The Depreciation Fallacy: Why the "Actual Cash Value" of Your Roof is a Legal Fiction
- Joshua Friedman
- Aug 26
- 17 min read
When a storm, fire, or other disaster damages your home or commercial building, your insurance policy is supposed to make you whole. Yet, for countless property owners, the first check that arrives from the insurer—the Actual Cash Value (ACV) payment—is shockingly insufficient to begin, let alone complete, the necessary repairs. I see too many property owners who receive a first check that is nothing short of a gut punch, and then they just emotionally shut down, letting their claim time out and never making a full recovery. I think this is intentional, and the major insurers are laughing all the way to the bank.
Now, a word of caution and a necessary disclaimer. This is one of the most direct, iconoclastic posts I have ever written, and it will ruffle some feathers. Therefore, my disclaimer will be abundantly clear—in case I am ever faced with this post in a deposition. First, I am not an attorney, and this analysis is not a substitute for legal advice from a qualified professional. I am a public adjuster on the autism spectrum, and insurance law is one of my special interests. For those who may not know, this means my mind is wired to see patterns, logic, and inconsistencies that others might miss. When I hear, "Let's not reinvent the wheel," my immediate thought is, "Why not, if the wheel is fundamentally flawed? How will we know unless we challenge it?" This post is the product of that mindset. It is a thought experiment grounded in fact and logic, designed to question a status quo that desperately needs to be ripped up and discarded. I urge you to discuss these concepts with your attorney. But if they disagree, have the chutzpah to ask them "Why?" and do not accept an appeal to the status quo as a valid answer. If titles and tradition were all that mattered, we’d still be living in a very different world.
Now, back to the industrywide crisis at hand, and the pittance insurers pay at the onset of a covered loss. The reason for this shortfall is an industry-standard practice known as depreciation, where the insurer deducts value from your claim based on the age and supposed "wear and tear" of the damaged property components. This is most aggressively applied to roofing systems, where a 15-year-old roof might be depreciated by 50% or more, leaving the policyholder with a massive financial burden.
The insurance industry presents this calculation as a simple, unavoidable reality. Spoiler alert for this article: the way insurers calculate "depreciation" on something like a roof claim is neither unavoidable nor reality. This practice is built on a foundation of flawed logic and a deliberate misapplication of fundamental property law. Insurers have successfully created and enforced a system where they treat an integral part of your real estate—your roof—as if it were a piece of personal property like a used sofa or a television. It is a work of fiction, and it is time to expose it as such. A roof is not "property" that can be depreciated in isolation; it is a fixture, an indivisible component of the real property it protects. This report will deconstruct the legal and logical fallacies behind the depreciation of real property components and provide the framework to challenge this unjust practice.
A Layman's 1000 Foot View of Property Law: The Critical Distinction Insurers Deliberately Ignore
To dismantle the insurance industry's depreciation argument, one must first return to the foundational principles of property law—principles that predate modern insurance contracts and which these contracts do not, and cannot, unilaterally override. Remember, I am not an attorney so don't base your conclusions on what I say. Base your conclusions on well-researched fact, and consider consulting a property law attorney on what property is and how it is treated. My personal conclusion is that the entire system of property ownership in the United States rests on clear distinctions that insurers conveniently blur to their financial advantage.
Real Property vs. Personal Property: The Foundation of Ownership
In the American legal system, property is generally categorized into three distinct types: real property, personal property, and intellectual property. For the purposes of an insurance claim, the critical distinction is between the first two.
Real Property is the land and anything growing on, affixed to, or built upon it. This includes the structure of a home or commercial building and its integrated components.
Personal Property consists of everything else. It is, by its nature, movable and not permanently attached to the real property. This includes items like furniture, electronics, clothing, and appliances that are not built-in.
Insurance policies themselves acknowledge this fundamental divide. A standard homeowners policy provides separate coverages: "Dwelling Coverage" for the structure and "Personal Property Coverage" for its contents. This is not an arbitrary distinction; it is a reflection of centuries of established property law.
The Transformation: How Shingles and Nails Become an Indivisible Part of Your Home
The central question is what happens when personal property becomes permanently attached to real property. The law has a clear answer for this: the personal property undergoes a legal transformation through a process known as "attachment" or "annexation." At this point, it ceases to be personal property and becomes a fixture, which is legally treated as part of the real property.
