Repair-Cost Payments May Be Depreciated When Policy Values Repairs at “Actual Cash Value” and Replacement-Cost Coverage Requires Completed Repairs

Introduction

In Schoening Investment LP v. Cincinnati Casualty Company, the Sixth Circuit (applying Kentucky law) addressed whether a commercial property insurer may deduct depreciation when settling a claim based on the “cost of repairs,” where the policy’s valuation mechanism defines “Actual Cash Value” as “replacement cost less a deduction that reflects depreciation,” and where separate “Optional Coverage” promises payment “without deduction for depreciation” only if the insured actually repairs the property.

The plaintiff, Schoening Investment LP, insured Kentucky commercial properties through Cincinnati Casualty Company. After a March 2022 loss, the insurer’s adjuster concluded the damage was repairable (not requiring replacement) and offered to pay repair costs minus a $45,000 depreciation deduction, advising Schoening it could recover the depreciation once repairs were completed. Schoening—seeking to represent a putative class—claimed the depreciation deduction breached the policy. The district court dismissed under Rule 12(b)(6), and the Sixth Circuit affirmed.

The case’s core issues were (1) whether the policy’s valuation provisions applied to repair-cost settlements (not just total-loss or whole-building valuations), (2) whether the insured could demand “without deduction for depreciation” payment absent completed repairs, and (3) whether an ambiguity argument could be raised for the first time on appeal.

Summary of the Opinion

The Sixth Circuit held that the policy, read as a whole, unambiguously permitted Cincinnati Casualty to deduct depreciation from a repair-cost payment when the insured had not actually repaired the property. The court reasoned that the “Loss Payment” provision required repair costs to be determined under the “Valuation” provision; the “Valuation” provision defaulted to “Actual Cash Value”; and “Actual Cash Value” was defined as “replacement cost less a deduction that reflects depreciation.” The “Optional Coverage” endorsement replaced “Actual Cash Value” with “Replacement Cost [] without deduction for depreciation” only after the insured “actually repair[]” the property. Because Schoening did not allege it repaired the property, it did not satisfy that condition precedent and could receive only “Actual Cash Value.”

The court rejected Schoening’s textual arguments (including a surplusage-based argument and a repair-versus- replacement distinction), declined to credit authorities addressing different policy language, held a new “comprehensive repair coverage” argument was forfeited because it was raised in reply, and held Schoening’s ambiguity argument was forfeited because it was not raised below—and, in any event, the policy was not reasonably susceptible to Schoening’s interpretation.

Analysis

Precedents Cited

1) Kentucky contract-interpretation framework for insurance policies

  • Foreman v. Auto Club Prop.-Cas. Ins. Co.: Cited for the proposition that interpretation of an insurance contract is a question of law in Kentucky, and that courts read the policy as written and in context.
  • Century Aluminum Co. v. Certain Underwriters at Lloyd's, London: Used to reinforce that Kentucky “respects the language of insurance contracts,” reads provisions in context, and enforces them as written (citing Foreman).
  • Frear v. P.T.A. Indus., Inc. and Russell v. Citigroup, Inc.: Cited for reading the contract “as a whole” and, when ambiguity exists, Kentucky’s willingness to consult extrinsic evidence (a point that later mattered to the forfeiture analysis).
  • Davis v. Progressive Direct Ins. Co.: Invoked to emphasize that alleged ambiguity elsewhere in a policy does not matter if “no ambiguity exists” in the operative language governing the dispute.

2) Actual cash value, depreciation, and the “make whole” baseline

  • Am. States Ins. Co. v. Mo-Lex, Inc.: Cited for the foundational insurance principle that “Actual Cash Value” places the insured “in as good a condition” as it would have been absent the loss—supporting the court’s view that ACV commonly includes depreciation.
  • Couch on Insurance: The court used Couch to explain why replacement-cost coverage exists (to address the “shortfall” that may follow from ACV alone) and to confirm that policies may either prohibit depreciation or permit it, depending on the language. This treatise support mattered because Schoening relied on general propositions about repair costing, while the court insisted the specific policy text governs.
  • Reliance Ins. Co. v. Orleans Par. Sch. Bd.: Used to justify the economic logic of the endorsement structure—replacement-cost-without-depreciation coverage costs more because it can compel the insurer to fund something “in effect a new building.”

3) Conditions precedent to enhanced benefits

  • Est. of Riddle ex rel. Riddle v. S. Farm Bureau Life Ins. Co. and Am. Centennial Ins. Co. v. Wiser: Cited for the Kentucky rule that an insured must prove compliance with conditions precedent to recover under a policy’s terms. The court treated “actually repair[]” as such a condition to obtain depreciation-free replacement-cost payment.

