              IN THE SUPREME COURT OF NORTH CAROLINA

                                   No. 42A19

                                28 February 2020

THOMAS ACCARDI

             v.
HARTFORD UNDERWRITERS INSURANCE COMPANY


   Appeal pursuant to N.C.G.S. § 7A-27(a)(2) from an order and opinion entered on

22 October 2018 by Judge Gregory P. McGuire, Special Superior Court Judge for

Complex Business Cases, in Superior Court, Wake County, after the case was

designated a mandatory complex business case by the Chief Justice pursuant to

N.C.G.S. § 7A-45.4(a). Heard in the Supreme Court on 2 October 2019.


      Whitfield Bryson & Mason, LLP, by Daniel K. Bryson, J. Hunter Bryson, Gary
      E. Mason, Daniel R. Johnson, and Gary M. Klinger, for plaintiff-appellant.

      Wiggin and Dana LLP, by Kim E. Rinehart and David R. Roth; Ellis & Winters
      LLP, by Stephen D. Feldman, for defendant-appellee.

      Sigmon Law, PLLC, by Mark R. Sigmon; and Amy Bach for United
      Policyholders, amicus curiae.

      Robinson & Cole LLP, by Roger A. Peters II, for American Property Casualty
      Insurance Association, amicus curiae.


      BEASLEY, Chief Justice.


      In this case, the Court is asked to consider whether terms of an insurance

policy are ambiguous when the policy fails to explicitly provide that labor

depreciation will be deducted when calculating the actual cash value (ACV) of the
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                                  Opinion of the Court



damaged property. Because we conclude that the term “ACV” is not susceptible to

more than one meaning and unambiguously includes the depreciation of labor, we

affirm the ruling below.

                           Facts and Procedural History

      Plaintiff is a resident of Wake County, North Carolina, and defendant is a

Connecticut corporation licensed to sell homeowners insurance in the State of North

Carolina. Plaintiff owns a home in Fuquay Varina, North Carolina that was damaged

in a hailstorm on or about 1 September 2017. The storm caused damage to the roof,

siding and garage of plaintiff’s home and required repair and restoration. At the time

of the damage, the home was insured by defendant.

      Plaintiff submitted a claim to defendant requesting payment for the damage

to the home. Defendant confirmed the damage was covered under plaintiff’s policy

and sent an adjuster to inspect the home on or about 26 September 2017. The adjuster

inspected the property and prepared an estimate of the cost to repair or replace the

damaged property. According to the estimate, plaintiff’s home suffered $10,287.28 in

loss and damages. This estimate included costs for materials and labor to repair the

home, as well as sales tax on the materials.

      The North Carolina Department of Insurance consumer guide to homeowner’s

insurance provides that when selecting homeowner’s insurance, homeowners can

choose to insure their home on either an ACV basis or a replacement cost value (RCV)

basis. N. C. Dep’t of Ins., A Consumer’s Guide to Homeowner’s Insurance (2010),


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https://files.nc.gov/doi/documents/consumer/publications/consumer-guide-to-

homeowners-insurance_cho1.pdf. The guide further provides that ACV is “the

amount it would take to repair or replace damage to your home after depreciation,”

and RCV is “the amount it would take to replace or rebuild your home or repair

damages with materials of similar kind and quality [at today’s prices], without

deducting for deprecation.” Id. Plaintiff’s insurance policy is a hybrid of the two. The

terms of the policy provided that defendant would initially pay plaintiff the ACV.

Once the item was repaired or replaced, defendant would settle the claim at RCV. In

other words, defendant would reimburse plaintiff for any extra money paid to repair

or replace the item, up to the RCV. While not defined in the base policy, the term

ACV was defined in a separate endorsement limited to roof damage, which provided

the following:

             You will note your policy includes Actual Cash Value (ACV)
             Loss Settlement for covered windstorm or hail losses to
             your Roof. This means if there is a covered windstorm or
             hail loss to your roof, [defendant] will deduct depreciation
             from the cost to repair or replace the damaged roof. In other
             words, [defendant] will reimburse for the actual cash value
             of the damaged roof surfacing less any applicable policy
             deductible.

      In the current action, defendant calculated the ACV by reducing the estimated

cost of repair by depreciation of property and labor, as provided in the limited

endorsement. Thus, plaintiff’s total estimated cost of repair for the dwelling and other

structures, $10,287.28, was reduced by the $500 deductible and depreciation in the



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amount of $3,043.92—which included the depreciation of both labor and materials.

This resulted in plaintiff being issued an ACV payment of $6,743.36. According to

plaintiff, in determining the ACV, defendant was required to separately calculate the

materials and labor costs of repairing or replacing his damaged property and

depreciate only the material costs, not the labor costs, from the total repair estimate.

Based on this argument, plaintiff sought to represent a class of all North Carolina

residents to whom defendant paid ACV payments, where the cost of labor was

depreciated.

      Defendant moved to dismiss for failure to state a claim under Rule 12(b)(6) of

the North Carolina Rules of Civil Procedure, contending that the plain meaning of

ACV includes the depreciation of both labor and materials. In ruling on the motion to

dismiss, the Business Court concluded that “the term ACV as used in [t]he [p]olicy is

not ‘reasonably susceptible to more than one interpretation,’ and that the term ACV

unambiguously includes depreciation for labor costs.” The Business Court

determined that while the “definitions” section of the insurance policy does not

provide a definition of the term “ACV,” the definition used in the roof coverage

addendum sufficed. Thus, the definition from the roof coverage addendum should be

read in harmony with the use of the term “ACV” throughout the policy. Regarding

the term “depreciation,” as used in calculating ACV, the court determined that the

term was unambiguous because the policy did not distinguish between depreciation

of labor and depreciation of material costs.


