” or (2) receive 

the full replacement cost value upon completion of the repair 

or replacement of the damaged property.

Under both options, the insured will first receive an actual 

cash value payment. If the insured repairs or replaces the damaged property, the insured can recover the difference between 

the replacement cost value and actual cost value payments. If 

the insured does not repair or replace the damaged property, 

the insured is entitled to receive only the actual cash value. 

Payment under the replacement cost option is limited to the 

smallest of the cost to replace the property with like construction for similar use, the actual amount spent to repair or replace 

the property, or 120 percent of the limit applying to the damaged building.

The policy does not define “actual cash value” or depreciation, or describe the methods employed to calculate “actual 

cash value.” The policy also does not explain how American 

Family determines the difference between replacement cost 

value and actual cost value. The policy states under the conditions section for actual cash value that
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[i]f at the time of loss, the Increased Building Limit 

Coverage as provided under the Supplementary Coverages 

- Section I applies and the building is not repaired or 

replaced, [American Family] will pay the actual cash 

value at the time of loss of the damaged portion of the 

building up to the limit applying to the building.

After inspecting the storm damage, American Family provided Henn with a written estimate that explained the calculations for replacement cost value, actual cash value, and 

depreciation for the claim. The written estimate defined actual 

cash value as being “based on the cost to repair or replace the 

damaged item with an item of like kind and quality, less depreciation.” The estimate further stated that “replacement cost” 

was the “cost to repair the damaged item with an item of like 

kind and quality, without deduction for depreciation.” In the 

estimate, American Family’s adjuster determined that the cost 

to repair and replace the damaged portions of Henn’s home 

with new materials would be $3,252.60. From this amount, 

American Family subtracted $276.67 in depreciation, to arrive 

at an actual cash value amount of $2,975.93. American Family 

then subtracted Henn’s $1,000 deductible, leaving her with 

an actual cash value payment of $1,975.93. The depreciated 

amount includes both material costs and labor costs. The estimate did not show how much it depreciated from building 

materials as opposed to labor.

American Family sent Henn a letter stating that Henn had 

1 year from the date of the loss to complete the repairs and 

receive any difference between the actual repair costs and the 

actual cash value payment. Henn failed to make a claim for 

payment of replacement costs.

Henn filed the current action in the district court for 

Douglas County, Nebraska. American Family removed the 

case to the U.S. District Court for the District of Nebraska 

based on diversity of citizenship under 28 U.S.C. § 1332 

(2012). American Family subsequently filed a motion for 

summary judgment, arguing that the policy was unambiguous 
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and that the issues could be resolved as a matter of law. Henn 

contends that summary judgment was not proper, because “the 

term ‘actual cash value’ is ambiguous, that actual cash value 

should not include depreciation of labor, and [that] the policy 

provision should be construed in her favor.”

The U.S. District Court found that “resolution of the motion 

involves a question of law in Nebraska on which there is no 

controlling precedent in the decisions of the Nebraska Supreme 

Court.” The U.S. District Court certified the question to the 

Nebraska Supreme Court. American Family’s motion for summary judgment is being held in abeyance until this court 

responds to the certified question.

Again, the question certified is: “May an insurer, in determining the ‘actual cash value’ of a covered loss, depreciate the 

cost of labor when the terms ‘actual cash value’ and ‘depreciation’ are not defined in the policy and the policy does not 

explicitly state that labor costs will be depreciated?”

ANALYSIS

This court must determine whether the term “actual cash 

value” unambiguously allows for depreciation of labor in the 

insurance policy. Both parties agree that depreciation is an 

element of actual cash value. But Henn argues that the language in the policy does not unambiguously allow for labor 

depreciation and that American Family’s depreciation of labor 

resulted in underindemnification of her loss.

Conversely, American Family argues that “actual cash 

value” as used in the policy is not ambiguous, because the 

term incorporates the concept of depreciation from the cost 

of repairs, which includes both materials and labor. American 

Family contends that actual cash value is merely an interim 

payment and that depreciation of both materials and labor 

properly indemnifies the insured.

[1-7] A court interpreting an insurance policy must 

first determine, as a matter of law, whether the contract is 
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ambiguous.1 In an appellate review of an insurance policy, the 

court construes the policy as any other contract to give effect 

to the parties’ intentions at the time the writing was made. 