4) Textual canons and “surplusage” in insurance drafting

  • Santo's Italian Café LLC v. Acuity Ins. Co.: Played a central role in rejecting the argument that overlapping terms create ambiguity. The court relied on Santo's to say insurance contracts often contain overlap; “surplusage alone does not make an insurance policy ambiguous,” and the anti-surplusage canon is not a device for manufacturing ambiguity.
  • Heltsley v. Life & Cas. Ins. Co.: Used alongside Santo's to normalize the reality of “overlapping terms and concepts” in insurance policies.
  • Phoenix Ins. Co. v. Wehr Constructors, Inc. and Cantrell Supply, Inc. v. Liberty Mut. Ins. Co.: Cited for the principle of giving effect to all parts and every word—here, to support applying the Valuation provision to repair costs rather than leaving repair valuation “entirely unspecified.”
  • Gallo v. Moen Inc.: Cited for the maxim that differing language suggests differing meaning—used to discount Schoening’s reliance on authorities involving materially different policy wordings.
  • McEachin v. Reliance Standard Life Ins. Co.: Cited to underscore how unlikely it would be for an insurance contract to omit a valuation method for repair costs, supporting the court’s reading that the Valuation provision necessarily supplies it.
  • Hornback v. Hornback: Used for the partial-loss/total-loss framing: the court leveraged this distinction to explain why the policy’s valuation machinery must be able to address partial losses via repair-cost valuation.

5) Repair-cost depreciation cases distinguished

  • Farmland Mut. Ins. Co. v. Johnson, Tri-Valley Plastics, Inc. v. Hamilton Mut. Ins. Co., and Cincinnati Specialty Underwriters Ins. Co. v. C.F.L.P. 1, LLC: Schoening cited these (and related authorities) to argue “cost of repair” should be paid without depreciation. The Sixth Circuit distinguished them as not addressing a policy that expressly ties “the cost of [] repair” to “Actual Cash Value” and defines ACV to include depreciation.
  • Linda G. Robinson & Jack P. Gibson, Commercial Property Insurance (IRMI 2025): Treated similarly—helpful generally, but not controlling where the contract text takes a different approach.
  • S. Ins. Co. v. Affiliated FM Ins. Co.: A key comparator: the court relied on this Fifth Circuit decision to show that applying a Valuation provision to “cost of [] repair” is doctrinally ordinary when the policy text is structured that way.

6) Specific-controls-general and late-raised arguments

  • State Auto. Mut. Ins. Co. v. Ellis: Cited for the rule that specific clauses control general clauses, defeating the attempt to override the specific Valuation mechanism with negative implications drawn from scattered repair references elsewhere in the policy.
  • Grand v. City of University Heights: Cited to reject an argument raised for the first time in a reply brief.

7) Forfeiture of ambiguity arguments on appeal

  • Corridore v. Washington: Cited for the general rule that arguments not raised below are forfeited on appeal, applied here to Schoening’s belated ambiguity claim.
  • Edens v. Neth. Ins. Co.: Schoening cited this Tenth Circuit case (under Oklahoma law) to argue ambiguity cannot be forfeited; the Sixth Circuit declined to adopt that view.
  • Bellwether Cmty. Credit Union v. CUSO Dev. Co., LLC and Harps v. TRW Auto. U.S., LLC: Cited to show Sixth Circuit practice: parties cannot newly assert ambiguity on appeal if they did not do so in the district court.
  • Parker v. Winwood: Used to explain why forfeiture matters—ambiguity inquiries may require extrinsic evidence, and appellate courts are not the place to develop new issues and evidence.
  • In re Bayer Healthcare & Merial Ltd. Flea Control Prods. Mktg. & Sales Pracs. Litig.: Cited for the narrowness of exceptions to party-presentation rules—particularly apt because the record suggested Schoening strategically insisted below that the policy language was “clear.”
  • Hill v. State Farm Mut. Auto. Ins. Co.: Recognized for the contra proferentem principle (ambiguities construed in favor of the insured), but ultimately inapplicable because the argument was forfeited and, alternatively, no reasonable ambiguity existed.

