                                     Cite as 2013 Ark. 475

                 SUPREME COURT OF ARKANSAS
                                        No.   CV-13-456

MARK ADAMS AND KATHY ADAMS,                        Opinion Delivered   November 21, 2013
INDIVIDUALLY AND ON BEHALF OF
ALL OTHERS SIMILARLY SITUATED                      CERTIFIED QUESTION FROM THE
                  PETITIONERS                      UNITED STATES DISTRICT
                                                   COURT FOR THE WESTERN
V.                                                 DISTRICT OF ARKANSAS

                                                   HON. P.K. HOLMES, III, CHIEF
CAMERON MUTUAL INSURANCE                           JUDGE
COMPANY
                RESPONDENT                         CERTIFIED QUESTION
                                                   ANSWERED.


                           PAUL E. DANIELSON, Associate Justice


       This case involves a question of law certified to this court by the United States District

Court for the Western District of Arkansas in accordance with Arkansas Supreme Court Rule

6-8 and accepted by this court on June 27, 2013. See Adams v. Cameron Mut. Ins. Co., 2013

Ark. 292 (per curiam). The question certified is the following:

       Whether an insurer in determining the “actual cash value” of a covered loss under an
       indemnity insurance policy may depreciate the costs of labor when the term “actual
       cash value” is not defined in the policy.

We conclude that the answer to this question is no, it may not.

       According to the district court’s order, the petitioners, Mark Adams and Kathy Adams,

individually and on behalf of all others similarly situated, brought a class action in the federal

district court asserting a claim against the respondent, Cameron Mutual Insurance Company,

for breach of contract. The claim involved the interpretation of a homeowners’ insurance
                                   Cite as 2013 Ark. 475

policy that covered the Adamses’ dwelling in Mena, Arkansas, for the period June 1, 2008,

to June 1, 2009, and specified a policy limit of $49,900. The policy provided that any

covered loss would be paid based on actual cash value, rather than replacement value, stating

as follows:

       5. Loss Settlement. Covered property losses are settled at actual cash value at the time
       of loss but not more than the amount required to repair or replace the damaged
       property.

The policy did not define the term “actual cash value.”

       On April 9, 2009, the Adamses’ dwelling was damaged by a tornado, and they incurred

a loss covered by the policy. Cameron’s adjuster valued the Adamses’ loss at $48,647.04 after

inspecting the damage and calculating the repair costs and the depreciation of the items

requiring repair, based on the age of the dwelling and the age of the items. Included within

those items were certain labor-only services, such as the removal of roof decking, siding, and

carpet and vinyl flooring. The depreciation of the materials and labor necessary to make the

repairs was calculated as $8,364.66. The Adamses subsequently signed a Proof of Loss stating

that the total amount claimed under the policy was $39,204.88, and Cameron issued a sight

draft in that amount to the Adamses for their claim.1

       In their class-action complaint before the district court, the Adamses asserted that

Cameron’s depreciation of labor-only costs resulted in the Adamses’ receiving payment for

their loss in an amount less than that to which they were entitled under their policy. They



       1
       As noted by the district court, this amount represented the covered loss less
depreciation and other applicable deductions.

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alleged that Cameron breached the insurance policy, and those policies of the putative class

members, when it improperly applied a depreciation factor to the labor portion of repairs

required at their respective dwellings, and when the policies at issue did not allow for such

depreciation. Upon the Adamses’ motion, the district court issued a memorandum opinion

and order in which it certified the instant question of law to this court.

       In their brief before us, the Adamses contend that their policy’s failure to address

depreciation of labor renders the policy’s term, “actual cash value,” ambiguous, such that it

must be construed in their favor.        The Adamses acknowledge that materials can be

depreciated; however, they claim, “[d]epreciation is limited to the effect of the passage of time

in the decline in value of physical assets and is conceptually and practically inapplicable to

labor.” They maintain that, because depreciation applies to physical materials and not labor,

it is unreasonable to assume that labor would be included in depreciation when calculating

actual cash value. Had Cameron thought that labor should be depreciable under the policy,

the Adamses claim, it was in the best position to clarify the ambiguity of the term “actual cash

value” when it drafted the policy. In sum, they contend, if they are paid the depreciated

value of materials, but not the full labor costs necessary to restore their home, they will not

be fully indemnified or placed in the position that they would have been had the loss not

occurred.

