Schoening Investment LP, a commercial real estate investor, insured its Kentucky properties with Cincinnati Casualty Company. Following damage to a property in March 2022, Schoening filed a claim. The insurer's adjuster determined the property could be repaired rather than replaced and offered to pay the cost of repairs minus a $45,000 deduction for depreciation. The policy allowed for a higher payout without depreciation only if the insured repaired the property within two years of the loss. Schoening rejected the offer and sued, arguing the insurer improperly deducted depreciation from the repair cost settlement. The district court granted the insurer's motion to dismiss, and the Sixth Circuit reviewed whether the policy language supported the deduction.
Chief Judge Sutton, writing for the court, analyzed the insurance policy under Kentucky law, which enforces contracts as written. The policy's 'Loss Payment' provision gave the insurer four options, including paying the cost of repairs. The 'Valuation' provision defined how to calculate that cost, defaulting to 'Actual Cash Value,' which the policy explicitly defined as 'replacement cost less a deduction that reflects depreciation.' The court rejected Schoening's argument that the Valuation provision only applied to total losses or the value of the entire building, noting the policy clearly defined 'Covered Property' to include partial losses like outdoor fixtures and glass. The court further addressed Schoening's claim that the term 'replacement cost' in the Valuation provision implied a different standard for repairs. The court found this unavailing because the policy's 'Optional Coverage' provision promised 'replacement cost' for both repairs and replacements, confirming that the valuation method applied to repair costs. Crucially, the Optional Coverage provision conditioned the 'without deduction for depreciation' payment on the insured actually repairing the property. Since Schoening had not repaired the property, it was ineligible for the enhanced coverage and remained entitled only to Actual Cash Value. The court also dismissed Schoening's arguments regarding surplusage and ambiguity, noting that the policy's overlapping terms were intentional and that ambiguity arguments raised for the first time on appeal are forfeited under Sixth Circuit precedent.
The decision clarifies that commercial property policyholders cannot claim a 'no deduction for depreciation' payment for repair costs unless they have actually completed the repairs within the policy's specified window. Insurers may deduct depreciation from repair settlements if the condition precedent of repair is not met. The ruling limits the ability of policyholders to rely on general repair language to bypass specific valuation provisions and reinforces the forfeiture of arguments not raised in the district court.