Consider a pallet of shingles and a box of nails sitting in a supplier's warehouse. At that moment, they are personal property. They can be bought, sold, and moved easily. However, the moment a roofer combines those materials with skilled labor and permanently fastens them to the structure of a house, they are transformed. They lose their separate identity as "shingles" and "nails" and become an integrated, indivisible system: "the dwelling roof." This new creation is no longer personal property; it is an improvement to real property, a fixture that is now legally part of the dwelling itself. Think of how an embryo—the combination of a father and mother's genetic contributions—has its very own DNA. It is neither the father nor the mother. It is just itself. The same idea applies here. The personal property materials and labor have a baby, and it is something entirely new that does not function like personal property any longer.
The insurance industry’s own language confirms this. Insurers consistently define "Dwelling Coverage" as the part of the policy that protects the physical structure of the home, explicitly including the walls, roof, and other built-in fixtures. They do not classify a roof under personal property coverage. This is a quiet, but critical, admission. By classifying the roof as part of the dwelling, they are conceding its legal status as a fixture and an integral part of the real property. This concession creates a fatal contradiction in their subsequent attempt to depreciate it.
Applying the Fixture Test: Legal Proof Your Roof Cannot Be Separated from Your Property
To legally determine if an item has transformed from personal property to a fixture, courts often apply a series of tests. One of the most common is the "MARIA" test, an acronym for Method, Adaptability, Relationship, Intent, and Agreement. A roof unequivocally meets the criteria to be classified as a fixture under this framework.
Method of Attachment: How is the item attached? A roof is physically integrated into the building's structure using nails, adhesives, and flashing. Its removal is a destructive process that would not only destroy the roofing materials themselves but also expose the structure to immediate and catastrophic damage. Moreover, the structure would be condemned and unlivable without it. It is the antithesis of movable personal property.
Adaptability of Item: Is the item essential to the purpose of the property? A roof is not merely decorative; it is uniquely adapted and absolutely essential to the building's function as a habitable shelter. The structure is incomplete and unusable without it.
Relationship of the Parties: While more relevant in landlord-tenant disputes, this test generally favors items installed by the property owner being classified as fixtures.
Intent of the Parties: What was the intention of the person who installed the item? No one installs a roof with the intention of it being a temporary or movable object. The clear and undisputed intent is for the roof to be a permanent, long-term component of the building.
Agreement: The agreement between a buyer and seller of real estate will specify if any fixtures are to be excluded. In the absence of such an agreement, all fixtures, including the roof, are automatically transferred with the sale of the property.
By every measure of property law, a roof is not a distinct piece of property. It is a fixture, legally inseparable from the real property it serves. This is the foundational truth upon which the entire argument against depreciation rests.
Deconstructing the Grift: How Insurers Misapply ACV to Components of Real Property
Once the legal status of a roof as a fixture is established, the insurer's methodology for calculating Actual Cash Value collapses under scrutiny. Their approach relies on treating an indivisible part of the whole as a separate, depreciable asset—a practice that defies both logic and market reality.
The Flawed Premise: Depreciating a Component While the Whole Appreciates
The value of real property is determined holistically. An appraiser determines a home's market value by comparing it to recent sales of similar properties in the area, not by adding up the individual costs of its components and then applying depreciation to each one. In most real estate markets over any meaningful period, the value of the property as a whole appreciates.
Herein lies the central fallacy of the insurer's position: it is economically and logically incoherent to assert that an integral component of an asset is losing value while the asset as a whole is gaining value. If a home's market value increases from $300,000 to $400,000 over ten years, on what logical basis can an insurer claim its roof—a non-severable, essential component—has simultaneously lost 50% of its value? The value of the roof is subsumed into the value of the entire property. It has no independent value to depreciate. The depreciation schedules used by insurers are arbitrary accounting tools, more akin to tax depreciation used for cost recovery on income-producing assets, and have no bearing on the true principle of indemnification for a casualty loss.
The Market Value Test: The $0 Value of a Used Roof and What It Proves
The absurdity of the insurer's position is best illustrated with a simple market test. "Actual Cash Value" is often linked to "fair market value." So, what is the fair market value of a 15-year-old asphalt shingle roof?
If a contractor were to carefully remove a 15-year-old roof from a house, they would not be creating a piece of personal property with a marketable cash value. They would be creating a pile of garbage with a disposal cost and a value of $0. In fact, South Carolina's Supreme Court acknowledged this reality in Butler v. The Travelers Home, noting that a 15-year-old roof "is not available for purchase in the market, nor is there any market on which to sell one."