Legal Reasoning

  1. The policy’s internal roadmap controlled. The court’s interpretive method was structural and cross-referential: the “Loss Payment” provision authorized several settlement options and required that when the insurer pays “the cost of repairing or replacing,” it must “determine” that cost “in accordance with” the “Valuation” provision.
  2. The “Valuation” default was “Actual Cash Value.” The Valuation provision required “Actual Cash Value,” and the policy defined “Actual Cash Value” as “replacement cost less a deduction that reflects depreciation.” The court treated that definition as dispositive: once repair costs are “determined” under a valuation method that includes depreciation, depreciation is contractually permitted.
  3. Optional replacement-cost coverage was conditional and had not been triggered. The “Optional Coverage” provision “replaces” “Actual Cash Value” with “Replacement Cost [] without deduction for depreciation,” but only if the insured “actually repair[]” the property. Because Schoening did not claim it repaired the property, it could not access depreciation-free payment. The insurer’s offer to pay ACV now and reimburse depreciation after completed repairs tracked the endorsement’s structure.
  4. Textual counterarguments failed because they contradicted the policy’s cross-references and definitions. The court rejected Schoening’s effort to confine “the value of Covered Property” to whole-building losses, pointing to the policy’s definition of “Covered Property” (including components such as “outdoor fixtures,” “Building glass,” and “Signs”), which makes partial-loss valuation not only plausible but expected.
  5. “Repairs” vs. “replacement cost” was not a workable escape hatch. The court reasoned that “replacement cost” is a measurement, not the physical act of replacement; and it noted the Optional Coverage promised “replacement cost” for both “repairs” and “replacements,” reinforcing that “replacement cost” can be the metric even when the work is repair.
  6. Anti-surplusage could not override explicit text. Schoening argued it was “troubling” that the policy made “value,” “repair cost,” and “replacement cost” converge on the same ACV measure. The court responded that the contract’s own language created that equivalence, and that insurance policies commonly contain overlap; interpretive canons cannot be used to rewrite an otherwise clear valuation scheme.
  7. Authorities about non-depreciated repair costs were inapposite. The court treated the cited Kentucky cases, federal cases, and industry materials as involving materially different language and therefore not controlling. The court emphasized “The difference in language demands a difference in meaning.”
  8. Specific-controls-general defeated “other repair provisions” arguments. Scattered references to repair in specialized coverages (e.g., fences, fungi, extinguishers) did not displace the policy’s specific valuation instructions for repair-cost settlements.
  9. Ambiguity was forfeited and, alternatively, absent. The court held Schoening forfeited ambiguity by not raising it in the district court. It also held that, even reached, the policy was not “capable of more than one reasonable interpretation” because Schoening’s reading would leave “the cost of [] repair” valuation undefined and would deprive Optional Coverage of its function.

Impact

  • For commercial property claims under Kentucky law, wording that ties repair-cost payments to ACV matters. The decision reinforces that “cost of repairs” does not inherently mean “no depreciation” when the policy defines the valuation method to include depreciation.
  • Optional replacement-cost endorsements are enforceable as written. If the endorsement conditions depreciation-free payment on completed repairs, insureds should expect to receive ACV first and recover “held back” depreciation only after repairs—absent language to the contrary.
  • Class-action theories premised on “uniformly improper depreciation” face a contractual-text hurdle. Where the policy’s cross-references and definitions align as they did here, a categorical “depreciation is always improper on repairs” theory is unlikely to survive a motion to dismiss.
  • Litigation practice takeaway: preserve ambiguity early. The opinion’s forfeiture holding signals that policyholders cannot safely reserve ambiguity for appeal, especially where Kentucky’s ambiguity doctrine may invite extrinsic evidence.

Complex Concepts Simplified

Actual Cash Value (ACV)
A valuation method commonly understood as today’s replacement cost minus depreciation. Here, the policy expressly defined ACV as “replacement cost less a deduction that reflects depreciation.”
Replacement Cost (without deduction for depreciation)
Coverage that pays what it costs to repair/replace with new materials, without reducing payment because the old property had aged or worn. In this policy, that enhanced payment was available only after the insured “actually repair[]” the property.
Depreciation
A reduction reflecting age, wear-and-tear, or obsolescence. Under this policy’s ACV definition, depreciation is part of the baseline calculation.
Condition precedent
A contractual requirement that must be satisfied before a party becomes entitled to a benefit. Here, “actually repair[]” was treated as a prerequisite for depreciation-free replacement-cost payment.
Anti-surplusage canon
An interpretive principle that courts prefer readings that give effect to every word. The court emphasized it cannot be used to override clear language or to create ambiguity merely because drafting is overlapping.
Forfeiture on appeal
The rule that issues not raised in the district court generally cannot be raised for the first time on appeal. The court applied this to Schoening’s ambiguity argument.

Conclusion

Schoening Investment LP v. Cincinnati Casualty Company cements a text-driven rule: when a commercial property policy requires repair costs to be valued under a “Valuation” provision that defaults to “Actual Cash Value,” and ACV is defined to include depreciation, an insurer may depreciate repair-cost payments unless and until the insured satisfies any endorsement conditions (such as actually completing repairs) for depreciation-free replacement-cost coverage. The opinion also delivers a procedural warning—policyholders should timely raise ambiguity in the trial court—while reaffirming that interpretive canons cannot rewrite clear policy cross-references and definitions.