Schoening Investment, LP v. The Cincinnati Casualty Company

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

SCHOENING INVESTMENT, LP,

Plaintiff,

Case No. 1:24-cv-137

v.

JUDGE DOUGLAS R. COLE

THE CINCINNATI CASUALTY

COMPANY,

Defendant.

OPINION AND ORDER

This putative class action concerns a commercial property insurance policy and

a not uncommon grievance—an insured’s belief that its insurance policy entitles it to

more money from its insurer than it received. Specifically, Plaintiff Schoening

Investment, LP alleges (on behalf of itself and a putative class of insureds in

Kentucky and Arizona) that Defendant The Cincinnati Casualty Company breached

its insurance policy by undervaluing an actual cash value (ACV) payment it made to

Schoening after Schoening suffered a covered partial structural loss to one of its

properties. (By partial structural loss, the Court (and Schoening) means structural

damage where estimated repair costs are lower than estimated replacement costs.)

Importantly, though, Schoening contends that Cincinnati Casualty breached

its contract in one very specific way. According to Schoening, the policy at issue does

not allow Cincinnati Casualty to deduct any amount for depreciation from the

otherwise-applicable ACV payments that would be due for partial structural losses.

And that depreciation-based shortfall in ACV-based payments for partial structural

losses is the only shortfall that Schoening alleges. That is, Schoening specifically

disclaims any challenge to how Cincinnati Casualty calculated the underlying ACV

payment amount itself (i.e., before depreciation is deducted), and any challenge to

how Cincinnati Casualty calculates the amount of depreciation. Rather, all Schoening

challenges here is whether the insurer is entitled to deduct depreciation from such

payments at all.

Cincinnati Casualty, not surprisingly, says that Schoening misreads the policy.

In fact, Cincinnati Casualty contends that the policy terms are sufficiently

unambiguous on the depreciation issue that the Court should dismiss the suit.

As discussed more fully below, the Court agrees with Cincinnati Casualty.

While the policy at issue may be ambiguous on various fronts—including as to how

to calculate ACV before depreciation is deducted—it unambiguously allows

Cincinnati Casualty to deduct depreciation from ACV-based payments for partial

structural losses under the coverage at issue. Accordingly, the Court GRANTS IN

PART Defendant The Cincinnati Casualty Company’s Motion to Dismiss the

Complaint or Alternatively to Strike Class Allegations (Doc. 4), and DISMISSES

WITH PREJUDICE Schoening’s Complaint (Doc. 1).

BACKGROUND

A. Factual Overview.1

Schoening is a limited partnership whose partners all reside in Florida.2 (Doc.

1, #4). It owned a commercial structure located at 4304 Poplar Level Road, Louisville,

Kentucky 40213 (the Property). (Id.). Cincinnati Casualty is an Ohio company with

its principal place of business in Cincinnati, Ohio, that sells property insurance

coverage for buildings and structures (among other things) in Arizona and Kentucky

(among other places). (Id. at #4–5). Schoening purchased and regularly paid

premiums on an insurance policy from Cincinnati Casualty for the Property (the

Policy).3 (Id. at #6).

1 Since this matter is before the Court on Cincinnati Casualty’s motion to dismiss, the Court

must accept the well-pleaded allegations in the Complaint as true. Bassett v. Nat’l Collegiate

Athletic Ass’n, 528 F.3d 426, 430 (6th Cir. 2008). So while the Court relies on the Complaint’s

allegations to recount the case’s background, it reminds the reader that they are just that—

allegations.

2 Schoening’s Complaint instead refers to the “individual members” of the limited partnership

in its allegations relating to jurisdiction. (Doc. 1, #4). But, while an LLC’s citizenship is

determined based on “members,” Akno 1010 Mkt. St. St. Louis Missouri LLC v. Pourtaghi,

43 F.4th 624, 626 (6th Cir. 2022), a limited partnership’s citizenship is based on “where its

general and limited partners reside,” Hooper v. Wolfe, 396 F.3d 744, 748 (6th Cir. 2005)

(emphasis in original). The Court thus understands Schoening to be alleging that its

partners, both general and limited, all reside in Florida, not its “individual members.”

3 While Schoening alleges that the policy number at issue is “ECP 046 12 71 / EBA 046 13

71,” it did not attach the Policy to the Complaint. (Doc. 1, #6). Cincinnati Casualty supposedly

attached the Policy to its motion to dismiss. (Doc. 4, #28 n.1; see Doc. 4-1). But the document

Cincinnati Casualty attached to its motion has a different policy number from the one alleged

in the Complaint—EPP 014 27 42. (Doc. 4-1, #45). That same policy number, again different

from the one listed in the Complaint, appears on an attachment to Schoening’s Response,

which suggests Schoening included the incorrect policy number in its Complaint. (See Doc.

13-1, #263). Complicating matters further, the Policy (assuming the document the insurer

attached is, in fact, the Policy) covers eleven different properties that Schoening owns, but

none of the properties listed are 4304 Poplar Level Road. (See Doc. 4-1, #49). There is,

however, a 4303 Poplar Level Road listed. (Id.). Because Schoening did not object to the Policy

On March 18, 2022, the Property suffered damage (although that damage is

unspecified) and Schoening timely submitted a claim to its insurer. (Id.). The parties

do not dispute that a covered loss occurred to the Property. (Id.; Doc. 4, #28). And

Schoening does not allege Cincinnati Casualty refused to pay anything at all for the

covered loss. Rather, the parties solely dispute whether the insurer was entitled to

deduct an amount for depreciation from the ACV-based payment that Cincinnati

Casualty disbursed to Schoening. (Doc. 1, #7; Doc. 4, #27).

Cincinnati Casualty’s claim-adjusting efforts in this case began when its

adjuster arrived shortly after Schoening reported the Property as damaged. The

adjuster’s job was to assess the loss and determine the proper payment. (Doc. 1, #7).

The adjuster first determined that the Property “could be repaired as opposed to

complete[ly] replace[d].” (Id. at #6). Then, based on that determination, the insurer

“calculate[d] its actual cash value [i.e., ACV] payment obligations … by first

estimating the cost to repair the damage with new materials, and

then … subtract[ing] the estimated depreciation.”4 (Id. at #6–8). As noted, it is that

that Cincinnati Casualty attached to its motion and since the Complaint takes issue with the

“standard form policy language,” (Doc. 1, #1), the Court concludes that it can proceed, even

while it has some concerns about the inconsistent policy numbers that the parties provided.

4 The Complaint says that Cincinnati Casualty’s adjuster calculated the estimated costs and

made the depreciation deduction through a software called Xactimate. (Doc. 1, #7). That

software, with the help of the adjuster’s informational inputs (e.g., “the dimensions of the

damaged property”), generates a specific estimated dollar amount for necessary repairs using

“ongoing fair market pricing research.” (Id. at #8). In the final steps of the process, the

adjuster decides whether to apply depreciation based on a series of checked or unchecked

options. (Id.). According to Schoening, because of how this process functions, the software can

easily either apply or withhold depreciation. (Id.).

latter subtraction that forms the sole basis for this lawsuit.5 According to Schoening,

the Policy does “not permit the withholding of depreciation on partial losses for which

Defendant estimates a repair (as opposed to a replacement).” (Id.). And that in turn

means that Cincinnati Casualty “materially breached its duty to indemnify”

Schoening in one specific way. Schoening alleges that, by withholding depreciation

from the repair costs, Cincinnati Casualty paid Schoening less than it was entitled to

receive, which in turn also deprived Schoening of the time value of that money. (Id.

at #9).

Schoening responded to the alleged depreciation-based shortfall by suing

Cincinnati Casualty on March 15, 2024. In its Complaint, Schoening asserts, on

behalf of itself and a putative Arizona- and Kentucky-based class, a claim for breach

of contract.6 (Id. at #15–16). And it seeks both monetary relief and a declaratory

judgment. (Id. at #16–18).