Simultaneously, the act of removing the roof would catastrophically depreciate the value of the real property. The house would become uninhabitable, immediately losing value far in excess of the roof's replacement cost. Even if the value of what was missing was the only issue of value taken into consideration in revaluing a home with its "gently used" roof removed, we would determine the value of the home has fallen by—wait for it—the cost of a brand new roof. This proves that the roof's value is not intrinsic to its materials but is inextricably linked to its function as a permanent, integrated part of the structure. It has no cash value apart from the building it protects.
The True Measure of Loss: Why Replacement Cost is the Only Logical ACV
The principle of indemnity requires that the policyholder be restored to their pre-loss financial position. Since a damaged roof cannot be repaired by purchasing a used, 15-year-old roof of "like kind and quality"—as no such market exists—the only way to restore the property to its pre-loss condition is to repair the damage using new materials
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Therefore, the "Actual Cash Value" of the loss—the damage sustained by the dwelling—is the cost to repair that damage. For a fixture like a roof, this amount is, by logical necessity, the Replacement Cost Value (RCV). The initial ACV payment should be the full cost of the repair, less the deductible. The concept of "recoverable depreciation," where the insurer holds back money until repairs are complete, is itself a construct that relies on the flawed premise of depreciating a fixture in the first place. Apply it to a stereo or a pool table, but in the instance of a dwelling roof, the true ACV of the damage to the dwelling is the RCV of the roof, because that is the only amount that can actually indemnify the policyholder for the damage to their real property.
The Judicial Battleground: How State Supreme Courts Address Depreciation
While the fundamental argument against depreciating a fixture has yet to be decided by a state's highest court, a closely related legal battle offers a window into judicial thinking on the matter: the fight over whether the labor costs involved in a repair can be depreciated. This issue has created a sharp divide among state supreme courts and serves as a proxy war for the larger, unasked question about depreciating real property components.
The Proxy War: Why the Fight Over Depreciating Labor Is So Important
When an insurer calculates a repair estimate, the cost is composed of materials and labor. In their quest to reduce claim payouts, many insurers began depreciating not only the materials but also the labor required to install them. This practice was challenged in courts across the country, forcing state supreme courts to grapple with the nature of "Actual Cash Value."
This legal debate is a distraction from the more fundamental issue. By arguing over whether labor can be depreciated, both sides have implicitly accepted the flawed premise that the underlying asset—the roof itself—is a depreciable item. Policyholder advocates, by focusing on the "intangibility" of labor, have missed the opportunity to challenge the depreciation of the fixture as a whole. Insurers are more than happy to fight on this battlefield. A loss on the labor issue is a containable financial setback; a ruling that fixtures cannot be depreciated at all would dismantle a core pillar of their claims handling model. Nonetheless, the reasoning employed by these courts is highly instructive.
States That Erode Consumer Rights: Analyzing Pro-Insurer Rulings in North Carolina and South Carolina
Several state supreme courts have sided with insurers, creating precedent that is deeply harmful to policyholders. The courts in North Carolina and South Carolina have adopted a "finished product" or "embedded cost" theory.
In North Carolina, the Supreme Court in Accardi v. Hartford Underwriters Ins. Co. ruled that an ACV provision unambiguously allows for the depreciation of labor. The court's key rationale was that a policyholder is insuring the finished product, not its constituent parts. It stated, "The value of a house is determined by considering it as a fully assembled whole, not as the simple sum of its material components." While the court used this logic to justify depreciating the entire repair cost, this reasoning ironically supports the argument that if the "whole" property is appreciating, its components should not be depreciated in isolation.
Similarly, the South Carolina Supreme Court in Butler v. The Travelers Home and Marine Insurance Company held that labor costs are "embedded" in the final product and are no longer separable from the materials. The court reasoned that because a homeowner pays one price for a roof as a single unit, it is "impractical, if not impossible, to include depreciation for materials and not for labor." This pragmatic view ignores the fundamental nature of what is being depreciated and focuses instead on the convenience of calculation.
A Glimmer of Hope: The Pro-Policyholder Logic of the Illinois Supreme Court
In a significant victory for consumers, the Illinois Supreme Court took a different path. In Sproull v. State Farm Fire & Cas. Co., the court found that the term "Actual Cash Value," when left undefined in the policy, was ambiguous and must be interpreted in favor of the policyholder. The court accepted the plaintiff's argument that replacement cost could be divided into two components: a tangible materials component and an "intangible labor component."
