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The Pennsylvania Supreme Court has agreed to hold argument as to the correctness of a ruling that general contractor overhead and profit (GCOP) was not required to be factored into two homeowners' actual cash value settlements with their insurer for water damage to their properties.

On May 29, the justices granted allocatur in Wintersteen v. Truck Insurance Exchange on a single issue:

“Did the Superior Court err as a matter of law in finding that the limitation of payment of general contractors overhead and profit from actual cash value in a replacement cost policy, although violative of binding precedent, was nonetheless valid and enforceable?” the order said.

In reversing the ruling of the lower court, a three-judge Superior Court panel consisting of Judges Jack Panella, Correale Stevens and Judith Ference Olson ruled that not only do the Truck Insurance Exchange policies with plaintiffs Konrad Kurach and Mark Wintersteen explicitly exclude GCOP from actual cash value settlements, but there is no state law requiring the inclusion of GCOP in those payouts.

The plaintiffs sued the defendant for bad faith in connection with their homeowners' insurance policies. The plaintiffs were customers of Truck's who suffered water damage to their homes that was covered by the policies, according to Panella's opinion.

Summarizing the facts of the case, Panella said, “Truck reviewed the claims, and determined that the services of a general contractor would likely be necessary to repair the damaged property. Neither Wintersteen nor Kurach pursued the option to repair their damaged property. Rather, they pursued an alternative remedy provided by their policies: actual cash value settlement. Truck calculated the amount of the actual cash value settlement excluding GCOP. Kurach and Wintersteen believe this exclusion is improper under Pennsylvania law. Wintersteen is a putative class action plaintiff, while Kurach seeks only to vindicate his own rights.”

Truck argued there was a policy exclusion regarding GCOP, but the trial court sided with the plaintiffs' argument that state law required it to be factored into settlement calculations.

“Here, the parties are in conflict over the issue of whether GCOP should have been included in the calculation of the actual cash value settlement,” Panella said. “The homeowner's policy provides that 'actual cash value settlements will not include [GCOP] … unless and until you actually incur and pay such fees and charges, unless the law of your state requires that such fees and charges be paid with the actual cash value settlement.'”

The plaintiffs pointed to the court's ruling in Gilderman v. State Farm Insurance, in which the parties argued over the meaning of actual cash value in a homeowners policy, determined to be the cost of repairs. Panella noted that the decision never went into public policy.

“In contrast, the Truck policy at issue here explicitly defines actual cash value in a manner congruent with Gilderman: 'Actual cash value—means the reasonable replacement cost at time of loss less deduction for depreciation and both economic and functional obsolescence,'” Panella said. “Also congruent with Gilderman, the policy promises to pay GCOP 'only … if it is reasonably likely that the services of general contractor will be required to manage, supervise and coordinate the repairs.' As highlighted above, the policy then precludes GCOP from actual cash value settlements 'unless and until [the insured] actually incur[s] and pay[s]'.”

James Haggerty of Haggerty, Goldberg, Schleifer & Kupersmith represents Kurach and said he was pleased the Supreme Court decided to tackle the issue.

“The case is important because it addresses efforts of some insurers to reduce payments for property losses under policies in Pennsylvania,” Haggerty said. “The Supreme Court has not previously addressed the issues and we're hoping the court will consider the positions and determine that the carriers' withholding of overhead is improper.”

Robert Feltoon of Conrad O'Brien represents Truck Exchange.

“The unanimous Superior Court decision was penned by Judge Panella who authors many cases dealing with insurance issues,” Feltoon said in an email. “We believe Judge Panella correctly analyzed and applied the relevant cases and there is no 'binding precedent' to the contrary that would lead the Supreme Court to reverse.”