Importantly, according to Schoening, this case boils down to a single issue—

whether Cincinnati Casualty’s “standard form policy language allows for depreciation

on partial losses in which [the insurer’s] estimate and claim payment were based on

proposed repairs to damaged insured structures.” (Id. at #1 (emphasis in original)).

In other words, under the Policy, may Cincinnati Casualty “subtract depreciation on

5 In other words, Schoening takes no issue with whether Cincinnati Casualty correctly paid

repair costs, rather than, for example, replacement costs. Nor does it challenge how the

insurer estimated the repair costs. (See Doc. 1, #16 (“Plaintiff and the putative class do not

dispute the repair costs calculated by Defendant.”)). Rather, the only claim is that Cincinnati

Casualty was not entitled to deduct any amount for depreciation.

6 Schoening alleges that “[t]here are more than 100 members in the proposed class and the

amount in controversy exceeds $5,000,000, exclusive of interest and costs,” as required under

28 U.S.C § 1332(d)(2). (Doc. 1, #5).

partial structural losses when it calculates its actual cash value (“ACV”) payment

obligations?” (Id.). Schoening says the answer is unequivocally “no.” In fact, it argues

that the Supreme Court of Kentucky squarely foreclosed Cincinnati Casualty’s ability

to do so in Farmland Mut. Ins. Co. v. Johnson, 36 S.W.3d 368 (Ky. 2000). (Id. at #1–

4).

Cincinnati Casualty disagrees. It moves to dismiss Schoening’s Complaint,

claiming that the Policy unambiguously allowed it to reduce the ACV-based payments

to account for depreciation. (Doc. 4, #31–36). It reaches that conclusion through two

steps. First, Cincinnati Casualty notes that Schoening opted for an optional

coverage—called Replacement Cost coverage (as further described below)—which

alters the insurer’s obligations under the Policy. (Id. at #31–34). Then, based on the

language specifying the terms of that optional coverage, it argues that the Policy

allows for depreciation on partial structural losses (and that Farmland is inapposite).

(Id. at #34–36). Schoening responded, (Doc. 13), and Cincinnati Casualty replied,

(Doc. 16), so the motion is ripe.

B. The Insurance Policy at Issue.

Not surprisingly, the Policy itself is central to this case. So the Court starts by

walking through its relevant provisions.7 First, the Policy includes a “Schedule of

7 While Schoening did not attach the Policy to its Complaint, the Court may consider it at

this stage since the Policy “is referred to in the pleadings and is integral to [Schoening’s]

claims.” Com. Money Ctr., Inc. v. Ill. Union Ins., 508 F.3d 327, 335–36 (6th Cir. 2007). The

same goes for the ACV payment cover letter, (Doc. 13-1), Schoening attached to its Response.

Schoening repeatedly discusses the calculation of the ACV payment (which the cover letter

memorializes in the specific circumstances of this particular loss), and is also integral to the

claims.

Locations,” which lists the covered properties—in this case, eleven—and assigns each

a location number. (Doc. 4-1, #49). The Policy labels the Property as location “1.” (Id.).

A separate form appended to the Policy, called the “Commercial Property Coverage

Part Declarations,” then describes the type of coverage each covered property receives

and provides other important information such as limits of liability, coinsurance,

deductibles, and any applicable optional coverages. (Id. at #65). For the Property, the

coverage type is listed as “building,” the limit of liability is $2,011,192, coinsurance

is 90%, and the deductible is $5,000. (Id.). Importantly, the Property also has an

optional coverage that Schoening selected: “Replacement Cost” (which the Court

further describes below). (Id.).

Because the coverage type is “building,” the terms of the coverage itself are set

forth in the “Building and Personal Property Coverage Form.” (Id. at #66–105). Since

the parties do not dispute that Schoening suffered a covered loss, the Court skips over

the many provisions describing how to determine whether such a loss occurred.

Instead, the Court will focus on the three sections that inform this dispute:

(1) “Section D. Loss Conditions”; (2) “Section F. Optional Coverages”; and (3) “Section

G. Definitions.” (Id. at #95–105). In particular, the Court will focus on two specific

provisions in Section D, and one each in Sections F and G.

The Loss Payment Provision

The first such provision, which is located in Section D, and which the Court

will call the Loss Payment Provision, reads in relevant part as follows:

a. In the event of ‘loss’ insured by this Coverage Part, at our option, we

will either:

(1) Pay the value of the lost or damaged property;

(2) Pay the cost of repairing or replacing the lost or damaged

property;

(3) Take all or any part of the property at an agreed or appraised

value; or

(4) Repair, rebuild or replace the property with other property of

like kind and quality.

We will determine the value of lost or damaged property, or the cost of

its repair or replacement, in accordance with the applicable terms of

SECTION D. LOSS CONDITIONS, 7. Valuation or any applicable

provision that amends or supersedes this valuation condition.

(Id. at #96). Of the four options available to the insurer, only options 1 and 2—paying

the “value of the … damaged property” and paying “the cost of repairing or replacing

the … damaged property”—are relevant here.

The Valuation Provision

As the Loss Payment Provision notes, the insurer will “determine the value” of

both of those payments in accordance with “Section D. Loss Conditions, 7,” which is

the second relevant provision from Section D. (Id.). The Court refers to that provision

as the Valuation Provision. It states in relevant part: “We will determine the value of

Covered Property in the event of direct ‘loss’ as follows: … At ‘Actual Cash Value’ as

of the time of the direct ‘loss’, except as provided in [non-applicable provisions].”8 (Id.

at #99).

8 The Policy distinguishes between “direct” losses, which are covered, and “indirect” losses,

which are not. No one disputes that the loss Schoening suffered here was a direct loss.

The Definitions Section

So that in turn requires an understanding of what the term “Actual Cash

Value” means. On that front, the Policy informs the reader that phrases in quotation

marks (like “Actual Cash Value”) “have special meaning,” as set forth in “Section G.

Definitions,” which the Court will call the Definitions Section. (Id. at #68). According

to the Definitions Section, “‘Actual cash value’ means replacement cost less a

deduction that reflects depreciation, age, condition and obsolescence.”9 (Id. at #103).

So that definition forms the basis for how Cincinnati Casualty is to calculate

amounts due under options 1 and 2 of the Loss Payment Provision. In other words,

whether as to “the value of lost or damaged property,” or “the cost of its repair,” or

“the cost of its … replacement,” the Loss Payment Provision sets the payment amount

at “replacement cost less a deduction that reflects depreciation, age, condition and

obsolescence.” (Id. at #96, 99, 103).10

The Replacement Cost Provision

But that’s not the end of the story. As already noted, here Schoening had

selected a specific optional coverage for the property—one of the coverages available

under Section F, Optional Coverages—that the Policy labels “Replacement Cost.” (Id.

9 Although the Valuation Provision uses “Actual Cash Value,” (i.e., capital “C” in Cash, capital

“V” in Value), as the defined term, the Definitions Section actually defines “Actual cash

value.” (Doc. 4-1, #99, 103). The Court treats that as a scrivener’s error.

10 The Court concedes that it is potentially troubling that the Actual Cash Value definition

appears to equate those three measures—the value of the damaged property, the cost of its

repair, and the cost of its replacement—setting each to “replacement cost less a deduction

that reflects depreciation, age, condition and obsolescence.” (See Doc. 4-1, #96, 103). The

Court explains below, though, why it concludes that this is the only reasonable

understanding of the Policy.

at #65). That election changes how the Policy—and in particular the Valuation

Provision—operates. In the “Optional Coverages” section, the “Replacement Cost”

provision (which the Court will call the Replacement Cost Provision) starts with a

significant declaration: “Replacement cost (without deduction for depreciation)

replaces ‘Actual Cash Value’ in [the Valuation Provision].” (Id. at #102 (emphasis

added)). So now it is the Replacement Cost Provision, rather than the definition of

Actual Cash Value from the Definitions Section, that controls the payout. (Id.).

