When State Farm pays a property damage claim, the check often arrives for less than the estimated repair cost — sometimes significantly less. The difference is usually labeled “depreciation” on the claim estimate. For many policyholders, it’s the first time they realize their insurance company won’t simply pay what it costs to fix the damage. Whether that deduction was calculated properly is a different question, and it’s the one that matters.
Depreciation on a State Farm claim isn’t automatically wrong. But how State Farm applies it — what they depreciate, how much they withhold, and whether they release the money after repairs — is where problems surface. Some of those problems are significant enough that State Farm has already faced class action litigation in Illinois over the practice. This page walks through how depreciation works on a State Farm property claim. It covers where the company’s approach has crossed the line and what you can do when it happens to you.
Why did State Farm pay me less than what it actually costs to fix the damage?
Most State Farm homeowners policies are replacement cost value policies. That means the policy will eventually pay what it costs to repair or replace damaged property with materials of like kind and quality, without deducting for age or wear. But that full amount usually isn’t paid upfront.
Instead, the claim is paid in two stages. The first payment is the actual cash value, or ACV — the replacement cost minus depreciation. Depreciation is supposed to account for the fact that the damaged property had already lost some value through age, wear, and use before the loss occurred. State Farm withholds that depreciation from the initial payment.
The second payment comes after repairs are completed. Once you finish the work and submit documentation proving the repairs were done, State Farm is supposed to release the withheld amount — commonly called “recoverable depreciation.” In theory, you end up whole. In practice, the amount State Farm withholds as depreciation in the first place, and whether they release it afterward, is where disputes begin.
The gap between the initial ACV payment and the actual repair cost can be large. Say a roof replacement costs $18,000 and State Farm’s estimate depreciates the claim down to a $10,500 payment. You have to fund $7,500 out of pocket to start repairs — on top of the deductible. Then you wait and hope State Farm releases the holdback when the work is done. That structure puts real financial pressure on you, and it makes the accuracy of the depreciation calculation critical.
What is State Farm actually depreciating on my claim?
State Farm’s claim estimates are generated line by line. Each item — a quantity of shingles, sheets of plywood, rolls of underlayment, hours of labor — gets its own line. Depreciation can be applied to each one individually. The estimate should show what was depreciated, by how much, and what the resulting ACV payment is for each item.
The issue is that not every line item on that estimate is something that can logically depreciate.
Material depreciation covers physical components: roofing shingles that have weathered for fifteen years, siding that’s faded, carpet that’s worn. These things age. They lose value over time. Depreciating them — within reason — reflects the fact that you’re not losing a brand-new roof; you’re losing a roof that had already used up a portion of its useful life.
Nonmaterial depreciation is different. This is depreciation applied to costs that have no physical form and cannot wear out, age, or deteriorate. Labor is the most common example. The cost of a roofer’s time doesn’t decline because the roof is old. A contractor charges the same hourly rate whether the shingles being removed are five years old or twenty. The same principle applies to overhead and contractor profit margins — none of which have a “useful life” that declines over time.
When a State Farm estimate applies depreciation to labor, overhead, or profit, it is deducting value from costs that never lost value. The effect is a lower ACV payment, a larger holdback, and a bigger gap you have to cover before repairs can begin.
To see whether this happened on a particular claim, look at the estimate State Farm provided. The estimate will list each component of the repair with a line-item depreciation amount. If the depreciation column shows deductions next to labor entries, general contractor overhead, or profit lines, that is nonmaterial depreciation.
Can State Farm legally deduct depreciation from labor costs?
This is the central question, and Illinois law has addressed it directly.
Labor does not physically deteriorate. It cannot rust, crack, fade, or wear thin. There is no good reason to reduce the value of a contractor’s time because the property being repaired happens to be older. The argument against nonmaterial depreciation is straightforward. If the cost doesn’t decline over time, depreciating it produces an ACV payment that is lower than the actual cash value of the loss. You are underpaid from the start.
