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02/17/2017 09:09 AM CST




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                                  Nebraska Supreme Court A dvance Sheets
                                          295 Nebraska R eports
                                        HENN v. AMERICAN FAMILY MUT. INS. CO.
                                                  Cite as 295 Neb. 859




                              Rosemary Henn,           individually and on behalf
                                 of others similarly situated, plaintiff, v.
                                        A merican Family Mutual Insurance
                                                Company, defendant.
                                                      ___ 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 appel-
                     late 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 under-
                     stood 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 require-
                     ment 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.
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             Nebraska Supreme Court A dvance Sheets
                     295 Nebraska R eports
                HENN v. AMERICAN FAMILY MUT. INS. CO.
                          Cite as 295 Neb. 859

 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 differ-
     ence necessary to replace the old property with the new property.
11.	 ____: ____. Both materials and labor constitute relevant facts to con-
     sider 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 calcu-
     lated 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, K elch, and Funke, JJ., and
Inbody and Bishop, Judges.
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           Nebraska Supreme Court A dvance Sheets
                   295 Nebraska R eports
             HENN v. AMERICAN FAMILY MUT. INS. CO.
                       Cite as 295 Neb. 859

  Heavican, C.J.
                        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, depre-
ciate 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 con-
tract, 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 calcula-
tion 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 depreci-
ated 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 depre-
ciation, 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 submit-
ted 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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           Nebraska Supreme Court A dvance Sheets
                   295 Nebraska R eports
              HENN v. AMERICAN FAMILY MUT. INS. CO.
                        Cite as 295 Neb. 859

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 build-
ing.” 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 dam-
aged 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 construc-
tion for similar use, the actual amount spent to repair or replace
the property, or 120 percent of the limit applying to the dam-
aged building.
   The policy does not define “actual cash value” or depre-
ciation, 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 condi-
tions section for actual cash value that
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          Nebraska Supreme Court A dvance Sheets
                  295 Nebraska R eports
             HENN v. AMERICAN FAMILY MUT. INS. CO.
                       Cite as 295 Neb. 859

      [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 pro-
vided Henn with a written estimate that explained the cal-
culations 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 depre-
ciation.” 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 esti-
mate 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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           Nebraska Supreme Court A dvance Sheets
                   295 Nebraska R eports
             HENN v. AMERICAN FAMILY MUT. INS. CO.
                       Cite as 295 Neb. 859

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 sum-
mary judgment is being held in abeyance until this court
responds to the certified question.
   Again, the question certified is: “May an insurer, in deter-
mining the ‘actual cash value’ of a covered loss, depreciate the
cost of labor when the terms ‘actual cash value’ and ‘depre-
ciation’ 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 lan-
guage 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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                Nebraska Supreme Court A dvance Sheets
                        295 Nebraska R eports
                   HENN v. AMERICAN FAMILY MUT. INS. CO.
                             Cite as 295 Neb. 859

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 pre-
parer 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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                Nebraska Supreme Court A dvance Sheets
                        295 Nebraska R eports
                   HENN v. AMERICAN FAMILY MUT. INS. CO.
                             Cite as 295 Neb. 859

cost may be used, (3) failing the other two tests, any evi-
dence 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 com-
pelled 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 par-
ticular 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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                Nebraska Supreme Court A dvance Sheets
                        295 Nebraska R eports
                   HENN v. AMERICAN FAMILY MUT. INS. CO.
                             Cite as 295 Neb. 859

      the building, its obsolescence, both structural and func-
      tional, its market value, and the depreciation and deterio-
      ration 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 evi-
dence 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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                Nebraska Supreme Court A dvance Sheets
                        295 Nebraska R eports
                   HENN v. AMERICAN FAMILY MUT. INS. CO.
                             Cite as 295 Neb. 859

                Olson v. Le Mars Mut. Ins. Co.
   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 prop-
     erty, 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 with-
out 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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                 Nebraska Supreme Court A dvance Sheets
                         295 Nebraska R eports
                    HENN v. AMERICAN FAMILY MUT. INS. CO.
                              Cite as 295 Neb. 859

the value of the property prior to the time of the loss, which
would have resulted in underindemnification. This court lim-
ited 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 cur-
rent 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 cal-
culating 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 defini-
tion 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 Jurisdictions
   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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                Nebraska Supreme Court A dvance Sheets
                        295 Nebraska R eports
                   HENN v. AMERICAN FAMILY MUT. INS. CO.
                             Cite as 295 Neb. 859

   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 deter-
      mining 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 prod-
      uct 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 prac-
ticable, 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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                    HENN v. AMERICAN FAMILY MUT. INS. CO.
                              Cite as 295 Neb. 859

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 out-
of-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 can-
not 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 depre-
ciate 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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                   HENN v. AMERICAN FAMILY MUT. INS. CO.
                             Cite as 295 Neb. 859

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 deprecia-
tion of labor as part of actual cash value. The court cited the
majority’s opinion in Redcorn that “‘[a] building is the prod-
uct of both materials and labor’”42 and that the term “prop-
erty” 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 present-
day ‘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 deter-
mined. 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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                  HENN v. AMERICAN FAMILY MUT. INS. CO.
                            Cite as 295 Neb. 859

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 logi-
cally 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 Depreciated
   [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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                Nebraska Supreme Court A dvance Sheets
                        295 Nebraska R eports
                   HENN v. AMERICAN FAMILY MUT. INS. CO.
                             Cite as 295 Neb. 859

court’s explanation of actual cash value under the replace-
ment 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 distin-
guishing 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 evi-
dence 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 deter-
mining 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 calcula-
tion 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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                Nebraska Supreme Court A dvance Sheets
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                   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 interpreta-
tion 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 per-
centage of depreciation is taken from the whole when calculat-
ing 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 replace-
ment 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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                 Nebraska Supreme Court A dvance Sheets
                         295 Nebraska R eports
                     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 determin-
ing 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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          Nebraska Supreme Court A dvance Sheets
                  295 Nebraska R eports
             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 unambigu-
ous and that depreciation of labor does not lead to underin-
demnification. Therefore, we answer the certified question in
the affirmative.
                                          Judgment entered.
   Miller-Lerman and Stacy, JJ., not participating.