So what does the Replacement Cost Provision state in terms of determining

the payout amount? It essentially gives the insured the option to demand either, or

both of, (1) an Actual-Cash-Value-based payout, or (2) a replacement-cost-based

payout. And then it provides some additional limitations on the payment if the

insured chooses the replacement-cost-based payout (e.g., that the insured can receive

such a payout only if the insured actually repairs or replaces the property):

c. You may make a claim for “loss” covered by this insurance on an

“Actual Cash Value” basis instead of on a replacement cost basis. In

the event you elect to have ‘loss’ settled on an “Actual Cash Value”

basis, you may still make a claim for the additional coverage this

Optional Coverage provides if you notify us of your intent to do so

within 180 days after the “loss”.

d. We will not pay on a replacement cost basis for any “loss”:

(1) Until the lost or damaged property is actually repaired or

replaced with other property of generally the same

construction and used for the same purpose as the lost or

damaged property; and

(2) Unless the repairs or replacement have been completed or at

least underway within 2 years following the date of ‘loss’.

e. We will not pay more for ‘loss’ on a replacement cost basis than the

least of:

(1) The Limit of Insurance applicable to the lost or damaged

property;

(2) The cost to replace, on the same ‘premises’, the lost or damaged

property with other property:

(a) Of comparable material and quality; and

(b) Used for the same purposes; or

(3) The Amount you actually spend that is necessary to repair or

replace the lost or damaged property.

(Id. at #102–03 (emphasis added)).

In short, the Optional Coverage allows the insured to elect between two

valuation methods: an ACV-based payment or a replacement-cost-based payment,

with the latter methodology applying to both “repairs or replacement” and being

available to the insured only if the insured actually repairs or replaces the property.11

(Id.). But importantly, if the insured elects to receive an ACV-based payout, the

11 There are alternative options besides payouts. Recall the Loss Payment Provision. Only

the first two options (“(1) Pay the value of the lost or damaged property; (2) Pay the cost of

repairing or replacing the lost or damaged property”) involve payouts. (Doc. 4-1, #96). The

next two options provided in that provision offer non-payout options that Cincinnati Casualty

could take. First, it could “[t]ake all or any part of the property at an agreed or appraised

value.” (Id.). Second, it could “[r]epair, rebuild or replace the property with other property of

like kind and quality.” (Id.). While it is tempting to think the latter option may apply in this

instance, it does not. That option is about the insurer taking it upon itself to repair, rebuild,

or replace the insured property and concerns “essentially whether the insurer can satisfy its

obligation by paying less than actual cash value.” Cincinnati Specialty Underwriters Ins. Co.

v. C.F.L.P. 1, LLC, No. 3:14-cv-40, 2015 WL 5793951, at *2 (W.D. Ky. Sept. 30, 2015)

(emphasis omitted) (quoting Couch on Insurance § 176:1 (3d ed. 2014)); see also Couch on

Insurance § 176:2 (3d ed. 2024) (“Since provisions giving the insurer the option to repair,

rebuild, or replace are not inherent in the contract of insurance, no such right exists unless

expressly stated in the contract.”). Cincinnati Casualty, however, appears to confuse the

second option—involving a payout determined by an actual cash value or replacement cost

valuation—and the fourth option—allowing the insurer to repair, rebuild, or replace the

property—in its Reply and misreads Cincinnati Special Underwriters. (Doc. 16, #286–87).

Nonetheless, the Complaint makes clear that Cincinnati Casualty likely opted for the second

option provided in the Loss Payment Provision: to “[p]ay the cost of repairing or replacing the

damaged property.” (Doc. 4-1, #96; accord Doc. 1, #6). The “ACV payment cover letter,”

Schoening attached to its Response supports a finding that this was the option Cincinnati

Casualty took as well. (Doc. 13, #225, n.4; Doc. 13-1).

Replacement Cost Provision does not alter the meaning of that term. That is, the

Replacement Cost Provision incorporates the defined term “Actual Cash Value” in

discussing the ACV-based payouts available under this coverage. And recall the

Definitions Section defines that term as “replacement cost less a deduction that

reflects depreciation, age, condition and obsolescence.” (Id. at #103 (emphasis added)).

So under the Replacement Cost Provision’s purview, if Schoening elected to receive

an ACV-based payment that payment would still have a depreciation deduction. A

replacement-cost-based payout under the Replacement Cost Provision, by contrast,

would not. Rather, the latter payout is determined solely by reference to the amount

the policyholder “actually spend[s] that is necessary to repair or replace the lost or

damaged property,” i.e., with no mention of any deduction for depreciation. (Id. at

#102–03). And again, that is so whether the insured “repairs” or “replaces” the

damaged property.

Further confirming that the ACV-based and the replacement-cost-based

options under the Replacement Cost Provision are different, and that the ACV-based

payout is typically lower (as it would be if it had a depreciation deduction), the

Replacement Cost Provision also makes clear that policyholders who have elected this

Optional Coverage have the ability in some circumstances to first receive the ACV-

based payment and then also receive an additional amount to gross them up to the

full amount available under the replacement-cost-based methodology. That is,

subsection (c) of the Replacement Cost Provision specifically provides that the insured

can “make a claim” based on ACV, and can then “still make a claim for the additional

coverage this Optional Coverage provides.” (Id. at #102). To do that, though, they

must both (1) make the election within 180 days, (2) actually repair or replace the

damaged property, and (3) start doing so within two years. (Id. at #102–03).

The Policy therefore creates something of a tradeoff for policyholders who have

experienced a loss and who have selected this Optional Coverage. They can

apparently forgo the optional Replacement Cost coverage and automatically receive

an ACV-based payment (adjusted for depreciation) after making a claim for loss

(assuming the loss is covered). Alternatively, they can select the optional

replacement-cost-based coverage, with the upside of receiving a potentially higher

payment than an ACV-based payment, but only if they actually repair or replace the

property within the specified time. These tradeoffs and distinctions between the

coverages are important to keep in mind as the Court moves into its analysis of the

specific ACV-based payment issue Schoening raises here.

C. The Prior Lawsuit Concerning Labor Depreciation.

There is one final factual wrinkle to this case that the Court must address at

the outset concerning the term “depreciation.” Cincinnati Casualty points out that

Schoening was part of a settlement class in a related case in the Eastern District of

Tennessee that settled in May 2024.12 (Doc. 4, #27, 30–31; see Order & J., Belle Meade

12 The settlement class in that case included “[a]ll policyholders under any residential or

commercial property insurance policy issued by Defendants, who had: (a) a Structural Loss

that was a Covered Loss for property in Arizona, California, Illinois, Kentucky, Missouri,

Ohio, Tennessee, Texas, Vermont, Virginia, Washington, or Wisconsin during the applicable

Class Periods; and (b) that resulted in an ACV Payment from which Nonmaterial

Depreciation was withheld, or that would have resulted in an ACV Payment but for the

withholding of Nonmaterial Depreciation causing the loss to drop below the applicable

Owner Ass’n, Inc. v. The Cincinnati Ins. Co., No. 3:22-cv-123 (E.D. Tenn. May 13,

2024), Doc. 63). Under the class action settlement agreement in that case (which the

court approved), the settlement class released claims related to, concerning, arising

from, or pertaining in any way to deductions from ACV for what that settlement

described as “Nonmaterial Depreciation.” (Order & J., Belle Meade, No. 3:22-cv-123,

Doc. 63, #1114–15). That phrase refers to depreciation relating to things other than

materials, such as, for example, labor. (Id. at #1114). So Cincinnati Casualty asserts

that, “[t]o the extent the Complaint seeks relief related to the deduction of any

nonmaterial depreciation, including labor depreciation, those claims were released as

part of the Belle Meade class settlement.” (Doc. 4, #30). In other words, Schoening’s

claims here must concern only depreciation that applies to materials (e.g., building

products, etc.). The Court agrees. Especially given that Schoening did not respond or

object in any way to Cincinnati Casualty’s assertions on this point. The Court

therefore construes the Complaint as challenging only depreciation that the insurer

calculated based on materials and not depreciation of nonmaterial items like labor.