       Cameron counters, asserting that the purchase of the actual-cash-value policy was the

Adamses’ choice. It contends that if it was required to pay the full labor costs associated with

the Adamses’ loss, the Adamses would be placed in a better position than that agreed to by


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Cameron and than they had been in before the loss. It advises that, should this court adopt

the Adamses’ proposed materials-only depreciation rule, the costs of the insurance companies

in Arkansas would rise and those costs would be passed on to Arkansas’s insureds in the form

of higher premiums. Cameron argues that the term “actual cash value” is not ambiguous and

that the instant dispute is really one over the method of calculating actual cash value, rather

than defining the term. Finally, it argues that the prevailing view is that an insurer properly

reduces the replacement cost by an appropriate amount of depreciation, including

depreciation for any and all parts of the replacement cost, in arriving at the actual cash value

of damaged property.

       In this matter, we are called upon to define the term “actual cash value.” This court

has observed that the language in an insurance policy is to be construed in its plain, ordinary,

and popular sense. See ProAssurance Indem. Co. v. Matheny, 2012 Ark. 461, ___S.W.3d ___.

If the language is unambiguous, this court will give effect to the plain language of the policy

without resorting to the rules of construction. See id. “In considering the phraseology of an

insurance policy, the common usage of terms should prevail when interpretation is required.”

Philadelphia Indem. Ins. Co. v. Austin, 2011 Ark. 283, at 6–7, 383 S.W.3d 815, 820 (quoting

Cont’l Cas. Co. v. Davidson, 250 Ark. 35, 42, 463 S.W.2d 652, 655 (1971)). On the other

hand, if the language is ambiguous, this court will construe the policy liberally in favor of the

insured and strictly against the insurer. See id. Language is ambiguous if there is doubt or

uncertainty as to its meaning and it is fairly susceptible to more than one reasonable

interpretation. See id.


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       The policy at issue fails to define the term “actual cash value;” however, both parties

seem to agree that in determining “actual cash value,” some form of depreciation is allowed.

Indeed, Black’s Law Dictionary defines “actual cash value” as “[r]eplacement cost minus

normal depreciation.” Black’s Law Dictionary 1690 (9th ed. 2009). However, the Adamses

contend that only materials can be depreciated, while Cameron argues that both materials and

labor may be; both positions are tenable. Because the term “actual cash value” as used in the

policy is fairly susceptible to more than one reasonable interpretation, we are of the opinion

that the term is ambiguous.

       We turn then to the question presented, which is, whether the costs of labor may be

depreciated when determining the actual cash value under an indemnity insurance policy. At

issue here is to what costs does depreciation apply. “Depreciation” plainly means “[a] decline

in an asset’s value because of use, wear, obsolescence, or age.” Black’s Law Dictionary 506 (9th

ed. 2009). As already set forth, the Adamses contend that depreciation is conceptually

inapplicable to labor; however, Cameron argues to the contrary, relying on a decision of the

Supreme Court of Oklahoma.

       In Redcorn v. State Farm Fire & Casualty Co., 55 P.3d 1017 (Okla. 2002), the appellate

court was presented with a similar question: “In determining actual cash value, using the

replacement costs less depreciation method, may labor costs be depreciated?” 55 P.3d at

1018. The Oklahoma court answered in the affirmative, holding that because a roof was a

“single product consisting of both materials and labor,” depreciation of the whole product,

including labor, was appropriate when determining actual cash value. We are not persuaded


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by the reasoning of the Oklahoma court’s majority opinion.

       Instead, we find the dissenters’ opinion more convincing. The dissenting opinion

rejected the characterization of a roof as a single product, observing instead that a roof is “not

an integrated product . . . but a combination of a product (shingles) and a service (labor to

install the shingles).” Id. at 1022 (Boudreau, J., dissenting). But even more sound was the

dissenting opinion’s discussion on the concept of depreciating labor:

               The shingles are of course logically depreciable. As they age, they certainly lose
       value due to wear and tear. . . . Labor, on the other hand, is not logically depreciable.
       Does labor lose value due to wear and tear? Does labor lose value over time? What
       is the typical depreciable life of labor? Is there a statistical table that delineates how
       labor loses value over time? I think the logical answers are no, no, it is not
       depreciable, and no. The very idea of depreciating the value of labor is illogical.
               ...
               It is important to keep in mind that “[i]ndemnity is the basis and foundation of
       all insurance law.” Rochester American Ins. Co. [v. Short, 252 P.2d 490,] 493. The
       objective of indemnity is to put the insured in as good a condition, as far as practicable,
       as he would have been if the loss had not occurred, that is to reimburse the insured for
       the loss sustained, no more, no less. Id. To properly indemnify Redcorn, State Farm
       should pay him the actual cash value of the shingles, depreciated for wear and tear, plus
       the cost of their installation. . . . [A]llowing [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.

