A federal appeals court has sided with an insurer in a dispute over depreciation deductions on an unrepaired commercial property claim.
The Sixth Circuit Court of Appeals, in a decision filed on March 25, 2026, affirmed the dismissal of a lawsuit brought by Schoening Investment LP against Cincinnati Casualty Company. At the heart of the case was a question that touches a nerve across the commercial property insurance sector: can an insurer withhold depreciation from a repair-cost payout when the policyholder has not yet completed repairs?
The answer, at least under this policy and Kentucky law, is yes.
Schoening Investment, a Florida-based limited partnership that invests in commercial real estate, purchased commercial property insurance from Cincinnati Casualty for its Kentucky properties. It also paid extra for optional coverage that entitled it to receive repair payments without any depreciation deduction - but only if it actually repaired the damaged property, with repairs commencing within two years of a covered loss.
In March 2022, one of Schoening's insured commercial properties in Kentucky sustained damage. The company filed a claim, and Cincinnati Casualty's adjuster assessed the situation. The adjuster determined the property could be repaired, confirmed that Schoening had not yet made those repairs, and offered a payout for the cost of repairs minus $45,000 in depreciation. The adjuster told Schoening it could recover the withheld amount once the repairs were done.
Schoening did not accept the offer. Instead, in March 2024, the company filed a lawsuit - with ambitions to lead a class action - alleging that Cincinnati Casualty had breached the policy by improperly deducting depreciation from repair-cost settlements. The district court dismissed the case, and Schoening appealed.
The Sixth Circuit, led by Chief Judge Sutton, walked through the chain of policy provisions that governed the payout. The policy's loss payment section gave Cincinnati Casualty four options for settling a claim, with the right to choose the least expensive. The insurer chose to pay the cost of repairs, which the policy said had to be calculated according to a separate valuation section. That valuation section defaulted to actual cash value - defined in the policy as replacement cost less a deduction reflecting depreciation.
The optional coverage Schoening had purchased modified this formula. It swapped actual cash value for full replacement cost without a depreciation deduction. But there was a catch: the policyholder had to actually complete the repairs first. If it did not, the payout reverted to actual cash value.
Schoening never claimed to have repaired the property. That, the court found, was the end of the matter.
The company tried several arguments on appeal, none of which gained traction. It argued that the valuation section did not apply to repair-cost payouts, only to total losses involving an entire building. The court rejected this, pointing out that the policy defined covered property to include individual components like outdoor fixtures, building glass, and signs - clearly contemplating partial losses.
Schoening also argued that the policy's use of the term "replacement cost" in the valuation section signaled that it was meant only for replacements, not repairs, since the policy elsewhere drew distinctions between the two. The court acknowledged the policy does use the terms differently in some places, but noted that the valuation section refers to replacement cost as a financial measure, not as a physical act. The optional coverage provision reinforced this reading by promising to pay replacement cost for both repairs and replacements.
Another line of argument was that applying the valuation section to repairs would create redundant language in the policy, effectively equating the value of damaged property, the cost of repair, and the cost of replacement. The court conceded the overlap but found it was a feature of the policy's own language, not a reason to discard it. Insurance contracts, the court observed, are not strangers to overlapping terms.
Schoening pointed to various cases and treatises standing for the proposition that repair costs should not include depreciation. The court found those authorities distinguishable, as none of them dealt with a policy that explicitly ran repair costs through a valuation section that defaulted to actual cash value, complete with a depreciation deduction.
The court also flagged a practical problem with Schoening's reading. If the baseline policy already entitled policyholders to depreciation-free repair payments, there would have been no reason for Schoening to purchase – and pay a higher premium for - optional coverage that provided the same thing. Insurance that covers the full cost of repair without depreciation commands a higher premium precisely because it shifts more risk to the insurer.
As a final fallback, Schoening argued the policy language was ambiguous and should be read in the policyholder's favor. The court dispatched this on two grounds. First, Schoening had never raised the ambiguity argument before the district court – and appeared to have avoided it deliberately, since the opposing side had argued that differing state laws on ambiguity would undermine class certification by defeating the predominance requirement. Schoening had sidestepped this argument at the time by insisting the policy language was clear. The court was not inclined to let the company reverse course on appeal. Second, even setting forfeiture aside, the court found no genuine ambiguity. Schoening's interpretation would leave the method for valuing repair costs unspecified and strip the optional coverage provision of any purpose - neither of which could be called a reasonable reading of the contract.
For commercial property insurers and claims professionals, the ruling reinforces the enforceability of depreciation holdback as a standard claims-handling practice - at least where the policy routes repair costs through a valuation provision that defaults to actual cash value. It also underscores the importance of clear policy language linking optional replacement-cost coverage to the completion of repairs, a structure that the court found not only reasonable but essential to giving the policy meaning as a whole.