Finally, the Court notes one other interesting tidbit from Belle Meade. The

definition of “actual cash value” in the policy at issue there was the same as the one

at issue here. (Compare Ex. A, Belle Meade, No. 3:22-cv-123 (E.D. Tenn. Apr. 4, 2023),

Doc. 37-1, #218 (“‘Actual cash value’ means replacement cost less a deduction that

deductible.” (Belle Meade, No. 3:22-cv-123, Doc. 63, #1104 (emphasis added)). This plainly

includes Schoening, and Schoening does not object. Additionally, Schoening’s covered loss

occurred on March 18, 2022, which is within the relevant class period in that case. (Id. at

#1105; Doc. 1, #6).

reflects depreciation, age, condition and obsolescence.”), with Doc. 4-1, #103). But,

within the settlement agreement in Belle Meade, the parties further clarified that the

term “ACV Payment” for the purposes of the settlement agreement meant “an actual

cash value payment made on an insurance claim for a Structural Loss, calculated by

estimating the cost to repair or replace covered damage, and subtracting estimated

Depreciation, including Nonmaterial Depreciation, and any applicable deductible.”

(See Order & J., Belle Meade, No. 3:22-cv-123, Doc. 63, #1113 (emphasis added)).

While that settlement definition is not a binding interpretation of the Policy in this

instance (since this claim is not covered by the settlement agreement there), the

Court does find it at least somewhat informative. Specifically, the attorneys of record

in that action—the same attorneys of record here—agreed to define ACV in that

manner under a policy, from the same insurer, that is identical in all material

respects to the Policy here.

LEGAL STANDARD

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6),

a “complaint must present sufficient facts to ‘state a claim to relief that is plausible

on its face.’” Robbins v. New Cingular Wireless PCS, LLC, 854 F.3d 315, 319 (6th Cir.

2017) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has

facial plausibility when the plaintiff pleads factual content that allows the court to

draw the reasonable inference that the defendant is liable for the misconduct

alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In assessing plausibility, the

Court “construe[s] the complaint in the light most favorable to the plaintiff.” Bassett

v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th Cir. 2008) (cleaned up).

A court analyzing a motion to dismiss under Rule 12(b)(6) generally must

confine its review to the pleadings. Armengau v. Cline, 7 F. App’x 336, 343 (6th Cir.

2001). Usually, that limits a court to considering the complaint and any documents

attached to it. Id. But sometimes a court may properly consider other things. For

example, a court may consider documents a defendant attaches to its motion, though

only to the extent that those documents are referenced in the complaint and central

to the claims. Id. at 344. Or if the pleadings refer to a written instrument that is

integral to the claims, the court may consider it without converting a motion to

dismiss into one for summary judgment. Com. Money Ctr., Inc. v. Ill. Union Ins., 508

F.3d 327, 335–36 (6th Cir. 2007); Fed. R. Civ. P. 10(c). “These written instruments

are records falling within a narrowly defined class of legally significant documents on

which a party’s action or defense is based. As a result, they often create or define legal

rights or obligations, or define or reflect a change in legal relationships.” Anderson v.

ABF Freight Sys., Inc., No. 1:23-cv-278, 2024 WL 51255, at *9 (S.D. Ohio Jan. 4, 2024)

(cleaned up); cf. Brown v. Travelers Cas. Ins. Co. of Am., No. 15-50, 2016 WL 1644342,

at *2 (E.D. Ky. Apr. 25, 2016) (“Where, as here, a complaint refers to an insurance

policy that is central to the plaintiffs’ claims, a court may properly consider these

policies as part of a Rule 12(c) motion.”). Finally, a court can consider public records

or decisions of public agencies. J.P. Silverton Indus. L.P. v. Sohm, 243 F. App’x 82,

86 (6th Cir. 2007).

LAW AND ANALYSIS

Resolving the pending motion requires the Court to undertake two distinct

inquiries. First, the Court must determine which law applies. Then, armed with that

law, the Court must determine whether Schoening has stated a plausible breach of

contract claim under the Policy. Here, the Court concludes that the answer to the

first question is “Kentucky law,” and that under Kentucky law the answer to the

second question is “no.”

A. Kentucky Law Applies, and It Holds That the Interpretation of

Unambiguous Terms in an Insurance Policy Is a Matter of Law.

Schoening is a limited partnership whose partners all reside in Florida, while

Cincinnati Casualty is an Ohio company, and the insured property is located in

Kentucky. This Court has diversity jurisdiction under 28 U.S.C. § 1332(d)(2), so the

first question is which state’s law applies?

Cincinnati Casualty is correct that “[w]hen interpreting a contract in a

diversity case, the court applies the law, including the choice of law rules, of the forum

state.” Whitehouse Condo. Grp., LLC v. Cincinnati Ins. Co., 569 F. App’x 413, 415 (6th

Cir. 2014). But Cincinnati Casualty seems to misunderstand the forum state here, as

it directs the Court to Kentucky’s choice-of-law rules. (See Doc. 4, #38, n.29). This

Court sits in the Southern District of Ohio, so Ohio choice-of-law principles control.

When, as here, “the parties have not specified which state’s substantive law

should govern the contract,” “Ohio’s choice of law rules require a court to apply the

law of the state with the most significant relationship to the contract.” Int’l Ins. Co.

v. Stonewall Ins. Co., 86 F.3d 601, 604 (6th Cir. 1996). That is the same approach

reflected in Restatement (Second) of Conflicts § 188. And it directs courts to consider

the following factors in assessing the most significant relationship: the place of

contracting; the place the parties negotiated the contract; the place of performance;

the location of the contract’s subject matter; and the domicile or place of business of

the parties. Id. at 605. After considering these factors here, the Court finds they favor

applying Kentucky law.

To start, “the most important factor [is] the principal location of the insured

risk.” Allstate Fire & Cas. Ins. Co. v. Moore, 993 N.E.2d 429, 436 (Ohio Ct. App. 2013);

see also Restatement (Second) of Conflict of Laws § 188 cmt. e (1971) (“[W]hen the

thing or the risk is the principal subject of the contract, it can often be assumed that

the parties … expect that the local law of the state where the thing or risk was located

would be applied to determine many of the issues arising under the contract.”). Here,

the Property is in Kentucky. (Doc. 1, #4; Doc. 4-1, #49). Next, “the place of contracting

and the place of negotiation are inconclusive and are relatively insignificant in this

case.” Jamhour v. Scottsdale Ins. Co., 211 F. Supp. 2d 941, 950 (S.D. Ohio 2002).

Nonetheless, the local agency listed on the policy operates out of Louisville, Kentucky,

so that provides some evidence that the place of contracting was Kentucky. (Doc. 4-1,

#45). Considering the third factor, “in insurance cases, the place where an insurance

policy is performed is the place where the insurance benefits are (or would be) paid.”

Troy Stacy Enters. Inc. v. Cincinnati Ins. Co., 563 F. Supp. 3d 738, 745 (S.D. Ohio

2021), aff’d, No. 21-4008, 2022 WL 2062001 (6th Cir. June 8, 2022). Here that appears

to be Florida because the insured has Winter Springs, Florida, listed as its address

on the Policy. (Doc. 4-1, #45). Finally, the Court has already discussed the parties’

domiciles, but notes that both parties also seem to conduct business in Kentucky as

well (through the ownership of properties and through the selling of insurance

policies through local agencies, respectively). All told, the Court finds that it is best

to weigh the location of the Property most heavily and to apply Kentucky law.

So then the Court must determine how Kentucky law goes about interpreting

insurance policies. “It is well-settled under Kentucky law that the proper

interpretation, construction, and legal effect of an insurance contract are matters of

law to be decided by a court.” Philadelphia Indem. Ins. Co. v. Youth Alive, Inc., 857

F. Supp. 2d 647, 657 (W.D. Ky. 2012), aff’d, 732 F.3d 645 (6th Cir. 2013). Like any

other contract, an insurance policy “must be construed as a whole, giving effect to all

parts and every word in it if possible.” ISCO Indus., Inc. v. Fed. Ins. Co., 587 F. Supp.