Where the terms of a contract are clear, they are to be accorded 

their plain and ordinary meaning.2 But when an insurance 

contract is ambiguous, we will construe the policy in favor of 

the insured.3 A contract is ambiguous when a word, phrase, 

or provision in the contract has, or is susceptible of, at least 

two reasonable but conflicting meanings.4 Regarding words in 

an insurance policy, the language should be considered not in 

accordance with what the insurer intended the words to mean 

but according to what a reasonable person in the position of 

the insured would have understood them to mean.5 While an 

ambiguous insurance policy will be construed in favor of the 

insured, ambiguity will not be read into policy language which 

is plain and unambiguous in order to construe against the preparer of the contract.6

 There is no legal requirement that each 

word used in an insurance policy must be specifically defined 

in order to be unambiguous.7

Some background on how this court calculates actual cash 

value is helpful. This court has set forth three approaches to 

determining actual cash value: “(1) [W]here market value 

is easily determined, actual cash value is market value, (2) 

if there is no market value, replacement or reproduction 

1 Reisig v. Allstate Ins. Co., 264 Neb. 74, 645 N.W.2d 544 (2002).

2 Olson v. Le Mars Mut. Ins. Co., 269 Neb. 800, 696 N.W.2d 453 (2005).

3 American Fam. Mut. Ins. Co. v. Wheeler, 287 Neb. 250, 842 N.W.2d 100 

(2014).

4 Van Kleek v. Farmers Ins. Exch., 289 Neb. 730, 857 N.W.2d 297 (2014).

5 Guerrier v. Mid-Century Ins. Co., 266 Neb. 150, 663 N.W.2d 131 (2003).

6 Tighe v. Combined Ins. Co. of America, 261 Neb. 993, 628 N.W.2d 670 

(2001).

7 American Family Ins. Group v. Hemenway, 254 Neb. 134, 575 N.W.2d 143 

(1998).
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cost may be used, (3) failing the other two tests, any evidence tending to formulate a correct estimate of value may 

be used.”8

The first approach, market value, has been used by this 

court in several cases to calculate actual cash value.9 This 

court has defined market value as “the amount for which 

property may be sold by a willing seller who is not compelled to sell it to a buyer who is willing but not compelled 

to buy it.”10 And in deciding market value, the jury “should 

consider the situation and condition of the property as it was 

at that time and all the other facts and circumstances shown 

by the evidence that affected or had a tendency to establish 

its value.”11

Under the second approach, replacement or reproduction 

cost, this court has stated that “application of a depreciation 

factor would serve to indemnify the insured for the value of 

that which was lost, but no more.”12

We have also defined the third approach, often referred to as 

the “broad evidence rule.” This court found that it had “no particular quarrel” with calculation of actual cash value according 

to the following definition of the broad evidence rule:

“[I]n determining the actual cash value of the property 

involved they may consider every fact and circumstance 

which would logically tend to the formation of a correct 

estimate of the building’s value, including the original 

cost, the economic value of the building, the income 

derived from the building’s use, the age and condition of 

8 Olson v. Le Mars Mut. Ins. Co., supra note 2, 269 Neb. at 806, 696 

N.W.2d at 458, citing Sullivan v. Liberty Mutual Fire Ins. Co., 174 Conn. 

229, 384 A.2d 384 (1978).

9 See id.

10 Borden v. General Insurance Co., 157 Neb. 98, 113, 59 N.W.2d 141, 150 

(1953).

11 Id. at 114, 59 N.W.2d at 150.

12 Olson v. Le Mars Mut. Ins. Co., supra note 2, 269 Neb. at 808, 696 

N.W.2d at 459.
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the building, its obsolescence, both structural and functional, its market value, and the depreciation and deterioration to which it has been subjected.”13

We discussed actual cash value under the market value 

test and broad evidence rule in Erin Rancho Motels v. United 

States F. & G. Co.14 We approved use of both the broad evidence rule and fair market value, noting that “actual cash 

value must still be measured as an economic unit, i.e., related 

to what, in terms of value, one could receive for his or her 

property.”15 We further explained that “[f]air market value 

is a term which has been used and is generally understood 

by experts and lay people alike, and which may be found by 

employing, if you will, the broad evidence rule.”16

More recently, in D & S Realty v. Markel Ins. Co.,

17 this 

court again defined actual cash value and distinguished it 

from replacement cost value: “Actual cash value is the value 

of the property in its depreciated condition. The purpose of 

actual cash value coverage is indemnification. It is to make 

the insured whole, but never to benefit the insured because the 

loss occurred.”