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      To hold otherwise, the court stated, would be to read a nonexistent provision

into the policy that excludes labor costs. In the court’s view, “it does not make logical

sense to separate the cost of labor from that of physical materials when evaluating

the depreciation of a house or its component parts,” when the value of a house is more

than simply the costs of the materials used. As such, the Business Court found that

the policy was unambiguous and that plaintiff’s claim for breach of contract should

be dismissed. We agree.

                                    Legal Standard

      When interpreting an insurance policy, courts apply general contract

interpretation rules. See, e.g., Wachovia Bank & Tr. Co. v. Westchester Fire Ins. Co.,

276 N.C. 348, 172 S.E.2d 518 (1970). “As in other contracts, the objective of

construction of terms in an insurance policy is to arrive at the insurance coverage

intended by the parties when the policy was issued.” Id. at 354, 172 S.E.2d at 522

(citing McDowell Motor Co. v. N.Y. Underwriters Ins. Co., 233 N.C. 251, 63 S.E.2d

538 (1951); Kirkley v. Merrimack Mut. Fire Ins. Co., 232 N.C. 292, 59 S.E.2d 629

(1950)). In North Carolina, determining the meaning of language in an insurance

policy presents a question of law for the Court. Id.

      When interpreting the relevant provisions of the insurance policy at issue,

North Carolina courts have long held that any ambiguity or uncertainty as to the

words used in the policy should be construed against the insurance company and in

favor of the policyholder or beneficiary. Id. If a court finds that no ambiguity exists,


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however, the court must construe the document according to its terms. Id. (citing

Williams v. Nationwide Mut. Ins. Co., 269 N.C. 235, 238, 152 S.E.2d 102, 105 (1967)).

      Ambiguity is not established by the mere fact that the insured asserts an

understanding of the policy that differs from that of the insurance company.

Wachovia Bank & Tr. Co., 276 N.C. at 354, 172 S.E.2d at 522. Rather, ambiguity

exists if, in the opinion of the court, the language is “fairly and reasonably susceptible

to either of the constructions for which the parties contend.” Id. The court may not

remake the policy or “impose liability upon the company which it did not assume and

for which the policyholder did not pay.” Id.

      If the policy contains a definition of a term, the court applies that meaning

unless the context requires otherwise. Id. However, if the policy fails to define a term,

the court must define the term in a manner that is consistent with the context in

which the term is used, and the meaning accorded to it in ordinary speech. Id. (citing

Peirson v. Am. Hardware Mut. Ins. Co., 249 N.C. 580, 107 S.E.2d 137 (1959)).

                                        Analysis

      Here, plaintiff contends that the policy is ambiguous because it fails to provide

a definition for “ACV” and “depreciation.” In response, defendant argues that the

policy is not ambiguous despite the lack of a detailed, explicit definition, because the

definition provided in the limited endorsement should be read in harmony with the

remainder of the policy. Plaintiff disagrees, arguing that language in the limited

endorsement should be confined to the situations addressed therein.


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      Courts outside of North Carolina are split on whether the term “depreciation”

includes both labor and materials. See Arnold v. State Farm Fire & Cas. Co., 268 F.

Supp. 3d 1297, 1304 (S.D. Ala. 2017) (holding that defendant had not shown that the

term “ACV,” which was undefined, could only be interpreted to include depreciation

of labor costs); see also Hicks v. State Farm Fire & Cas. Co., 751 F. App’x 703, 708

(6th Cir. 2018) (holding that even though Kentucky law defines ACV as replacement

cost minus depreciation, the policy is ambiguous because it does not specifically

address what can be depreciated). But see Papurello v. State Farm Fire & Cas. Co.,

144 F. Supp. 3d 746, 770 (W.D. Pa. 2015) (holding that labor cost was baked into the

roof and, therefore, the policy insured “the finished product in issue—the result or

physical manifestation of combining knowhow, labor, physical materials (including

attendant costs, e.g., the incurrence of taxes), and anything else required to produce

the final finished roof itself.”) (emphasis omitted); Redcorn v. State Farm Fire and

Cas. Co., 2002 OK 15, 55 P.3d 1017 (holding that the general principle of indemnity

supports including depreciation of labor). Decisions from other jurisdictions, however,

provide little guidance to this Court because the policy language in each case differs

meaningfully, as do the insurance laws of each state.

      Upon thorough review of the policy at issue and consideration of our state’s

principles of contract interpretation, we concur with the Business Court’s rationale

and conclusion in this case. “Actual Cash Value,” as used in the policy, is not

susceptible to more than one reasonable interpretation and the term unambiguously


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includes costs for the depreciation of labor. Although the base policy fails to define

the term, the roof coverage addendum provides a definition that must be read in

harmony with the remainder of the policy. See Rouse v. Williams Realty Bldg. Co.,

143 N.C. App. 67, 70, 544 S.E.2d 609, 612 (2001) (determining that when an

insurance policy “contains a definition of a term used in it, this is the meaning which

must be given to that term wherever it appears in the policy, unless the context

clearly requires otherwise.”).

         Neither is the term “depreciation” ambiguous. The policy language provides no

justification for differentiating between labor and materials when calculating

depreciation, and to do so makes little sense. The value of a house is determined by

considering it as a fully assembled whole, not as the simple sum of its material

components. To conclude that labor is not depreciable in this case would “impose

liability upon the company which it did not assume,” and provide a benefit to plaintiff

for which he did not pay. Wachovia, 276 N.C. at 354, 172 S.E.2d at 522. We will not

do so.

         Because we hold that the insurance policy at issue unambiguously allows for

depreciation of the costs of labor and materials, we affirm the decision of the Business

Court.

         AFFIRMED.




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