General Contractor Overhead and Profit Deducted in Actual Cash Value Settlements (PA)
Earlier this week, on August 24, 2020, the Supreme Court of Pennsylvania issued its decision in the consolidated appeals of Kurach v. Truck Insurance Exchange and Wintersteen v. Truck Insurance Exchange. By way of brief background, in both cases, after the plaintiffs experienced water damage to their homes, they filed claims with Truck Insurance Exchange (“Truck”). Both plaintiffs opted for actual cash value (“ACV”) settlements rather than repairing their properties. Truck deducted the general contractor overhead and profit (“GCOP”) from the settlement checks, which the plaintiffs argued was contrary to Pennsylvania law. On appeal, the Superior Court held Truck properly deducted the GCOP from the actual cash value settlements since the plaintiffs did not make the repairs and therefore, did not incur GCOP costs.
On appeal, the Supreme Court of Pennsylvania analyzed “whether, under the terms of the “replacement cost coverage” policies at issue, [Truck] was permitted to withhold the [ACV] payment [GCOP] expenses unless and until the insureds undertook repairs of the damaged property, even though the services of a general contractor were reasonably likely to be needed to complete the repairs. Ultimately, the Supreme Court affirmed the Superior Court’s holding, thereby concluding Truck was permitted to withhold these costs.
Applying long-standing Pennsylvania case law on insurance policy interpretation, the Supreme Court focused on the policies’ definition of ACV and specific policy language establishing the timing of payment of depreciation costs and GCOP. Based on the plain language of the policies, the Court concluded that the policies guarantee the insureds will be paid the ACV of the damaged property at the time of the loss. Yet, the Court noted that the GCOP payments are conditional payments as GCOP payments will not be made unless and until the insured actually incurs such costs by commencing the repair process, “unless the law of [Pennsylvania] requires” GCOP to be included in the ACV payment. In doing so, the Court determined “Pennsylvania law does not mandate that GCOP be included in ACV for every claim made under a replacement cost policy.” Overall, this ruling serves as another reminder of the emphasis placed on the plain language of the policy.
Thanks to Lauren Berenbaum for this post. If you have any questions or comments, please contact Vincent Terrasi.