This article originally ran in Law360 on August 18, 2020.
Homeowners in Pennsylvania are not entitled to get pre-paid for general contractors' overhead costs and profits when submitting insurance claims, the Supreme Court of Pennsylvania ruled Tuesday.
Where "all-risk" homeowners insurance policies issued by Truck Insurance Exchange provided for a two-step payment process, the policy language says that the homeowners have to actually incur the general contractors' costs before they can seek reimbursement through their insurance claims, the court majority said.
"The policies, by their plain terms, guarantee that the policyholder will be paid the [actual cash value, or ACV] of the damaged property at the time of the loss; however, it also specifies that payment of [general contractor overhead and profit, or GCOP] is conditional in that such payment will not be made unless and until the policyholder actually incurs such costs by commencing the repair process," wrote Justice Debra Todd for the majority opinion. "Given that the law of Pennsylvania does not otherwise require payment of GCOP before repairs begin, we hold that, because policyholders did not undertake such repairs, under the terms of their policies, insurer was permitted to withhold GCOP from its ACV – 'step one' – payments."
Though three justices had disagreements with part of the ruling, the majority upheld a 2018 Superior Court decision that had sent the case back to the Court of Common Pleas in Philadelphia where a judge had sided with the homeowners in April 2017.
Plaintiff Konrad Kurach had sued Truck Insurance Exchange in 2015, claiming the insurer had improperly deducted a 20% surcharge for contractor's overhead and profit from a settlement he received based on a $50,000 estimate to repair water damage at his Bucks County home. Another plaintiff, Mark Wintersteen, filed a proposed class action less than a month later, claiming Truck Insurance improperly deducted GCOP from his $40,000 estimate for repairing damage from a leaky pipe.
The critical part of the insurance policy, the justices noted, was a section that said contractor's overhead would only be paid back after the insured had actually incurred it, "unless the law of your state requires that such fees and charges be paid with the actual cash value settlement."
The court majority said it didn't see where Pennsylvania law had lumped contractors' costs in with the actual cash value payments.
"Critically, our review of Pennsylvania law does not support policyholders' contention that it mandates that GCOP be included in ACV for every claim made under a replacement cost policy, as we discern no such requirement in statute, regulation, or case law," Justice Todd wrote.
But Justice David Wecht, in a concurring and dissenting opinion, said he believed the state law was ambiguous, which rendered the portion of the policy unclear and unknowable when the policyholders signed it. Since ambiguity in insurance contracts favors the policyholder, Justice Wecht said he would have reversed the Superior Court decision.
"Up until the moment this case was decided, our law did not state definitively whether an insurer must include GCOP in an ACV payment," he wrote. "Applicability of the pertinent provision of the policy turned upon whether our Commonwealth's law required a particular result. Until today, our law did not require a particular result. That ambiguity in our law led to the ambiguity in the policy."
Justice Wecht railed against the rest of the court for wading into whether its interpretation of the insurance policy went against "public policy," devoting part of his opinion to contending that public policy decisions should be left to the executive and legislative branches.
"In several cases involving insurance contract disputes, I have objected to this court's freewheeling and unwarranted invocation of 'public policy,'" he wrote. "Public policy is to be set by the political branches of our government — the Governor and the General Assembly — and not by this court. Today's litigants, like other citizens, are free always to lobby those branches for any changes desired."
JusticesSallie Updyke Mundy filed her own concurring and dissenting opinion, to which Justice Kevin M. Dougherty concurred, agreeing with Justice Wecht that the "state law" section of the insurance policy was ambiguous and should have gone in favor of the policyholders. Kevin M. Dougherty
Chief Justice Thomas G. Saylor and Justices Max Baer and Christine Donohue joined Justice Todd in the majority opinion.
"Truck is very pleased with the result and gratified that Justice Todd authored the majority decision since she also authored a key Superior Court ruling on which Truck relied," said Robert Feltoon of Conrad O'Brien PC, representing the insurance company. Todd was referencing Kane v. State Farm Fire & Casualty Co., in which the Superior Court ruled in 2003 that explicit language in an insurance contract could overcome definitions established by case law.
Feltoon also praised the trial court judge for agreeing to send the case quickly to appeal.
Counsel for Kurach and Wintersteen did not immediately respond to requests for comment Tuesday.
Truck Insurance Exchange is represented by Robert Feltoon of Conrad O'Brien PC.
The cases are Kurach v. Truck Insurance Exchange, case number 12 EAP 2019, and Wintersteen v. Truck Insurance Exchange, case number 13 EAP 2019, in the Supreme Court of Pennsylvania.