I am not clear about the nature of your case, but perhaps this provides some guidance.
I would ask the adjusted for any statutory, admin, or case law guidance that supports the position taken. Let me know how that goes.
That position makes no sense to me. Start with the policy provisions and look for language authorizing that type of depreciation. I doubt you will find any. Then either consult with an experienced attorney or give the WA State Insurance Commissioner's office a call and get some guidance there.