3d 558, 568 (W.D. Ky. 2022) (quotation omitted). But “[t]he Kentucky Supreme Court

has set forth two cardinal principles of insurance contract interpretation: ‘(1) the

contract should be liberally construed and all doubts resolved in favor of the insureds;

and, (2) exceptions and exclusions should be strictly construed to make insurance

effective.’” Id. (quoting Ky. Farm Bureau Mut. Ins. Co. v. McKinney, 831 S.W.2d 164,

166 (Ky. 1992)). That said, while ambiguous terms are construed “against the drafter

and in favor of the insured,” the Court “must also give the policy a reasonable

interpretation, and there is no requirement that every doubt be resolved against the

insurer.” Stone v. Ky. Farm Bureau Mut. Ins. Co., 34 S.W.3d 809, 810–11 (Ky. Ct.

App. 2000). Also, “[i]n the absence of ambiguity, a written instrument will be enforced

strictly according to its terms,’ and a court will interpret the contract’s terms by

assigning language its ordinary meaning and without resort to extrinsic evidence.”

River City Fraternal Ord. of Police Lodge 614, Inc. v. Louisville/Jefferson Cnty. Metro.

Gov’t, 585 S.W.3d 258, 266 (Ky. Ct. App. 2019) (quotation omitted). That is, terms

should be read “in light of the usage and understanding of the average person.” Stone,

34 S.W.3d at 811.

Here, because the Court “is not required to make factual findings, the

determination is purely a matter of law,” and that means the case is amenable to

resolution at the motion-to-dismiss stage. Snowden v. City of Wilmore, 412 S.W.3d

195, 206 (Ky. Ct. App. 2013); see, e.g., Premier Surgery Props., LLC v. Jewish Hosp.

& St. Mary’s Healthcare, Inc., No. 2023-ca-914, 2024 WL 1589656, at *2 (Ky. Ct. App.

Apr. 12, 2024), review denied (Aug. 14, 2024). Indeed, while the parties’ view on the

issue is certainly not controlling, it is worth noting that neither party argues the

Policy is ambiguous. Rather, as Schoening succinctly frames it, “[t]his is a question

of law[:] does withholding depreciation from repair costs breach [Cincinnati

Casualty’s] policy form as a matter of law?” (Doc. 13, #247). Answering that question

is the task to which the Court turns next.

B. The Unambiguous Policy Terms Show That Schoening’s Depreciation-

Based Challenge Fails.

In seeking dismissal, Cincinnati Casualty initially points to two shortcomings

in Schoening’s allegations relating to Schoening’s conduct in making the underlying

insurance claim. The insurer claims that each of these shortcomings dooms

Schoening’s breach of contract claim. First, Cincinnati Casualty argues that its

payment obligation under the Optional Coverage “did not arise” because Schoening

does not allege that it actually repaired or replaced the property. (Doc. 4, #32–33).

Second, the insurer argues that Schoening also fails to allege that it elected to receive

an ACV-based payment under the Replacement Cost Provision, and that this is

independently fatal to Schoening’s claim. (Id. at #33–34). The Court finds the first

argument irrelevant and affirmatively disagrees with the second.

But that is not the end of the story. Cincinnati Casualty separately argues that

the Policy unambiguously allows it to deduct depreciation from ACV-based payments

under the Replacement Cost Provision. (Id. at #34–36). On this front, the Court

agrees with the insurer.

1. Schoening’s Failure to Allege It Repaired the Property and Its

Potential Lack of Election for ACV Payment Is Not Fatal to Its

Claim.

Start with Cincinnati Casualty’s first two arguments. All agree that Schoening

elected one of the optional coverages—Replacement Cost coverage. And, as a result,

the Replacement Cost Provision supersedes the definition of Actual Cash Value in

the Valuation Provision. As described above, the Replacement Cost Provision

provides coverage on either an ACV basis or a replacement-cost basis. But the latter

is available only when the insured has actually repaired or replaced the damaged

property. Seizing on that pre-condition to replacement-cost-based recovery,

Cincinnati Casualty notes that Schoening has not alleged that it either repaired or

replaced the property here. (Doc. 4, #32–33). But, while that is true, it does not

matter. Schoening is not alleging that the insurer breached the Policy by failing to

provide payment under the Replacement Cost Provision on a replacement-cost basis.

Rather, Schoening argues that when an insured receives an ACV-based payment

governed by the Replacement Cost Provision the insured is entitled to an ACV-based

payment that is not reduced by any “sums withheld as depreciation.” (Doc. 1, #4, 18).

In other words, Schoening’s challenge here goes to how an ACV-based payment is

calculated under the Replacement Cost Provision, and specifically to whether

Cincinnati Casualty is allowed to deduct depreciation from ACV-based payments

under that provision. What Cincinnati Casualty’s payment obligation under the

Replacement Cost Provision would have been on a replacement-cost basis (which, as

noted, is a separate form of loss calculation that the Replacement Cost Provision

allows) is simply irrelevant.

Second, the insurer argues that “Schoening does not allege that it elected to

make a claim on an ACV basis, which alone is fatal to [its] claims.” (Doc. 4, #33–34).

But the Court disagrees that Schoening needed to explicitly allege that it elected to

make a claim for ACV-based coverage in the pleadings. True, the Replacement Cost

Provision in the Policy requires the insured to affirmatively elect to receive an ACV-

based payment. (See Doc. 4-1, #102 (“You may make a claim for ‘loss’ covered by this

insurance on an [ACV] basis instead of on a replacement cost basis. In the event you

elect to have ‘loss settled on an [ACV] basis…” (emphasis added))). But here the

Complaint alleges that Schoening “timely submitted a claim to [Cincinnati Casualty]

requesting payment for the covered loss,” which is enough to support a reasonable

inference that Schoening in fact elected ACV-based coverage, as that is the only

coverage an insured can obtain under the Replacement Cost Provision without

actually repairing or replacing the property (which Schoening does not allege it did).

(Doc. 1, #6). And in any event, the Complaint alleges that the insurer “affirmatively

and unilaterally” made an ACV payment to Schoening. (Id. at #6–7). Taking that

allegation as true, as the Court must, Cincinnati Casualty cannot circumvent a

lawsuit by invoking a contractual clause that requires action on the part of the

insured, while simultaneously apparently depriving the insured of the opportunity to

take such action by essentially taking it on the insured’s behalf.13 In short, the

Complaint’s allegations support a plausible inference that Schoening sought (or at

least received) an ACV-based payment under the Replacement Cost Provision in the

Policy. The question, then, is whether the Policy allowed the insurer to reduce that

ACV-based payment for depreciation; that is the topic to which the Court turns next.

13 Schoening argues that under the Policy, “the policyholder can disregard the ‘Optional

[Replacement Cost] Coverage’ and simply receive an ACV payment, which is precisely what

Schoening elected to do here as evidenced by the fact that [Cincinnati Casualty] affirmatively

made an ACV payment.” (Doc. 13, #232–33). While this may be common industry practice, as

Schoening suggests, the contractual language here does not allow the insured to simply

“disregard” the replacement-cost coverage as in some cases Schoening cites. See, e.g.,

Lafollette v. Liberty Mut. Fire Ins. Co., No. 2:14-cv-4147, 2017 WL 1026424, at *9 (W.D. Mo.

Mar. 16, 2017) (explaining policy language allowing the insured to “disregard the

replacement cost loss settlement provisions and make a claim under th[e] policy for loss or

damage to buildings on an [ACV] basis”); Franklin v. Lexington Ins. Co., 652 S.W.3d 286, 293

(Mo. Ct. App. 2022) (explaining that, unlike here, “[n]othing in the policy required [the

insured] to affirmatively state that she was filing a claim under the ACV coverage

provisions”). In an abundance of caution, and in the absence of discovery on the issue, the

Court does not conclusively decide here whether Schoening, and other Cincinnati Casualty

policyholders, may disregard the Replacement Cost Provision and receive an ACV payment

without an affirmative election because it is unnecessary for the resolution of this case.