This court then stated that under a replacement cost policy, 

“where the cost to repair or replace is greater than the actual 

cash value, the insured, not the insurer, is responsible for the 

cash difference necessary to replace the old property with new 

property.”18 Further, this court stated that under a replacement 

cost policy, the actual cash value of the loss “can be used as 

seed money to start the repairs.”19

13 Erin Rancho Motels v. United States F. & G. Co., 218 Neb. 9, 14, 352 

N.W.2d 561, 564-65 (1984).

14 Erin Rancho Motels v. United States F. & G. Co., supra note 13.

15 Id. at 14, 352 N.W.2d at 565.

16 Id.

17 D & S Realty v. Markel Ins. Co., 284 Neb. 1, 14, 816 N.W.2d 1, 11 (2012).

18 Id.

19 Id. at 15-16, 816 N.W.2d at 12.
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Olson v. Le Mars Mut. Ins. 

In Olson v. Le Mars Mut. Ins. Co.,

20 this court further 

defined actual cash value under an actual cash value policy. 

The insurance policy at issue provided that it would pay 

actual cash value as of the time of loss or damage, and it 

did not include replacement cost coverage. We stated that 

“[a]s used in a property insurance policy, the phrase ‘actual 

cash value’ is a limitation on the amount of recovery for the 

protection of the insurer and not a substantive measure of 

damages.”21 And we further stated that “[a]pplying either a 

market value test or the broad evidence rule,” the value of 

the insured building was an “economic unit.”22 However, this 

court ultimately held that

under an actual cash value policy which does not 

expressly provide otherwise, an insurer may not deduct 

depreciation from the cost of repairing partial damage to 

insured property where the actual cash value of the property, as repaired, does not exceed its actual cash value at 

the time of the loss.23

Therefore, we held that payment of the full repair costs without a depreciation deduction would “restore the value of the 

insured property that existed immediately prior to the loss, but 

[would] not enhance that value.”24

Henn contends that the holding in Olson is controlling in 

the current case. However, we find it largely distinguishable. 

Our holding in Olson applied to the unique set of facts in 

which the value of the insured property at the time of the loss 

was equal to the actual cash value of the property as repaired. 

Under those facts, had the court allowed for depreciation of 

the actual cash value, it would have been a lower value than 

20 Olson v. Le Mars Mut. Ins. Co., supra note 2.

21 Id. at 806, 696 N.W.2d at 458.

22 Id. at 807, 696 N.W.2d at 459.

23 Id. at 810, 696 N.W.2d at 461.

24 Id.
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the value of the property prior to the time of the loss, which 

would have resulted in underindemnification. This court limited the application of the holding to “under an actual cash 

value policy” and to situations “where the actual cash value of 

the property, as repaired, does not exceed its actual cash value 

at the time of loss.” But neither of these situations occurred in 

the current case; therefore, the holding in Olson that the policy 

must “expressly provide” for depreciation does not apply. We 

note, however, that this court’s discussion of the definition 

of actual cash value in Olson remains applicable to the current case.

Henn argues that the flexible approach to calculating actual 

cash value employed by this court creates ambiguity in the 

term. We agree that this court uses three approaches in calculating actual cash value, but under each of the approaches, 

it is a well-accepted principle that “[a]ctual cash value is the 

value of the property in its depreciated condition.”25 As the 

parties concede, Nebraska law makes clear that the definition of “actual cash value” generally allows depreciation. But 

this court has not explicitly addressed depreciation of labor as 

opposed to materials, or addressed indemnification in terms of 

actual cash value.

Other Jurisdicti

Both the market value test set forth in D & S Realty and 

the broad evidence rule first explained in Erin Rancho Motels

consider all the other “facts and circumstances” shown by 

the evidence that affected or had a tendency to establish the 

property’s value.26 To answer whether all the other “facts and 

circumstances” include labor, we turn to cases from other 

jurisdictions that have addressed this issue.

25 D & S Realty v. Markel Ins. Co., supra note 17, 284 Neb. at 14, 816 

N.W.2d at 11.