State Farm’s practice of applying nonmaterial depreciation to Illinois property claims was the subject of Sproull v. State Farm Fire and Casualty Co. The case was a class action filed in Illinois alleging that State Farm improperly deducted nonmaterial depreciation on structural loss claims. The class included State Farm policyholders with structural loss claims on Illinois properties between May 21, 2013, and April 2017. The court granted final approval of the settlement on September 28, 2023. The approval confirmed that the practice was widespread enough and serious enough to justify class-wide relief.
The Sproull settlement resolved the claims of policyholders within that class period, but it did not prohibit State Farm from continuing the practice going forward. If your claim falls outside that window — including if you are filing a claim today — you may encounter the same depreciation method on your estimate. The fact that State Farm has already been subject to class action litigation over this exact issue in Illinois does not mean the issue has been eliminated. It means it has been recognized.
How do I get the withheld depreciation back from State Farm?
Under a replacement cost policy, the depreciation State Farm withholds from the initial payment is supposed to be recoverable. That means you can claim it back after completing repairs. The process typically works like this: you hire a contractor, complete the repairs, and submit proof of completion — invoices, receipts, photographs — to State Farm. Once State Farm confirms the repairs were done, it releases the recoverable depreciation.
That’s how it’s supposed to work. In practice, several obstacles can delay or prevent the release of those funds.
State Farm may require you to submit documentation in a specific format or through a specific channel. It may reject submissions that don’t meet internal requirements that aren’t spelled out in the policy itself. The company may take weeks or months to review the documentation and issue the second payment. In some cases, State Farm disputes the scope or cost of the completed repairs. It then withholds part of the recoverable depreciation, claiming you spent more than State Farm’s original estimate included — even when your actual repair costs are well-documented and reasonable.
The policy sets the terms for recoverable depreciation, not State Farm’s internal claims handling procedures. If the policy says depreciation is recoverable once repairs are complete, and you have completed repairs and provided proof, the obligation to pay is triggered. Delays, additional documentation demands beyond what the policy requires, or refusals to release funds that are owed under your policy create a separate problem — one that Illinois law treats seriously.
What are the red flags that State Farm improperly depreciated my claim?
Not every depreciation deduction is wrong, but certain patterns on a State Farm estimate are worth examining closely.
Depreciation applied to labor. If the estimate shows a depreciation deduction on any labor line item — removal labor, installation labor, cleanup — that is nonmaterial depreciation. Labor costs do not decline with the age of the property, and deducting them reduces the ACV payment below what the loss is actually worth.
Depreciation applied to overhead or profit. General contractor overhead and profit (often listed as “O&P”) are costs of performing the repair, not physical materials. Depreciating them has the same effect as depreciating labor: it artificially reduces the payout.
No line-by-line depreciation breakdown. Sometimes the estimate shows only a lump-sum depreciation figure without identifying which items were depreciated or by how much. When that happens, there is no way to verify whether the calculation is accurate. Illinois regulations require insurers to provide a reasonable written explanation of any settlement offer or denial, clearly setting forth the policy provision relied upon. 50 Ill. Admin. Code § 919.50(a)(1). A depreciation deduction without a clear breakdown doesn’t meet that standard.
Depreciation percentages that don’t match the property’s condition. Depreciation should reflect the actual age, condition, and remaining useful life of the damaged property. A ten-year-old roof with a thirty-year shingle might reasonably be depreciated by a third. That same roof depreciated by seventy percent suggests the calculation isn’t based on the property’s real condition.
A large gap between your contractor estimate and State Farm’s estimate, driven by depreciation rather than scope. Sometimes both estimates agree on what needs to be repaired but disagree sharply on the dollar amount. If the difference traces back to how depreciation was applied rather than what work is needed, the depreciation method is likely the problem.
Any one of these flags is worth examining. Several of them on the same estimate suggest the claim warrants closer review.