2. The Policy’s Terms Dictate Two Valuation Methods—One with

and One without Depreciation Deductions—and Allows

Depreciation Deductions for ACV-Based Payments on Partial

Structural Losses.

Cincinnati Casualty’s remaining argument is that the Policy allows it to deduct

depreciation from all ACV-based payments under the Policy (i.e., whether the loss at

issue will result in repair or replacement). (Doc. 4, #34–36). The Court agrees.

Start with the text of the Policy as applied to the facts here. Schoening claims

that Cincinnati Casualty determined that “the damage [to the Property] could be

repaired as opposed to [requiring] complete replacement.” (Doc. 1, #6). This means

that the insurer likely chose the second of four options at its disposal under the Loss

Payment Provision in the event of a loss to the Property14—to “[p]ay the cost of

repairing or replacing the lost or damaged property.” (Doc. 4-1, #96). Consistent with

the rest of the Loss Payment Provision, then, Cincinnati Casualty was required to

“determine … the [Property’s] cost of [] repair or replacement, in accordance with the

applicable terms of” the Valuation Provision. (Doc. 4-1, #96 (emphasis added)). But,

while the Valuation Provision would typically use “Actual Cash Value” to make this

determination, remember that “Replacement Cost (without deduction for

depreciation)” “replaced” that term. (See id. at #102). And the contents of the

Replacement Cost Provision control because Schoening chose that specified optional

coverage. (Id. at #65). And under the Replacement Cost Provision, Schoening cannot

14 Alternatively, it is possible that Cincinnati Casualty was paying based on the first option—

“the value of the lost or damaged property.” (Doc. 4-1, #96). That matters little, though, as

that value is also determined by reference the Valuation Provision. (Id.). So, either way, it is

the operative definition of “Actual Cash Value” under the Policy that controls.

receive the replacement-cost-based payment until it actually repairs or replaces the

damaged property. (Id. at #102–03). However, it could still elect to receive an ACV-

based payment beforehand, while maintaining the ability to later claim additional

replacement-cost-based payment. (Id. at #102).

As the Court found above, Schoening either elected, or the insurer (on its own

accord) made, an ACV-based payment under the Replacement Cost Provision. Either

way, Schoening in fact received an ACV-based payment. (Doc. 1, #6–7). And recall

that the Definitions Section expressly defines ACV as “replacement cost less a

deduction that reflects depreciation, age, condition, and obsolescence.” (Doc. 4-1,

#103). Against that backdrop, Schoening alleges that Cincinnati Casualty

“calculate[d] its [ACV] payment obligations … by first estimating the cost to repair

the damage with new materials, and then [] subtract[ing] the estimated

depreciation.” (Doc. 1, #6). And the only thing Schoening challenges is that

subtraction. But the subtraction is entirely consistent with the Policy language

regarding ACV-based payments. At least that is the case so long as one reads the

Loss Payment Provision (as modified by the Replacement Cost Provision) and the

ACV definition in harmony, which the Court must. See Journey Acquisition-II, L.P.

v. EQT Prod. Co., 39 F. Supp. 3d 877, 887 (E.D. Ky. 2014), aff’d sub nom. Journey

Acquisition–II, L.P. v. EQT Prod. Co., 830 F.3d 444 (6th Cir. 2016) (explaining that,

in construing contracts, Kentucky courts “read the various provisions of the contract

as a whole” and “look to interpretations that promote harmony between any

apparently conflicting provisions” (cleaned up)). To put it bluntly, the Policy, through

its ACV definition, allows Cincinnati Casualty to subtract estimated depreciation

from ACV-based payouts for partial structural losses, whether the insurer made

those ACV-based payments under the regular Policy terms or the Policy terms as

amended by the Replacement Cost Provision.

Schoening complains that this means the “cost to repair” under the Policy will

be determined on a “replacement cost” basis (as ACV is defined as “replacement cost

less a deduction…”). That may be. But parties are free to write contracts as they see

fit. True, it may seem odd to use the phrase “replacement cost” to refer to payments

calculated based on “repair” costs. It’s also true that the various intersecting Policy

provisions perhaps could be more clearly written. But at least two reasons confirm

why this reading is the only “reasonable interpretation.” Stone, 34 S.W.3d at 810–11.

First, the Policy itself reflects that reading in multiple instances. And, consistent with

Kentucky law, the Policy “must be construed as a whole.” ISCO Indus., Inc., 587 F.

Supp. 3d at 568 (quotation omitted). Second, not adopting such a reading of the Policy

would effectively eliminate one of the two payment-valuation methods the Policy

provides. And that, in turn, would allow insureds to recover replacement-cost-based

payments without in fact first conducting repairs (in direct violation of the Policy’s

express terms) or without selecting (and potentially paying for) the optional

replacement cost coverage.

As to the former, there are at least three instances in the Policy that imply that

payments based on repair cost amounts can constitute what the Policy refers to as

replacement-cost-based valuations. For example, in Section A. Coverage, 4.

Additional Coverages, g. Ordinance or Law, (1)(c)(a), the Policy explains that for

buildings receiving additional “Replacement Cost” coverage (i.e., claims capable of

being valued on a replacement-cost basis), the Policy covers “increased costs to comply

with the minimum standards of an ordinance or law to: (a) Repair or reconstruct

damaged portions of that building or structure.” (Doc. 4-1, #80 (emphasis added)).

Similarly, in a portion of the Loss Payment Provision (one that otherwise does not

apply on the facts here), the Policy states that “[i]f [the optional Replacement Cost

coverage] applies and the property is not repaired or replaced” the insurer will not

pay “more than the lesser of” the ACV or the limit of insurance. (Id. at #97 (emphasis

added)). And the Replacement Cost Provision itself likewise contemplates that

repairs can be valued on a replacement-cost basis. (See id. at #102 (“We will not pay

on a replacement cost basis for any ‘loss’: (1) Until the lost or damaged property is

actually repaired or replaced[.]” (emphasis added)). In each of these instances, the

Policy refers to a replacement-cost-based valuation method as applying in situations

where the insured repaired the property instead of replacing it.15

Next, consider the effect of reading the word “repair” as strictly distinct from

“replacement,” and as requiring its own separate valuation method (apparently

undefined in the Policy). That is what Schoening urges. It argues that, because the

15 Additionally, the “ACV payment cover letter” that Schoening attached shows that while

Cincinnati Casualty may have assessed that the damage to the Property could be repaired,

it valued that repair on a replacement-cost basis. (Doc. 13, #225 n.4). In that letter, Cincinnati

Casualty advises Schoening, consistent with the Policy, that “[o]nce the repairs have been

completed your policy could pay up to $45,475.54 in replacement costs or also known as

recoverable depreciation.” (Doc. 13-1, #263). But at the same time, it listed the “Replacement

Cost Value” of the building at $414,405.80. (Id.). In other words, it was using the phrase

“replacement cost” to refer to a repair-based cost.

definitional provision for “Actual Cash Value” does not include the word “repair,” but

only “replacement,” the former must be subject to a distinct valuation method—one

where “repair cost” is assessed, and no depreciation is deducted from that valuation.

(See Doc. 1, #6; Doc. 13, #221).

The Court disagrees. For starters, despite Schoening’s entreaties, the Court

cannot simply manufacture a third valuation method for the Policy. (See Doc. 13,

#225–35). And pause for a moment to consider what the requested separate repair-

cost-based method would look like. Schoening seeks an ACV-based payment without

a depreciation deduction. So Schoening essentially reimagines the Policy’s ACV

definition along these lines: “‘Actual cash value’ means replacement cost with no

deduction for depreciation.”16 That reading basically equates the two possible types

of payments available under the Policy—an ACV-based payment and a replacement-

cost-based payment.17 Both would be identical, in that neither would allow a

deduction for depreciation, thereby rendering the definition of ACV meaningless.

16 The Policy talks about deductions for “depreciation, age, condition, and obsolescence.” (Doc.

4-1, #103). The Court declines to speculate at this stage whether this is intended to be a single

deduction with overlapping factors that could all perhaps be categorized as forms of

depreciation, or instead would allow for separate deductions. See, e.g., Whitehouse Condo.

