235 A.3d 1106
Pa.2020Background:
- Kurach and Wintersteen purchased identical "Farmers Next Generation" homeowners policies with optional replacement-cost coverage; both suffered water damage and submitted claims exceeding $2,500.
- The policies use a two-step payment scheme: (1) pay actual cash value (ACV) at time of loss (replacement cost minus depreciation) when repair costs exceed $2,500; (2) pay the remaining replacement cost (including depreciation recovery) once repairs commence. Section 5(e) additionally states GCOP (general contractor overhead & profit) is included in replacement-cost estimates only if GC services are reasonably likely, but ACV settlements will not include estimated GCOP "unless and until you actually incur and pay such fees," unless state law requires otherwise.
- Insurer paid ACV excluding GCOP despite conceding GC services were reasonably likely; policyholders accepted ACV payments but sued for breach, arguing GCOP must be included in ACV (per Gilderman/Mee) and the policy language is ambiguous and contrary to public policy.
- Trial court granted summary judgment for policyholders, reading Gilderman/Mee to require GCOP be included in ACV; Superior Court reversed, finding the policy’s explicit conditional language controlled and was enforceable.
- The Pennsylvania Supreme Court affirmed the Superior Court: because Pennsylvania law does not mandate GCOP be paid in ACV settlements, the policy’s plain text permitting withholding of GCOP until the insured actually incurs the expense was enforceable.
- Opinions: majority affirms; Justices Wecht and Mundy filed concurring/dissenting opinions.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an insurer may withhold GCOP from an ACV "step one" payment under a replacement-cost policy when GC services are reasonably likely | Gilderman/Mee establish that ACV (replacement cost minus depreciation) must include GCOP when GC services are reasonably likely; withholding deters repairs and is unfair/contrary to public policy; policy ambiguous so construed for insured | Policy explicitly conditions payment of GCOP on the insured actually incurring and paying those costs; two-step policies are common and enforceable; no Pennsylvania statute or binding precedent mandates GCOP be included in ACV | Court: Policy language is controlling and unambiguous; insurer may withhold GCOP until insured incurs GC fees unless state law requires inclusion; Gilderman/Mee apply only to policies silent on GCOP |
Key Cases Cited
- Gilderman v. State Farm, 649 A.2d 941 (Pa. Super. 1994) (Superior Court held GCOP is included in ACV where policy was silent and GC services were reasonably likely)
- Mee v. Safeco, 908 A.2d 344 (Pa. Super. 2006) (followed Gilderman in requiring GCOP in ACV when use of a general contractor was reasonably likely and policy contained no contrary language)
- Kane v. State Farm Fire & Casualty Co., 841 A.2d 1038 (Pa. Super. 2003) (explains that explicit policy language can supersede case-law definitions)
- Farber v. Perkiomen, 85 A.2d 779 (Pa. 1952) (construed a one-step ACV policy and recognized insurers may draft contract terms defining payment timing)
- Sayles v. Allstate Ins. Co., 219 A.3d 1110 (Pa. 2019) (reminds courts that invalidating clear contract terms on public-policy grounds requires a heavy burden)