Allstate Pays Back Half of Arizona's Nonmaterial Depreciation, Unless the Form Said “Labor”

Allstate's new Arizona settlement notice carves six groups out of the class. Start with the first: policyholders whose claims arose under "labor permissive policy forms," which the notice defines as those forms and endorsements expressly permitting the "depreciation" of "labor" within the text of the policy form.¹ Every other Arizona policyholder who took an Xactimate-based actual cash value payment back to April 2017 is in. The ones whose forms said it out loud are not.

The Sixth Circuit wrote those instructions six years ago. Andrea Perry's Ohio water-damage claim was undisputed as to coverage and undisputed as to the $32,965.09 cost to repair; Allstate deducted depreciation, paid $28,394.74, and the only live question was whether the labor share of that deduction belonged there.² The panel held "depreciation" ambiguous under Ohio law, construed it against the carrier, and quoted its own earlier Hicks opinion on the way out: Allstate "could have removed any ambiguity by simply writing its policies to expressly include labor depreciation when calculating ACV."²

Allstate has forms that do exactly that.

Depreciate removal, depreciate non-material, depreciate O&P

The notice does the thing no adjuster's estimate ever does, which is name the settings. "Nonmaterial Depreciation," it says, means "application of either the 'depreciate removal,' 'depreciate non-material' and/or 'depreciate O&P' option settings within Xactimate software or similar depreciation option settings in competing commercial software programs."¹ Those are three real checkboxes in the product's depreciation options, sitting alongside depreciate material.⁴ A court-authorized document has reduced a years-long valuation argument to the state of three toggles, which is a more auditable description of the problem than most demand letters manage, and it is portable: the definition is written to reach "competing commercial software programs," not just Xactimate.

The five gates in the Hernandez class definition, and the document that answers each one

Gate	What the notice requires	Where you check it
Structure	Physical damage to an Arizona home, building, manufactured home, condo, rental dwelling or other structure covered by an Allstate-family policy	Declarations page, loss location
Software	Allstate issued payment based on an Xactimate estimate	The estimate itself
Deduction	An ACV payment from which nonmaterial depreciation was withheld	Depreciation column on removal, non-material and O&P line items
Date	Initial ACV payment between April 25, 2017 and October 1, 2026	First payment transmittal, not the date of loss
Form	NOT a labor permissive form, meaning no endorsement expressly permitting the depreciation of labor	The policy form text

Class members never made whole recover 50% of the net nonmaterial depreciation withheld, plus simple interest at 10% a year running from the initial ACV payment through the effective date; anyone already reimbursed through the claim process gets a flat $10 to $360.¹ Nine Allstate-family companies are named, from Esurance to the three Encompass entities. Exclusion requests and objections are both due postmarked November 16, 2026, final approval is set for 10:30 a.m. on December 15 by Zoom out of Kingman, and claim forms run to January 29, 2027.¹ Arizona's own statutory interest clock is a separate and generally better-paying question, and it starts when the claim arrives, not when a settlement effective date lands.

Does the form say "labor" out loud?

This exclusion did not originate in Arizona. The same sentence appears in the class Allstate settled in Alabama three years ago, certified by Judge Terry F. Moorer on August 3, 2023: "policyholders whose claims arose under labor permissive policy forms, i.e., those forms and endorsements expressly permitting the 'depreciation' of 'labor' within the text of the policy form."³ Same sentence, different state, three years apart, and the same three plaintiffs' firms on the signature block both times. In Alabama that class drew 18,569 mailed notices and ten requests for exclusion.³

So the recurring question on an ACV shortfall is not whether the toggles were on. They usually were. It is whether the form bought the right to turn them on, and that is a reading task on the policy rather than on the estimate, which is the opposite of where most supplement letters start. Ohio, where Perry came from, still has no deadline to pay anything in its claims rule, and the labor question there turned entirely on an undefined word. Oklahoma practitioners have watched the same dynamic play out with estimating practice becoming public record. Two cautions before anyone tells a client they are in. The notice discloses no total settlement value, so there is no fund figure to quote. And the labor-permissive exclusion is self-executing: no one has to assert it, because a claim under such a form was never in the class to begin with.