Grp., LLC v. Cincinnati Ins. Co., 569 F. App’x 413, 415–20 (6th Cir. 2014) (treating all four

as potentially distinct); (see also Doc. 13-1, #263 (including a line-item deduction only for

depreciation). Again, all that Schoening challenges here is the deduction for depreciation. So

those other categories (age, condition, and obsolescence), if distinct, are irrelevant.

17 Although it is unclear whether replacement cost under the Optional Coverage would

include deductions reflecting age, condition, and obsolescence. In this instance, at least, it

appears that it would not based on the ACV cover letter Cincinnati Casualty sent to

Schoening. (See Doc. 13-1, #263 (only including a line-item deduction for depreciation to

arrive at ACV and not separate deductions for age, condition, and obsolescence)).

This would also mean that, even without selecting the optional replacement-

cost coverage, insureds covered under the Policy would automatically receive what

amounts to replacement-cost-based valuations on payments for repair claims. That

is, the definition of ACV applies to both those who have, and those who do not have,

the optional replacement-cost coverage—both groups can receive ACV-based

payments. So under Schoening’s reading, both groups (those with the Optional

Coverage and those without) would be entitled to depreciation-free ACV-based

recoveries.18

Further, because the insureds who select the optional replacement-cost

coverage can elect to receive ACV-based payments before making repairs, (see id. at

#102), Schoening’s reading of ACV would entitle them to receive full-replacement-

cost-based payments (i.e., without depreciation) without in fact making any repairs.

That directly contravenes the Policy. (See id. at #102–03). The Court will not read the

Policy in such a way that renders a definitional term meaningless and places insureds

in a position to automatically contravene other policy provisions.

18 The Complaint seems to admit as much when making its class allegations: “Certain

amounts initially withheld as depreciation may be later repaid to some policyholders with

replacement cost provisions in their policies, if any. However, policyholders who have been

subsequently repaid for initially withheld depreciation still have incurred damages, at the

least, in the form of the lost ‘time value’ of money during the period of withholding, i.e.,

statutory or common law prejudgment interest on the amounts improperly withheld, for the

time period of withholding.” (Doc. 1, #11). That is, in Schoening’s eyes, both those with and

without replacement-cost coverage are damaged by the withholding of depreciation in ACV

payments. This makes clear that if the Court were to accept Schoening’s reading of the Policy,

non-replacement-cost-coverage policyholders may be entitled to non-depreciated

replacement-cost-based payments anyway.

Schoening fares no better with its complaint that in contrast with its own

Policy, “certain policies of insurance issued by other insurers expressly allow for the

depreciation from repair costs when calculating ACV payments.” (Doc. 1, #6). As

already mentioned, it is admittedly true that the Policy could be clearer. That does

not, however, require the Court to create an incoherent and contradictory policy out

of the one under review.

3. Caselaw and Kentucky Administrative Regulations Also

Support Cincinnati Casualty ’s Position.

Caselaw also supports the Court’s interpretation of the Policy. In the years

following Farmland, various courts have noted that insurers can deduct depreciation

of materials from ACV valuations (for both partial and complete structural losses)

“[b]ecause depreciation traditionally refers to lost value from the physical

deterioration of the structure.” Perry v. Allstate Indem. Co., 953 F.3d 417, 423 (6th

Cir. 2020). While many insureds have challenged what the term “depreciation”

includes—typically by arguing the term is ambiguous—a throughline in those

decisions is that insurers can deduct some depreciation when calculating ACV. Id. at

419, 423 (holding, under Tennessee law, that insurer could “not include the cost of

labor in calculating depreciation under its policy” but could include materials when

calculating ACV); Hicks v. State Farm Fire & Cas. Co., 751 F. App’x 703, 704 (6th Cir.

2018) (holding that the insurer “miscalculated [ACV] when it depreciated the cost of

labor and materials rather than simply materials” (emphasis added)); Brown, 2016

WL 1644342, at *4 (finding that “the ordinary meaning of ‘depreciation’ allows an

insurer to depreciate the value of labor that has merged with a finished good” but

does not “allow an insurer to depreciate the value of pure labor that has not merged

with a finished good” when calculating ACV payments); Franklin v. Lexington Ins.

Co., 652 S.W.3d 286, 297 (Mo. Ct. App. 2022) (concluding that “depreciation, without

a specific definition or provision in the insurance policy to say otherwise, applies to

physical deterioration and does not include labor costs”); Arnold v. State Farm Fire

& Cas. Co., 268 F. Supp. 3d 1297, 1312 (S.D. Ala. 2017) (reasoning that “a reasonable

insured could reasonably understand that depreciation in its everyday sense applies

only to physical deterioration, and [] could reasonably understand that labor does not

sustain such deterioration because it is not physical”).

So while courts have excluded certain component parts from depreciation

calculations, courts have not instructed that the term “depreciation” should be

ignored wholesale in making ACV-based calculations. The best example is Hicks,

where the Sixth Circuit applied the reasonable expectations doctrine—which

interprets ambiguous terms in favor of the insured’s reasonable expectations—to the

undefined term “depreciation,” and found that “[a] layperson confronted with [the

home-insurance] policy could reasonably interpret the term depreciation to include

only the cost of materials.” Hicks, 751 F. App’x at 708–09. So the ambiguity extended

only to what was included in the depreciation deduction, not to whether there is a

depreciation deduction associated with ACV. Id. at 704.

Schoening argues that Hicks “did not opine on the … question of whether any

depreciation could be depreciated under the forms at issue in that case.” (Doc. 13,

#229–30). The Court disagrees. The “sole question” in that case was whether

“depreciation” in Kentucky’s ACV regulation (806 Ky. Admin. Regs. 12:095(9)(2))

meant materials and labor, or simply materials. Hicks, 751 F. App’x at 708. The Court

answered: “simply materials.” Id. at 704. So the Sixth Circuit, interpreting

Kentucky’s ACV regulation, directly spoke to whether some depreciation could be

deducted from the ACV calculation at issue there.

Finally, it is worth noting that “actual cash value” is commonly defined as

replacement cost less depreciation in Kentucky. See Brown, 2016 WL 1644342, at *2.

So accepting Schoening’s unique interpretation for partial structural losses would

undoubtedly impact common insurance practice in the state. In fact, as mentioned,

Kentucky’s administrative regulations, which form “a model consumer protection

statute,” define ACV in this manner. Hicks, 751 F. App’x at 707; 806 Ky. Admin. Regs.

12:095(9)(2) (“If the insurance policy provides for the adjustment and settlement of

losses on an actual cash value basis on residential fire and extended coverage, the

insurer shall determine actual cash value as follows: replacement cost of property at

the time of the loss less depreciation, if any.”). And Hicks, while interpreting that

regulation, was evaluating a repair claim. See Bailey v. State Farm Fire & Cas. Co.,

No. CIV.A. 14-53, 2015 WL 1401640, at *2 (E.D. Ky. Mar. 25, 2015), aff’d sub nom.

Hicks, 751 F. App’x 703. In other words, accepting Schoening’s argument would

require augmenting, or at least implying the invalidity of, the Sixth Circuit’s

interpretation of Kentucky’s ACV regulation as applied to a partial structural loss,

upon which many property insurance contracts certainly rely. The Court declines to

upend such a holding.

4. Farmland Does Not Change the Result.

But what about Farmland? According to Schoening, Farmland “is the only case

requiring review before denying [Cincinnati Casualty’s] Motion to Dismiss.” (Doc. 13,

#229). Once again, the Court disagrees. Farmland had a narrow holding limited to

the particular insurance policy at issue there; it is neither controlling precedent as a

result nor is it persuasive because of the key differences in policy language in this

case.