The court reasoned that labor is not a physical object that can physically degrade, wear out, or become obsolete over time. Therefore, it cannot be depreciated. While State Farm argued its interpretation was reasonable, the court found the policyholder's interpretation was also reasonable, and under the rules of contract law, that ambiguity required a ruling in favor of the insured. This decision provides a powerful counter-narrative to the "finished product" logic and focuses correctly on the nature of the items being valued.
The Unasked Question: The Absence of the Core "Fixture" Argument at the Highest Courts
The critical takeaway from this judicial split is what remains unsaid. The existing case law, on both sides of the labor depreciation issue, has failed to address the threshold question grounded in property law: Is it legally permissible for an insurer to depreciate a fixture of real property as if it were personal property, especially when the insurance policy itself does not explicitly redefine the legal status of property?
This is the question that must be brought before a state supreme court. The current debate is akin to arguing about the color of a car's interior without first establishing who owns the car. The ownership and legal status of the property must be determined before its value can be properly calculated. By failing to raise this fundamental challenge, policyholder advocates have allowed insurers to frame the debate on their own terms, leading to inconsistent and often unjust outcomes.
Export to Sheets
The Insurance Industry’s Gambit: The Strategic Pivot to Scheduled Roof Coverage
Senior decision-makers within the insurance industry are astute and aware of the legal vulnerabilities in their long-standing practices. The increasing number of legal challenges to labor depreciation, combined with the looming threat of a more fundamental challenge based on property law, has spurred a strategic pivot in policy design. This shift is a passive admission that their traditional ACV argument rests on shaky ground.
An Implicit Admission: Why New Policy Structures Acknowledge the Flaw in the ACV Argument
If the industry's application of depreciation to fixtures was legally unassailable, there would be no need to fundamentally change their policy forms. They would simply continue to defend the practice in court. However, a clear trend has emerged: insurers are moving away from broad, undefined terms like "Actual Cash Value" and toward explicit, contractual limitations on roof coverage.
This move is a calculated strategy to preempt legal challenges. By creating specific endorsements and schedules for roofs, they aim to replace a legal argument over the interpretation of a common law term with a straightforward contractual defense. They are attempting to sidestep the entire property law debate by getting the policyholder to agree in advance to a specific, and often severely limited, payout structure.
From Ambiguity to Contract: How Roof Schedules Are Designed to Sidestep Property Law
This new approach takes several forms, but the goal is always the same: to create certainty for the insurer and shift risk to the policyholder.
Shift to ACV for Older Roofs: Many policies that once offered full Replacement Cost Value are now being amended at renewal to provide only Actual Cash Value coverage for roofs over a certain age, such as 15 or 20 years.
Payment Schedules / Limited Loss Settlement: A more sophisticated approach involves "Payment Schedules" or "Limited Loss Settlement" endorsements. These provisions stipulate a pre-determined payout based on a schedule that considers the roof's age and material type. For example, a 10-year-old asphalt shingle roof might be contractually limited to a 60% payout, regardless of the actual cost of replacement.
Increased Wind/Hail Deductibles: In conjunction with reduced coverage, insurers are implementing separate and significantly higher deductibles for wind and hail damage, the most common perils affecting roofs. These can be flat dollar amounts or a percentage (1%, 2%, or even 5%) of the home's total insured value, easily translating to an out-of-pocket cost of thousands of dollars before any coverage applies.
State Departments of Insurance have taken notice of this trend, issuing bulletins to inform consumers that their roof coverage may be changing dramatically. This industry-wide pivot is a defensive maneuver designed to make the legal arguments presented in this report moot by transforming an ambiguous valuation method into an explicit contractual limitation.
Suit Up: How to Challenge Improper Depreciation in Your Claim
Despite the industry's strategic shifts, millions of property owners still have policies that rely on the traditional, ambiguous "Actual Cash Value" language. For these policyholders, challenging improper depreciation is not only possible but necessary to secure a fair settlement. I am fighting several claims on this battlefront even as we speak, and I have written this blog post because I am shocked that what I am sharing here is treated as so novel. I seek to saturate the market with this, and hopefully rewrite the status quo for policyholders who do not have purely scheduled coverages.
