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Duped, Deceived or Downright Obvious? PA Supreme Court to Assess GCOP Provision in Homeowners Insurance Policy (PA)

March 20, 2020

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<p style="text-align: justify;">The Pennsylvania Supreme Court has taken <em>Konrad Kurach v. Truck Insurance Exchange</em> under advisement to consider whether a Farmers Insurance division, Truck Insurance Exchange, surreptitiously withheld general contractor overhead and profit (GCOP) from property damage claim settlements. In <em>Kurach</em> and a second case represented by the same counsel, <em>Mark</em> <em>Wintersteen v. Truck Insurance Exchange</em>, the plaintiffs suffered water damage to their homes and submitted claims for their losses to Truck. The insurance company determined that the repairs would require the services of a general contractor. Both plaintiffs opted for actual cash value settlements rather than repairing their properties. Truck deducted the GCOP from the settlement checks, which plaintiffs argue is contrary to Pennsylvania law.</p>
<p style="text-align: justify;">At issue is whether the GCOP was improperly excluded from the calculation of the actual cash value settlement. The insurance policy states, in relevant part, that “actual cash value settlements will not include [GCOP] ... unless and until you actually incur and pay such fees and charges, <em>unless the law of your state requires that such fees and charges be paid with the actual cash value settlement</em>.” In a 1994 decision, the Superior Court held that because ‘actual cash value’ was not defined in the policy, the insurer “agreed to pay actual cash value, ... which include[s] any cost that an insured is reasonably likely to incur in repairing or replacing a covered loss,” minus depreciation, and that actual cash value would include GCOP if the homeowner would likely incur such costs. <em>Gilderman v. State Farm Insurance Company</em>, 649 A.2d 941 (Pa. Super. 1994). While <em>Kurach</em> and <em>Wintersteen</em> relied on <em>Gilderman</em> in their arguments, the Superior Court pointed to more recent precedent that held that an insurance policy’s language could trump definitions established by case law because the policy’s plain language is the true manifestation of the intent of the parties. <em>Kane v. State Farm Fire and Casualty Co</em>., 841 A.2d 1038, 1042 (Pa. Super. 2003).</p>
<p style="text-align: justify;">Pursuant to <em>Kane</em>, the Superior Court held that because this insurance policy stated “unless and until you actually incur and pay such fees and charges”, Truck properly deducted the GCOP from the actual cash value settlements since the homeowners did not make the repairs and had not incurred GCOP costs. In rendering its decisions, the Superior Court noted that it does not have ‘supervisory authority’ to come to the rescue of insureds who sign contracts without reading them, while at the same time critiquing the ambiguous policy language that states “unless the law of your state requires that such fees and charges be paid”, question how the plaintiffs could have known what the law in Pennsylvania was at the time of signing.</p>
<p style="text-align: justify;">The Pennsylvania Supreme Court has taken the case under advisement to consider whether the Superior Court erred in finding that the limitation of payment of GCOP from the actual cash value settlement was valid and enforceable.  Stay tuned.</p>
<p style="text-align: justify;">Thanks to Priscilla Torres for her contribution to this post.  If you have any questions or comments, please contact <a href="mailto:chayes@wcmlaw.com">Colleen Hayes</a>.</p>
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