What happens if State Farm refuses to pay what they owe me?
Illinois law does not leave policyholders without a remedy when an insurer mishandles a claim.
Section 155 of the Illinois Insurance Code (215 ILCS 5/155) applies when an insurer’s delay, denial, or refusal to pay a claim is “vexatious and unreasonable.” When that standard is met, you can recover attorney fees, costs, and a statutory penalty on top of the policy benefits owed. Whether conduct meets that standard is determined under a totality-of-the-circumstances test. The court weighs the insurer’s attitude toward the insured, the thoroughness of its claim investigation, whether the insured was forced to file suit to recover, and whether the insured was deprived of the use of the property. Buais v. Safeway Insurance Co., 275 Ill. App. 3d 587, 656 N.E.2d 61 (1st Dist. 1995).
Depreciation disputes can trigger Section 155 liability in several ways.
When State Farm applies nonmaterial depreciation to labor or other non-depreciable costs, the initial ACV payment is lower than it should be. If State Farm refuses to correct the calculation after you raise the issue, the insurer is withholding money it owes. Illinois courts have held that withholding an undisputed portion of what is owed to gain leverage on the contested balance may be independent evidence of vexatious and unreasonable conduct under Section 155. In Millers Mutual Insurance Association of Illinois v. House, 286 Ill. App. 3d 378, 675 N.E.2d 1037 (5th Dist. 1997), the court affirmed Section 155 sanctions. The insurer had withheld an undisputed $40,000 portion of a settlement to force the insured to litigate.
When State Farm delays releasing recoverable depreciation after repairs are complete — or demands documentation beyond what the policy requires — that delay itself may qualify as vexatious conduct. Illinois regulations establish specific claim-handling timelines. Insurers must begin a good-faith investigation within 21 working days of notification of loss. They must send payment of undisputed amounts within 30 days of confirming liability. 50 Ill. Admin. Code § 919.40, § 919.50. Violations of these timelines don’t create a standalone lawsuit, but they are admissible as evidence of vexatious and unreasonable conduct under Section 155. Charter Properties, Inc. v. Rockford Mutual Insurance Co., 2018 IL App (2d) 170637, 119 N.E.3d 15 (2d Dist. 2018).
What this means practically is that the cost of fighting an improper depreciation claim doesn’t necessarily fall on you. If the insurer’s conduct was vexatious and unreasonable, the attorney fees you incurred to force payment are recoverable from State Farm — along with the policy benefits and the statutory penalty.
Should I call a lawyer about my State Farm depreciation dispute?
Not every depreciation disagreement requires an attorney. But certain situations signal that the dispute has moved beyond something you can resolve on your own.
Your claim estimate may apply depreciation to labor, overhead, profit, or other nonmaterial costs. If State Farm will not correct the calculation after being asked, you are being underpaid by design — not by accident. If State Farm has received proof that repairs are complete and is delaying or refusing to release recoverable depreciation, you are financing the insurer’s obligation out of your own pocket. If the gap between what State Farm paid and what the repairs actually cost is large enough to create financial strain, the dispute has real consequences. A phone call to the claims department is unlikely to resolve it.
An attorney who handles first-party insurance litigation in Illinois can review the claim estimate line by line, identify whether nonmaterial depreciation was improperly applied, calculate the amount that should have been paid, and demand correction. If State Farm refuses, the attorney can pursue the claim. Section 155 makes attorney fees recoverable when the insurer’s conduct is found to be vexatious and unreasonable. That means you may not have to pay out of pocket to enforce your own policy.
Mag Mile Law represents Illinois policyholders in disputes with insurers over underpaid, delayed, and improperly depreciated property damage claims. The firm’s insurance coverage attorneys, including attorneys who hold property and casualty insurance producer licenses, understand how carrier estimates are built and where depreciation deductions break down. If a State Farm depreciation claim isn’t adding up, a consultation can determine whether the numbers support a claim — and what that claim is worth.
