This article originally ran in Law360 on August 24, 2018.
Law360 (August 24, 2018, 7:49 PM EDT) -- A Pennsylvania state appeals court on Friday upended a win for two homeowners who filed putative class actions alleging Truck Insurance Exchange wrongfully omitted estimated contractor overhead and profits from property damage settlements, ruling that the policy required those costs to be incurred and paid out by policyholders before reimbursement.
The three-judge panel’s decision overturned a Pennsylvania Court of Common Pleas judge’s finding that state law required estimated general contractor overhead costs and profit be included in settlements paid to settle damage claims filed by homeowners. The appeals court invoked its 2003 decision in another insurance row, Kane v. State Farm Fire and Casualty Co. , which held that explicit insurance policy language could trump definitions established by case law.
In the instant matter, Truck’s homeowner’s policy explicitly states that payment of general contractor overhead and profit, known as GCOP, is contingent upon the insured actually incurring and paying it, unless Pennsylvania state law says otherwise. But plaintiffs Konrad Kurach and Mark Wintersteen haven’t identified any case law setting forth public policy stating that actual cash settlement value has to include GCOP.
“As recognized in Kane, the definitions supplied by case law in Pennsylvania demonstrate the parties’ intent only where the policy does not explicitly provide for a different outcome. Here, Truck’s policy clearly and obviously provides that GCOP will not be paid to an insured until the insured actually incurs that cost. Thus, we conclude the trial court erred as a matter of law in granting summary judgment to Kurach and Wintersteen,” the appeals decision said.
The litigation against Truck began in July 2015, as Kurach launched a complaint alleging the insurer had improperly deducted a 20 percent 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.
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.
The policies dictate that overhead and profit costs can be recouped after repairs have been completed and the fees 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.
The plaintiffs pointed to the state Superior Court's 1994 ruling in Gilderman v. State Farm , which they said required policyholders who paid higher premiums, like Kurach and Wintersteen, to receive overhead and profit in actual cash value settlements when damages are likely to require a general contractor to repair.
Judge Ramy Djerassi of the Philadelphia County Court of Common Pleas sided with Kurach and Wintersteen in his April 2017 opinion, noting that Pennsylvania law requires estimated general contractor overhead and profit to be included in "actual cash value" payments when the damages are likely to require a general contractor.
However, the appeals court said Friday, Gilderman doesn’t create binding Pennsylvania law defining how actual cash value is calculated. Rather, the case defined the term “in the absence of any definition in the policy itself, and thus analyzed the intent of the parties,” the appeals decision said.
An attorney for the plaintiffs, Jonathan Wheeler, said he felt the court didn't address whether overhead and profit are to be included in actual cash value settlements under Pennsylvania law, nor did the judges ponder the ambiguity surrounding the definition of actual cash value.
"I thought the opinion was very superficial and didn’t discuss the real issues of the case,” Wheeler told Law360.
Robert Feltoon, an attorney for Truck, said he was pleased with the ruling.
Superior Court Judge Judy Olson, Jack A. Panella and Justice Correale Stevens sat on the panel.
Truck is represented by Robert Feltoon and Andrew Garden of Conrad O’Brien PC.
The plaintiffs are represented by Jonathan Wheeler of the Law Offices of Jonathan Wheeler PC and Howard Silverman of Kane & Silverman PC.
The cases are Konrad Kurach v. Truck Insurance Exchange, case number 1726 EDA 2017, and Mark Wintersteen v. Truck Insurance Exchange, case number 1730 EDA 2017, both before the Superior Court of Pennsylvania, Eastern District.
--Additional reporting by Matt Fair. Editing by Jack Karp.
Update: This article has been updated to include commentary from attorney Jonathan Wheeler.