Farmland dealt with a disputed fire insurance claim on appeal from a jury

verdict awarding the insured $2 million in punitive damages for bad-faith violations

of the Kentucky Unfair Claims Settlement Practices Act (KUCSPA). 36 S.W.3d at

371. The insurer brought several challenges, but the relevant challenge for present

purposes involved the insured’s claim that the insurer misrepresented the ACV policy

provision. Id. at 372. In granting the insured’s motion for partial summary judgment

on the issue, the trial court found that the insurer’s adjuster had misrepresented that

provision by claiming that ACV “meant the cost of repair less depreciation [when] in

fact the contract expressly stated that [ACV] was the cost of replacement less

depreciation.” Id. (emphasis in original). The Supreme Court of Kentucky, in

affirming that finding, noted that the relevant policy clearly stated “that actual cash

value mean[t] replacement cost less depreciation.” Id. at 377. Farmland had argued

that the policy could have instead meant “repair less depreciation because the

additional contractual language ‘property damaged or destroyed’ implie[d] that some

property [would] need to be repaired, as it is only damaged, whereas only the

destroyed property [would] need to be replaced.” Id. The court, however, found that

argument unpersuasive and nothing more than a “creative effort to subvert the plain

language of the policy” Id.

So far, that sounds fairly promising for Schoening. But a closer look at the

policy language in Farmland illustrates why the case is not as helpful as Schoening

suggests. The loss settlement provision the Farmland court evaluated stated:

We will determine the value of covered property in the event of loss or

damage at the actual cash value as of the time of the loss or damage. We

will not pay more for loss or damage than the least of:

…

(b) The cost to repair or replace the lost or damaged property with

similar property intended to perform the same function when

replacement with identical property is impossible or

unnecessary.

…

(d) The value of the damaged property.

Farmland, 36 S.W.3d at 371 (emphasis omitted). The Farmland policy also defined

ACV as “replacement cost of the property damaged or destroyed at time of loss, less

depreciation.” Id.

According to Schoening, Farmland involved “nearly identical policy language,”

making the Kentucky Supreme Court’s decision controlling on the interpretive issue

here. (Doc. 13, #226). But “nearly” is not “exactly.” And here there is a key difference

that compels a different outcome. The Loss Payment Provision in the Policy here said

that Cincinnati Casualty would “determine the value of the lost or damaged property,

or the cost of its repair or replacement, in accordance with” the Valuation Provision.

(Doc. 4-1, #96 (emphasis added)). And the Valuation Provision in turn incorporates

the definition of ACV. So, here, the ACV definition applies to both “the value of the

lost or damaged property” and “the cost of its repair or replacement.” (Id.).

The insurance policy in Farmland, by contrast, said only that the insurer

would “determine the value of covered property in the event of loss or damage at the

actual cash value as of the time of the loss or damage.” 36 S.W.3d at 371 (first

emphasis added). In other words, the policy language in Farmland provides that only

one of the relevant payment sub-provisions (the value of the covered property) is

subject to ACV, not both (the value of the property and the cost of repair or

replacement). That makes the two policies vitally different on the sole issue here;

under the Policy, the depreciation adjustment included in the ACV definition applies

to payments under either payment sub-provision of the Loss Payment Provision.

In sum, Cincinnati Casualty is correct that “[t]he Kentucky Supreme Court did

not rule that material depreciation costs could not be deducted from an ACV

payment.” (Doc. 4, #34). Rather, Farmland held that under that particular policy’s

language and under those particular facts, the insurer could not deduct depreciation

from under-estimated repair costs. As a result, the Court will not extend Farmland’s

application to a similar, but materially different insurance policy.

5. Schoening’s Actual Cost Arguments Also Miss the Mark.

Schoening makes one final argument the Court must address. It claims that

the Court’s adoption of Cincinnati Casualty’s “actual cost argument” would both

“break new ground” and “represent a sea change” in the handling of property

insurance claims.(Doc. 13, #236). In that way, Schoening seems to read the insurer’s

motion to dismiss as arguing that Cincinnati Casualty policyholders would be

required to submit evidence of repairs or replacements to receive ACV payments. (See

id. at #235–40). Worse yet, Schoening says that this reading would create absurd

results, allowing property insurers to sue their insureds to recover previously paid

amounts for ACV coverage in certain cases where repairs end up costing less than

the ACV payment. (Id. at #236). The Court does not read Cincinnati Casualty’s

argument in the same manner. And neither does Cincinnati Casualty. In its Reply,

the insurer clarifies that its argument is merely about the Policy setting a limit on its

liability under the Replacement Cost Provision:

That is, Cincinnati [Casualty] owes an ACV payment, which includes a

deduction for depreciation. And after repairs are completed, Plaintiff

may submit a claim for the unrecovered depreciation. But if Plaintiff’s

repair costs are less than the ACV payment, the Plaintiff cannot recover

any depreciation because the Policy states that Cincinnati [Casualty]

‘will not pay more for “loss” [on a replacement cost basis]’ than ‘the

amount Schoening actually spends … to repair or replace the lost or

damaged property.”

(Doc. 16, #290–91 (emphasis in original) (cleaned up) (quoting Doc. 4-1, #103)).

Indeed, no Policy provision allows Cincinnati Casualty to seek a return of portions of

previously-made ACV-based payments should an insured end up repairing or

replacing property at a cost of less than that ACV-based payout. Rather, the Policy

only limits additional replacement-cost-based payments to the insured in light of

what the insured actually spent repairing or replacing a covered property. And to be

clear, nothing in Cincinnati Casualty’s argument or in the Court’s decision requires

policyholders to submit evidence of actual repairs or replacements to receive ACV-

based payments.

C. The Court Does Not Address Cincinnati Casualty’s Class Action-

Related Arguments.

In support of its motion to dismiss, Cincinnati Casualty also argues that

Schoening lacks constitutional standing to bring Arizona-based claims and,

alternatively, moves to strike Schoening’s class allegations by relying on Rule 23

predominance arguments. (Doc. 4, #36–43). Cincinnati Casualty’s standing

argument, which it bases on Article III’s requirements, (see id. at #37), and which, to

be clear, concerns Schoening’s standing to sue on behalf of putative Arizona

claimants, not Schoening’s standing to sue on its own claim, is likely misguided. See

Generation Changers Church v. Church Mut. Ins. Co., 693 F. Supp. 3d 795, 803–07

(M.D. Tenn. 2023). And its Rule 23 arguments are likely premature. But because

neither argument involves a threshold jurisdictional inquiry (as no one suggests that

Schoening lacks Article III standing as to Schoening’s own claims), the Court need

not resolve these arguments before addressing the merits. And the Court’s finding

that Schoening’s claims lack merit as a matter of Kentucky law then forecloses the

Court’s need to consider these alternative arguments.

* * *

All told, the Court finds that, under the unambiguous Policy language,

Cincinnati Casualty may deduct depreciation of materials from ACV calculations

when evaluating partial structural loss claims. The Optional Coverage under the

Policy provides only two valuation methods—replacement cost and ACV. The latter,

ACV, “means replacement cost less a deduction that reflects depreciation, age,

condition and obsolescence.” (Doc. 4-1, #103). Replacement cost is payment “without

deduction for depreciation.” (/d. at #102). And unless and until an insured repairs or

replaces a covered property, the replacement-cost based measure is not available to

that insured. Schoening’s proposed reading would effectively grant insureds an

entitlement to replacement cost coverage, which is inconsistent with the Policy’s

terms.

CONCLUSION

For the reasons discussed above, the Court GRANTS IN PART Defendant

The Cincinnati Casualty Company’s Motion to Dismiss the Complaint or

Alternatively to Strike Class Allegations (Doc. 4). The Court DISMISSES WITH

PREJUDICE Plaintiff's Complaint (Doc. 1) because the Court’s determination

results as a matter of law, meaning no amendment to the Complaint could cure the

deficiency. Accordingly, the Court DIRECTS the Clerk to enter judgment

and TERMINATE this case on its docket. Finally, the Court DENIES IN PART AS

MOOT Cincinnati Casualty’s alternative Motion to Strike Glass Allegations (Doc. 4).

SO ORDERED.

March 13, 2025

DATE DOUGLAS R. COLE

UNITED STATES DISTRICT JUDGE

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