Maryland Insurance Administration Moves to Ban Depreciation of Labor Costs

In April 2025, the Maryland Insurance Administration (MIA) released Proposed Bulletin 25-XX, a draft directive that would significantly change how property insurance claims are handled in the state. The bulletin makes clear that labor costs cannot be depreciated when insurers calculate actual cash value (ACV) payments.

If finalized, this change will provide important consumer protections, ensuring policyholders are not unfairly underpaid when filing claims for storm, fire, or other property damage losses.

Why Depreciation of Labor Has Been a Problem

When a homeowner experiences property damage, insurers often pay the “actual cash value” of the loss if repairs are not immediately completed. ACV is generally defined as the replacement cost minus depreciation. Depreciation makes sense for physical items that lose value over time—like roofing shingles, siding, or appliances.

But in recent years, many insurers have also applied depreciation to labor costs. This practice reduces payouts in a way that has no logical basis, because labor does not physically deteriorate with age. A carpenter’s work on a home is not worth less because the home is older, and the market price of labor often goes up, not down, over time.

For example, consider a roof replacement:

• Replacement cost: $20,000 (including $12,000 in labor, $8,000 in materials)
• Materials depreciated by 50%: $4,000 reduction
• Labor depreciated by 50%: $6,000 reduction

If both labor and materials are depreciated, the homeowner would only receive $10,000 in ACV – half of what is needed to restore the property. Without the financial means to cover the shortfall, many homeowners are forced to delay or forgo repairs, putting their property at greater risk of further damage.

Key Provisions of Bulletin 25-XX

The MIA’s proposed bulletin addresses this issue directly, providing clear guidelines for insurers:

• No labor depreciation: Insurers cannot reduce ACV payouts by depreciating labor costs.
• Policy forms: The MIA will not approve new policy forms that attempt to include labor depreciation language.
• Existing policies: Carriers must amend any existing policy forms with labor depreciation provisions within 90 days of the bulletin’s effective date.
• Unfair claims practice: Any insurer continuing to depreciate labor could be found in violation of Maryland’s unfair claims settlement laws.

Industry Pushback and Arguments

Insurance companies and trade associations are already pushing back. Their arguments typically include:

• Administrative complexity: Insurers claim it is difficult to separate labor and materials when estimating claims.
• Cost concerns: They argue the rule will increase claim payouts and may drive premiums higher.
• Uniformity: Some carriers contend that depreciation should apply to the total cost of repairs, not divided by category.

However, consumer advocates counter that these concerns place the financial burden on homeowners rather than insurers. Labor depreciation shifts costs unfairly and undermines the value of the coverage policyholders have already paid for.

Policyholder Benefits

For policyholders, Bulletin 25-XX represents a major step toward fair claims practices:

• Fair compensation: Homeowners will no longer lose thousands of dollars in benefits due to artificial labor depreciation.
• Stronger contracts: Insurance policies will better reflect the true costs of repairs.
• Consumer protection: Families will be less likely to face financial shortfalls when repairing their homes.

In a state where storms and severe weather are becoming more frequent, this protection could make the difference between a full recovery and ongoing hardship.

Broader Legal and Regulatory Context

Maryland is not the only state where labor depreciation has been challenged. Courts and regulators across the U.S. are split on the issue:

• Some states have prohibited labor depreciation, recognizing that it unfairly reduces claim payments.
• Others have allowed it, often because of vague policy language or the absence of regulatory guidance.

By issuing Bulletin 25-XX, Maryland joins a growing group of states taking a clear stance in favor of policyholders. If finalized, the bulletin may serve as a model for other jurisdictions where this issue remains unsettled.

The Bigger Picture: A Troubled Insurance Landscape

Maryland’s action comes at a time when insurance markets nationwide are under pressure. Rising natural disaster costs, insurer insolvencies, and higher premiums have left many homeowners vulnerable. According to the National Association of Insurance Commissioners (NAIC):

• Homeowners’ insurance premiums nationwide increased by 30% between 2019 and 2023.
• Disputes over claim payments remain one of the top three consumer complaints filed with state insurance regulators.

In this environment, even small changes in claims practices can have a major impact on family budgets. By banning labor depreciation, Maryland is helping restore trust between insurers and consumers.

Next Steps

The MIA is accepting public comments on Bulletin 25-XX until May 30, 2025. After reviewing feedback, the administration will issue a final bulletin, and insurers will have 90 days to bring their policies and claims practices into compliance.

The American Adjuster Association will continue monitoring this development and advocating for fair claim practices not only in Maryland but nationwide. Our mission is to ensure that policyholders are not stripped of their rights through legislative, regulatory, or contractual changes.

Why AAA Members Should Pay Attention

AAA members, whether adjusters, attorneys, or consumer advocates, play a critical role in ensuring these protections are upheld. When labor depreciation is eliminated, it strengthens the claims process and promotes fairer settlements. But insurers may test the limits of compliance, and consumer education will be key to making sure policyholders understand their rights.

As this bulletin moves forward, AAA will provide updates, analysis, and resources for members. Together, we can continue to push back against practices that put homeowners at a disadvantage and work toward a more balanced claims environment.