26 Borden v. General Insurance Co., supra note 10, 157 Neb. at 114, 59 

N.W.2d at 150.
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In Redcorn v. State Farm Fire & Cas. Co.,

27 a divided 

Oklahoma Supreme Court reasoned that depreciation of labor 

was appropriate under the broad evidence rule and that it did 

not lead to underindemnification. The court reasoned that 

labor could not be separated from the total amount that was 

depreciated, because

[a] roof does not have a separate market value from 

the building it covers. The relevant evidence for determining actual cash value for a roof would include cost 

of reproduction, the age of the roof, and the condition 

in which it has been maintained. A building is the product of both materials and labor. . . . Likewise, a roof 

is the product of materials and labor, and its age and 

condition are also relevant facts in setting the amount of 

a loss.28

Based on this reasoning, the court held that “indemnity 

is served by considering the age and condition of a roof, 

both materials and labor, in setting an amount of loss.”29

Furthermore, the court stated that “[t]o meet the goal of 

indemnity, [the insured] should be placed, as nearly as practicable, in the same condition as he was in just prior to the 

insured loss.”30

Applying the broad evidence rule, the court held that 

“a fact-finder is entitled to consider what the life of the 

destroyed roof, both materials and labor, would have been, 

as well as any other relevant evidence presented.”31 The 

court further explained that the insurance policy “insured a 

roof surface, not two components, material and labor. [The 

insured] did not pay for a hybrid policy of actual cash value 

for roofing materials and replacement costs for labor. To 

27 Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017 (Okla. 2002).

28 Id. at 1020.

29 Id. at 1021.

30 Id.

31 Id.
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construe the policy in such a manner would unjustly enrich 

the policy holder.”32

The dissent in Redcorn disagreed, arguing instead that a 

roof “is not an integrated product . . . but a combination of a 

product (shingles) and a service (labor to install the shingles)” 

and that “[l]abor . . . is not logically depreciable.”33 Therefore, 

the dissent opined that “allowing [the insurer] to depreciate the 

cost of labor would leave [the insured] with a significant outof-pocket loss, a result that is inconsistent with the principle 

of indemnity.”34

In Adams v. Cameron Mut. Ins. Co.,

35 the Supreme Court of 

Arkansas held that the term “actual cash value” was ambiguous 

in the actual cash value policy, and the court cited the Redcorn

dissent in finding that labor could not be depreciated. The 

court stated that like the dissenters in Redcorn, it “simply cannot say that labor falls within that which can be depreciable.”36

In addition, the court stated that because it found that the term 

“actual cash value” was ambiguous, it must construe the policy 

against the insurer.

Similarly, in Bailey v. State Farm Fire & Cas. Co.,

37 the 

U.S. District Court for the Eastern District of Kentucky found 

that the Redcorn dissent was more persuasive. The court 

held that in determining actual cash value—which was not 

defined in the insurance policy—the insurer could not depreciate the labor component of replacement cost. The court 

stated that actual cash value was defined under Kentucky 

law as “‘replacement cost of the property at the time of loss 

32 Id.

33 Id. at 1022 (Boudreau, J., dissenting; Watt, V.C.J., and Summers, J., join).

34 Id. at 1023.

35 Adams v. Cameron Mut. Ins. Co., 2013 Ark. 475, 430 S.W.3d 675 (Nov. 

21, 2013).

36 Id. at *6, 430 S.W.3d at 679.

37 Bailey v. State Farm Fire & Cas. Co., No. 14-53-HRW, 2015 WL 1401640 

(E.D. Ky. Mar. 25, 2015) (memorandum opinion).
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less depreciation.’”38 And it stated that “[d]enying the distinct 

nature of labor as a component runs afoul [of] logic.”39 Based 

on the reasoning in the Redcorn dissent, the court held that 

“[t]o adequately indemnify its insureds, [the insurer] should 

pay the cost of materials, depreciated for wear and tear, plus 

the cost of their installation.”40

Conversely, in Papurello v. State Farm Fire & Cas. Co.,

41

the U.S. District Court for the Western District of Pennsylvania 

held that the policy’s plain language permitted the depreciation of labor as part of actual cash value. The court cited the 

majority’s opinion in Redcorn that “‘[a] building is the product of both materials and labor’”42 and that the term “property” could not reasonably be interpreted as relating only to 

physical materials. Rather, the court stated that the “[insurer] 

did not promise at step one of the Policy to pay the presentday ‘actual cash value’ of whatever labor and taxes [the 

insureds] require to repair or replace their roof.”43 Instead, the 

value of the property suffered depreciation, and the insurer 

appropriately applied that depreciation to materials, taxes, and 

labor costs.