Leveraging Your Policy: Finding Ambiguity and Invoking the Insurance Appraisal Clause
The first step is a meticulous review of your insurance policy. Look for a specific definition of "Actual Cash Value" or "Depreciation." If these terms are not explicitly defined in the policy—as was the case in the pro-policyholder Sproull decision in Illinois—that ambiguity can be a powerful tool. The legal doctrine of contra proferentem dictates that ambiguous language in a contract is to be interpreted against the party that drafted it, which is always the insurance company. This ambiguity opens the door to argue that depreciating a fixture is an unreasonable interpretation.
When a dispute arises over the value of the loss, a powerful but often overlooked provision in most property policies is the insurance appraisal clause. This is a formal dispute resolution process where each side selects a competent, independent appraiser. The two appraisers then attempt to agree on the amount of loss. If they cannot agree, they select a neutral "umpire" whose decision is binding. This process can be used to specifically challenge the amount of depreciation applied by the insurer. Presenting the argument that a fixture should not be depreciated can be a highly effective strategy within the appraisal process, often leading to a more favorable outcome without the time and expense of litigation. Funny enough, the Georgia case Bell v. Liberty Mutual clarified that an appraisal panel does not need to itemize an award into the components, because the loss is to the dwelling. They must simply state the RCV and ACV of the damage to the dwelling. If the ACV of the dwelling has gone up since the policy's inception, has it simultaneously depreciated at all?It's a maddening question, and it warrants front page and consistent industry discussion.
The Power of an Expert Advocate: Why a Public Adjuster is Your First Line of Defense
Navigating this complex intersection of property law, contract interpretation, and damage valuation is not something a policyholder should attempt alone. The insurance company has a team of experts, adjusters, and attorneys working to protect its financial interests. To level the playing field, you need your own expert advocate.
A licensed public adjuster is that expert. A public adjuster works exclusively for the policyholder, not the insurance company. They are trained professionals who manage every aspect of the claim, from documenting the damage to interpreting the policy and negotiating the settlement. When faced with an improper depreciation of a fixture like a commercial roofing system, a public adjuster can build the legal and factual case to challenge the insurer's calculation. They can identify the ambiguities in the policy, marshal the evidence, and effectively argue the case, whether in direct negotiations with the company or through the insurance appraisal clause.
In many complex property damage scenarios, the strategic counsel of a public adjuster is the critical first step, often engaged even before a property damage lawyer. We establish the factual record and valuation foundation upon which any subsequent legal action would be built, frequently resolving the dispute without the need for litigation.
So What: Let's Reclaim What It Means to Be Property, and What It Means for Property to Depreciate.
The insurance industry's practice of depreciating integral components of real property is a brilliant work of fiction built on a foundation of convenience and profit. It contradicts the fundamental principles of property law, defies market reality, and subverts the promise of indemnity that lies at the heart of every insurance policy. By treating a permanent fixture like a roof as if it were a disposable piece of personal property, insurers unfairly shift the cost of repairs onto the very policyholders who have paid premiums for protection.
Policyholders have been conditioned to accept this practice as standard procedure. It is not. It is an interpretation that is ripe for challenge in every claim where it is applied. By understanding the legal distinction between real and personal property, recognizing the status of a roof as a fixture, and leveraging the ambiguities within their own policies, property owners can fight back. The battleground may be shifting as insurers rewrite their policies, but for now, the argument stands on solid ground.
Property is an integrated whole, and its value should be treated as such. Policyholders are owed what it takes to make them whole again. If your insurer has handed you an ACV settlement that improperly depreciates the core components of your home or commercial building, you do not have to accept it. Your insurance policy is a contract for financial certainty, not a license for your carrier to misapply the rules of the game. Contact Friedman & Associates to ensure your claim is valued based on sound legal principles and to demand the full and fair settlement you are rightfully owed.
References
Accardi v. Hartford Underwriters Ins. Co., 838 S.E.2d 454 (N.C. 2020).
Butler v. The Travelers Home and Marine Insurance Company, 433 S.C. 352, 858 S.E.2d 407 (2021).
Bell v. Liberty Mut. Fire Ins. Co., 319 Ga. App. 302, 734 S.E.2d 894 (2012).
Cornell Law School. (2023, January). Fixture. Legal Information Institute. Retrieved from https://www.law.cornell.edu/wex/fixture
Sproull v. State Farm Fire & Casualty Co., 2021 IL 126446, 189 N.E.3d 897.
Wolters Kluwer. (n.d.). UCC fixture filings: What are they and where to file them. Retrieved from https://www.wolterskluwer.com/en/expert-insights/ucc-fixture-filings-what-are-they-and-where-to-file-them
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