A federal appeals court has revived a multi-state class action challenging Church Mutual's practice of depreciating labor costs in property damage payouts.
The case began with a tornado. In March 2020, two properties owned by Generation Changers Church in Nashville were damaged in the storm. The church filed a claim with Church Mutual, its insurer, expecting to be paid the actual cash value of its losses – a standard measure in property insurance that accounts for depreciation. What it got back, the church said, was less than it was owed.
The dispute came down to a question that sounds technical but has real money attached to it: when an insurer calculates a depreciated payout, can it reduce the value of labor costs, not just physical materials? Church Mutual said yes – factoring depreciation into non-material expenses like contractor overhead, profit, and equipment costs, as well as the cost of removing damaged property. The church said the policy was silent on whether that practice was permitted, and the shortfall on its own claim came to $26,749.
That might seem like a modest sum to take to federal court. But Generation Changers Church did not stop there. It argued that Church Mutual was applying the same practice to policyholders across ten states – Arizona, California, Illinois, Kentucky, Missouri, Mississippi, Ohio, Tennessee, Texas, and Vermont – and sought to bring a class action on behalf of all of them.
The district court in Nashville partially agreed. It certified a class for four states where courts or legislatures had already clearly addressed the labor depreciation question: Arizona, California, Illinois, and Tennessee. For the remaining six states, however, the district court drew the line. The law in those states was too unsettled, it said, and working through it would make the case unmanageable.
On February 23, 2026, the Sixth Circuit Court of Appeals disagreed – at least in part. The court found that the district court had a duty to work through the available legal authority, even where state law was not perfectly clear, rather than using that uncertainty as a reason to avoid the analysis altogether.
The appeals court pointed out that the church had presented relevant legal precedents for five of the six disputed states. For Kentucky and Ohio, those precedents came from the Sixth Circuit's own prior decisions, holding that insurers cannot depreciate labor costs unless the policy unambiguously permits it. For Mississippi and Texas, there was persuasive authority from other federal courts. For Missouri, there were intermediate state court decisions on point. The district court had brushed past all of it without adequate explanation, and the appeals court found that was a mistake.
Vermont was a different story. The church had offered only a single non-binding insurance bulletin from the Vermont Department of Financial Regulation to support its position. The appeals court agreed that one advisory bulletin was not enough to carry the argument.
The case now returns to the district court, which must take a fresh look at the law in Kentucky, Ohio, Missouri, Mississippi, and Texas before deciding whether to expand the class to include policyholders from those states. The central question – whether Church Mutual's approach to labor depreciation actually violates the law – has not yet been decided.
For insurers, the case is a reminder that policy language on actual cash value calculations carries significant weight, particularly where the treatment of non-material costs is left undefined. The outcome of the remand will be worth watching.