Similarly, in Goff v. State Farm Florida Ins. Co.,

44 the 

Florida District Court of Appeals held that the insurer could 

depreciate “overhead and profit” in a policy that did not 

define actual cash value. The court cited an American Bar 

Association publication which stated that “‘following a loss, 

both actual cash value and the full replacement cost are determined. The difference between those figures is withheld as 

38 Id. at *5.

39 Id. at *8.

40 Id.

41 Papurello v. State Farm Fire & Cas. Co., 144 F. Supp. 3d 746 (W.D. Pa. 

2015).

42 Id. at 770.

43 Id.

44 Goff v. State Farm Florida Ins. Co., 999 So. 2d 684, 690 (Fla. App. 2008).
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depreciation until the insured actually repairs or replaces the 

damaged structure.’”45

The Goff court also cited an Oklahoma Supreme Court case 

in which the court found that “‘it was proper to depreciate 

both materials and labor when calculating the loss suffered by 

the insured.’”46 The Goff court reasoned that “depreciation” 

included “overhead and profit.”

In addition, the Indiana Supreme Court, in Travelers Indem. 

Co. v. Armstrong,

47 stated that the broad evidence rule was a 

“flexible rule” which “permits an appraiser or a court or a jury 

to consider any relevant factor.” The court stated that “[u]nder 

the broad evidence rule, the parties were entitled to introduce 

evidence of ‘every fact and circumstance which would logically tend to a formation of a correct estimate of the loss.’”48

The court further addressed indemnity in terms of actual cash 

value and stated that “‘[i]f the princip[le] of indemnity be 

adhered to, depreciation must be considered in loss adjustment 

so that the insured will not receive the equivalent of a new 

building for a loss of the old one.’”49

Labor Can Be Deprec

[8,9] We cannot agree with the dissent in Redcorn, as set 

forth in Henn’s argument, that the depreciation of labor is 

illogical because labor does not depreciate. Actual cash value, 

as defined by this court, is “not a substantive measure of 

damages,”50 but, rather, a representation of the depreciated 

value of the property immediately prior to damages. This 

45 Id., quoting Leo John Jordan, What Price Rebuilding? A Look at 

Replacement Cost Policies, 19 The Brief 17 (Spring 1990).

46 Id., quoting Branch v. Farmers Ins. Co., 55 P.3d 1023 (Okla. 2002).

47 Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349, 356 (Ind. 1982). 

48 Id. at 357.

49 Id. at 353.

50 Olson v. Le Mars Mut. Ins. Co., supra note 2, 269 Neb. at 806, 696 

N.W.2d at 458.
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HENN v. AMERICAN FAMILY MUT. INS. CO.

Cite as 295 Neb. 859

court’s explanation of actual cash value under the replacement cost policy in D & S Realty51 shows that for purposes 

of indemnification, actual cash value must not equal the 

amount required to complete the repairs or replacement of 

the property. Instead, actual cash value is intended only to 

provide a depreciated amount of the replacement cost to “start 

the repairs.”52

[10] As we held in D & S Realty, it is “the insured, not the 

insurer,” that “is responsible for the cash difference necessary 

to replace the old property with new property.”53 By distinguishing between the “lesser of actual cash value or the cost 

of repairing or replacing the damaged property,”54 this court 

clarified that actual cash value must not equal the cost to repair 

or replace the damaged property. And upon submitting the 

required materials for replacement cost value, the insured will 

receive the difference necessary to replace the old property 

with the new property.

[11] As in Redcorn, this court has adopted the broad evidence rule. This court has also employed the market value 

approach. As established above, both approaches allow all 

relevant facts and circumstances to be considered when determining the actual cash value. We find that both materials and 

labor constitute relevant facts to consider when establishing 

the value of the property immediately prior to the loss.

[12] Therefore, as in the majority opinion in Redcorn, 

this court may consider any relevant evidence in its calculation of actual cash value, including materials and labor. We 

agree with the majority opinion in Redcorn, in that absent 

specific language in the policy, the insured does “not pay for 

a hybrid policy of actual cash value for roofing materials and 

51 D & S Realty v. Markel Ins. Co., supra note 17.

52 Id. at 15-16, 816 N.W.2d at 12.

53 Id. at 14, 816 N.W.2d at 11.

54 Id.
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295 Nebraska Report

HENN v. AMERICAN FAMILY MUT. INS. CO.

