Pa. Justices Told Insurer Can Withhold Homeowner Payments

A Farmers Insurance division told the Supreme Court of Pennsylvania Monday that its insurance contracts allow it to withhold payments for general contractors until after a homeowner actually incurs repair costs, despite two class action lawsuits claiming that the court’s precedent says otherwise.

In its brief to the court Monday, Truck Insurance Exchange said that the Superior Court of Pennsylvania’s 1994 decision in Gilderman v. State Farm Insurance did not override the specific language in its own homeowners’ insurance policies that say general contractors’ overhead and profit, or GCOP, would not be included in cash settlements to resolve property damage claims.

“As the Superior Court in this case recognized, Gilderman ‘did not address the issue of public policy’ or otherwise ‘set forth binding Pennsylvania law’ overriding Truck’s policy language,” the brief said. “Gilderman concerned insurance policy language that did not address when and under what circumstances GCOP is paid, as compared to Truck’s policy that expressly does.”

Truck urged the court to reject the arguments of homeowners Konrad Kurach and Mark Wintersteen, which claim the Gilderman decision is a “binding law” that overrides the insurer’s ability to deduct general contractors’ overhead and profit from the lump-sum payments that homeowners could take in the event their insured property is damaged.

In 2015, Kurach filed a proposed class action suit accusing Truck of deducting a 20% surcharge for contractors’ overhead and profit from a settlement he received based on a $50,000 estimate to repair water damage at his Bucks County home. A second suit was filed later that same month by Montgomery County homeowner Wintersteen, who also claimed overhead and profit were deducted from his settlement after he submitted a $40,000 estimate for repairs following a leaky water pipe.

Truck noted that the policies’ language stated that overhead and profit can only be included in the settlements if repairs had been completed and the fees had actually been incurred, unless the law in the homeowner’s state requires that such charges be paid up front as part of a settlement to cover the actual cash value of the damages. But the court in Gilderman had been reviewing a policy that hadn’t addressed that issue.

“Faced with a policy that was silent about when and under what circumstances GCOP would be paid, the Superior Court concluded that State Farm had agreed under its policy to pay GCOP as part of an actual cash value settlement in instances where it appeared likely the service of a general contractor was warranted,” the brief said. “The Superior Court construed what State Farm had ‘agreed to pay’ under its specific policy language. The case does that and nothing more.”

Truck cited cases that had upheld insurers’ right to hold back payments and costs for things other than depreciation until repairs were actually made, and noted that the factual record didn’t indicate that either Kurach or Wintersteen had proven they did the repairs they submitted estimates for.

“There is no evidence in the record (or allegations in the complaint) stating whether Kurach ever repaired the damage to his property and if not, why not,” the brief said. “Truck has no record of Kurach submitting a follow-up claim for payment of GCOP on the basis that Kurach incurred that expense in the course of covered repairs.”

The company was joined with an amicus brief by the Insurance Federation of Pennsylvania, the American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies that echoed Truck’s arguments, noting that the policy language excluding contractors’ costs had been reviewed and approved by the Pennsylvania Department of Insurance.

“The insurance amici are concerned that a reversal of the Superior Court’s decision and an invalidation of the clear and unambiguous policy provision will set a dangerous precedent that would permit courts to rewrite insurance policies, even in the absence of an ambiguity or unconscionability,” their brief said. “A court rewriting a clear and unambiguous insurance policy introduces unforeseen risks into insurance transactions that could destabilize the marketplace.”

The insurers argued that in order to overturn the clear contract language setting when contractors’ costs would be paid in “actual cash value” settlements, the lawsuits would have to show that there was a dominant public policy that contradicted that language. Neither the Pennsylvania case law nor the Department of Insurance’s guidance and approval of the policies cleared that high bar, the brief said.

“The department’s approval of the policy provides additional — and persuasive, in view of its expertise on insurance issues — indicia that the provision allowing for withholding of GCOP unless and until such charges are actually incurred, pursuant to the terms of the policy, is not violative of public policy,” the amicus brief said.

Attorneys for Truck and the amici declined to comment Monday. Attorneys for Kurach and Wintersteen did not immediately respond to requests for comment.

Truck Insurance Exchange is represented by Robert N. Feltoon and Andrew K. Garden of Conrad O’Brien PC.

The Insurance Federation of Pennsylvania, the American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies are represented by Steven B. Davis, Karl S. Myers and Robert J. Norcia of Stradley Ronon Stevens & Young LLP.

Kurach and Wintersteen are represented by Jonathan Wheeler of Jonathan Wheeler PC, James Haggerty of Haggerty Goldberg Schleifer & Kupersmith PC and Howard Silverman of Kane & Silverman PC.

The cases are Konrad Kurach v. Truck Insurance Exchange, case number 12 EAP 2019, and Mark Wintersteen v. Truck Insurance Exchange, case number 13 EAP 2019, both in the Supreme Court of Pennsylvania.

--Additional reporting by Matt Fair. Editing by Jack Karp.

This story has been updated with a response from an attorney for the amici.