Pennsylvania Supreme Court Interprets Replacement Cost Coverage to Allow Deductions for GCOP Unless Insured Actually Repairs (PA)
The Pennsylvania Supreme court in Kurach v. Truck Insurance Exchange recently held that insurers are entitled to deduct General Contractor’s Overhead & Profit (GCOP) in a policy that provided Replacement Cost Coverage “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.”
In this matter, Kurach specifically paid a higher premium for the replacement cost coverage. The relevant policy provided a “two-step” settlement process for covered losses and unequivocally detailed the process for the insurer reimbursing the insured for GCOP. The first step required Truck Insurance to pay the actual cash value (ACV) of the estimated cost to repair. Importantly, the second “step” of the settlement process provided:
e. General contractor fees and charges will only be included in the estimated reasonable replacement costs if it is reasonably likely that the services of a general contractor will be required to manage, supervise and coordinate the repairs. However, actual cash value settlements will not include estimated general contractor fees or charges for general contractor’s services unless and until you actually incur and pay such fees and charges, unless the law of your state requires such fees and charges be paid with the actual cash value settlement.
The Policy further defined “actual cash value” as the “reasonable replacement cost at time of loss”. In the instant matter, Truck Insurance tendered the ACV of the repair, not including GCOP, per the provisions of the policy. The insured demanded the full payment, including the GCOP. Truck Insurance refused, and this litigation was initiated.
Two relevant facts were undisputed and at the heart of the litigation: (1) both parties agreed that this repair work would need a general contractor; and (2) the insured did not actually repair the property and thus never incurred any GCOP expenses. Truck Insurance argued that its policy was unambiguous, and the insured agreed to a two-step payment process. The insured argued, in part, that the two-step payment process was against public policy, as it incentivized insurers not to pay full value of the claim and further disincentives insureds repairing damaged property.
Ultimately, the Court agreed with the insurer holding that the policy language was clear and unambiguous, even if it was “unique policy language [that] was at issue.” Thus, this case illustrates, in Pennsylvania, the clear language of the policy still governs.
Thanks to Matt Care for his contribution to this post. If you have any questions or comments, please contact Colleen Hayes.