Cite as 295 Neb. 859

replacement costs for labor.”55 The property is a product of 

both materials and labor.

This finding appears to be consistent with the interpretation of actual cash value set forth in a Nebraska Department 

of Insurance brochure applying depreciation to both materials 

and labor. The brochure on hail damage states that under actual 

cash value, “[i]f your roof was worth 75% of the value of a 

new roof, you will be entitled to 75% of the estimated cost to 

repair or replace the damaged area.”56 In other words, the percentage of depreciation is taken from the whole when calculating actual cash value.

[13] Unlike Adams,

57 Nebraska has a well-developed case 

law on the definition of actual cash value. We therefore find 

that the term is not ambiguous in the policy. The unambiguous 

definition of actual cash value is a depreciation of the whole. 

As such, the insured is not underindemnified by receiving the 

depreciated amount of both materials and labor. We agree with 

American Family that a payment of actual cash value that 

included the full cost of labor would amount to a prepayment 

of unearned benefits. We hold, as in the majority opinion in 

Redcorn, that an insured is properly indemnified when the 

amount calculated for actual cash value equals the depreciated 

value of the property just prior to the loss, which includes both 

materials and labor.

Henn argues that an insured is properly indemnified only 

when the materials are depreciated according to actual cash 

value and the labor is not depreciated pursuant to the replacement cost value. As in Papurello,

58 we do not see how this 

distinction can be made under the plain meaning of actual 

cash value in the policy. The policy does not state that the 

55 Redcorn v. State Farm Fire & Cas. Co., supra note 27, 55 P.3d at 1021.

56 Neb. Dept. of Ins., Do I Have Hail Damage on My Roof? (rev. May 2012), 

http://www.doi.nebraska.gov/files/doc/out01121.pdf.

57 Adams v. Cameron Mut. Ins. Co., supra note 35.

58 Papurello v. State Farm Fire & Cas. Co., supra note 41.
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HENN v. AMERICAN FAMILY MUT. INS. CO.

Cite as 295 Neb. 859

insured will receive the actual cash value of the materials 

and the replacement cost value of the labor. As in Redcorn, 

Henn did not purchase a “hybrid policy” that would allow 

for this distinction. The policy does not distinguish between 

materials and labor, and we refuse to read that distinction into 

the policy.

Henn also argues that it is the historical practice of insurance 

companies to refrain from depreciating labor costs and that the 

“clear majority of courts to address labor depreciation in this 

context recognize that the cost of labor cannot be depreciated 

when calculating [actual cash value].”59 However, we find that 

the texts cited by Henn fail to support the premise of any such 

historical practice.

In addition, while Henn cites to various courts that have 

found that the cost of labor cannot be depreciated, we do not 

find that it is a “clear majority,” nor do we find that those cases 

are controlling under the current policy at issue. Instead, the 

Nebraska Department of Insurance brochure cited by American 

Family indicates that it is an accepted practice in Nebraska to 

depreciate from the whole.

We hold that payment of the full amount of labor would 

amount to a prepayment of benefits to which the insured is 

not yet entitled. Depreciating the whole is merely one way to 

arrive at a value that represents the depreciated value of the 

property to which the insured is entitled. We hold that payment 

of actual cash value, which depreciates both materials and 

labor, does not underindemnify the insured.

Therefore, under both the market value test and the broad 

evidence rule, all relevant evidence is considered in determining the value. Both materials and labor are elements that help 

establish the value of the property immediately prior to the time 

of loss. We hold that actual cash value applies to the insured 

property as a whole. We cannot agree with the distinction in 

59 Brief for plaintiff at 17.
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295 Nebraska Report

HENN v. AMERICAN FAMILY MUT. INS. CO.

Cite as 295 Neb. 859

depreciation that Henn is attempting to read into the policy. 

As reasoned above, there is no ambiguity in the term “actual 

cash value.”

CONCLUSION

We find that the term “actual cash value” is unambiguous and that depreciation of labor does not lead to underindemnification. Therefore, we answer the certified question in 

the affirmative.

Judgment entere

Miller-Lerman and Stacy, JJ., not participa