Id. at 1022–23 (Boudreau, J., dissenting) (emphasis added).

       We, like Justice Boudreau and his fellow dissenters, simply cannot say that labor falls

within that which can be depreciable. See also Arkansas Insurance Department Bulletin 13A-

2013 (stating that “[l]abor of any kind related to the repair, rebuild, or replacement of covered

property cannot be depreciated”). Moreover, having found the term “actual cash value”

ambiguous as used in the policy at issue, we must construe the policy liberally in favor of the

Adamses and strictly against Cameron. See Austin, 2011 Ark. 283, 383 S.W.3d 815. In that

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vein, we hold that the costs of labor may not be depreciated when determining the actual cash

value of a covered loss under an indemnity insurance policy that does not define the term

“actual cash value.” Accordingly, we answer the certified question in the negative.

       Certified question answered.

       BAKER and HART, JJ., concur.

       GOODSON, J., not participating.

       JOSEPHINE LINKER HART, Justice, concurring. The federal court asked this court

“[w]hether an insurer in determining the ‘actual cash value’ of a covered loss under an

indemnity insurance policy may depreciate the costs of labor when the term ‘actual cash value’

is not defined in the policy.” If the language in an insurance policy is ambiguous, we will

construe the policy liberally in favor of the insured and strictly against the insurer. Elam v. First

Unum Life Ins. Co., 346 Ark. 291, 297, 57 S.W.3d 165, 169 (2001). Language is ambiguous

if there is doubt or uncertainty as to its meaning and it is fairly susceptible to more than one

reasonable interpretation. Id., 57 S.W.3d at 169. Ordinarily, the question of whether the

language of an insurance policy is ambiguous is one of law to be resolved by the court. Id.,

57 S.W.3d at 169.We have expressly rejected the contention that when the terms of a written

contract are ambiguous, its meaning is always a question of fact. Scottsdale Ins. Co. v.

Morrowland Valley Co., LLC, 2012 Ark. 247, at 11, ___ S.W.3d ___, ___. Where parol

evidence has been admitted to explain the meaning of the language, however, the

determination becomes one of fact for a fact-finder to determine. Id. at 11, ___ S.W.3d at

___.


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       I agree with the majority that the term “actual cash value” is ambiguous. I further

agree that if the term “actual cash value” is ambiguous, the policy is liberally construed in

favor of the insured and strictly construed against the insurer. Also, the parties do not appear

to have submitted parol evidence on the meaning of “actual cash value.” Consequently,

because the term is not defined in the policy and because extrinsic evidence was not

submitted, the policy is liberally construed in favor of the insured and strictly construed against

the insurer. Therefore, in this case, the insurer may not, in determining the “actual cash

value” of a covered loss under an indemnity-insurance policy, depreciate the costs of labor.

       Although I agree with the majority that the answer to the certified question is no, I do

not join the majority’s opinion because it goes further and defines the term “actual cash

value.” In doing so, the majority exceeds the scope of the certified question presented.

Further, I decline to rely on a dissent from an Oklahoma court to determine Arkansas law.

I am mindful, however, that the Arkansas Insurance Department has issued Bulletin 12A-2013

providing that “[l]abor of any kind related to the repair, rebuild, or replacement of covered

property cannot be depreciated.” While the bulletin is only persuasive authority, it clearly

establishes the position of the Arkansas Insurance Department and supports the conclusion that

the term is ambiguous.

       Accordingly, I concur.

       BAKER, J., joins in this concurrence.

       Taylor Law Partners, by: W.H. Taylor, Steven E. Vowell, William B. Putman, and Timothy
J. Myers; and Wilson, Engstrom, Corum & Coulter, by: Stephen Engstrom, for petitioners.
       Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., by: Marshall S. Ney, Karen P.
Freeman, and Angela C. Artherton, for respondent.

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