Use of General Contractor Overhead and Profit (GCOP) in determining Actual Cash Value benefits under insurance policy affording replacement coverage
Kurach v. Truck Insurance Exchange; Wintersteen v. Truck Insurance Exchange, 2018 WL 4041707 (Pa. Super. 2018) (unreported), allocatur granted May 29, 2019, appeal dockets 12 and 13 EAP 2019.
The Pennsylvania Supreme Court granted allocatur in this case to consider whether General Contractor Overhead and Profit (GCOP) should be excluded when determining the actual cash value benefits under property insurance policies affording replacement coverage.
Konrad Kurach and Mark Wintersteen purchased homeowner’s insurance from Truck Insurance Exchange (Truck). Kurach and Wintersteen each filed a claim with Truck Insurance Exchange, which was covered under their respective policies, for water loss damages. When reviewing the claims, Truck determined that general contractor services would be necessary to repair the damaged property. Instead of repairing the damaged property, Kurach and Wintersteen pursued the alternative remedy provided by the policy of an actual cash value settlement. During these calculations, Truck excluded the GCOP pursuant to the policy, which provided 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.” Slip Op. at 7.
Kurach and Wintersteen filed putative class actions alleging Truck’s omission of estimated contractor overhead and profits from property damage settlements was improper based on Gilderman v. State Farm Insurance Company, 649 A.2d 941 (Pa. Super. 1994) in which Superior Court defined “actual cash value” in a policy as including the actual cost of replacement.. Truck argued the policy explicitly excluded GCOP from the calculation and that there is no positive Pennsylvania law overriding the definition in the policy. The trial court granted summary judgement in favor of Kurach and Wintersteen, agreeing that estimated general contractor overhead costs and profit should be included in settlements paid to settle damage claims filed by homeowners. Truck appealed to Superior Court.
Superior Court disagreed with Kurach and Wintersteen’s argument that the definition of actual cash value set forth in Gilderman could overcome explicit exclusionary language in a policy, explaining:
[In] Gilderman v. State Farm Insurance Company, 649 A.2d 941 (Pa. Super. 1994), the parties fought over the definition of actual cash value in a homeowner’s policy. “Actual cash value [was] not defined in the policy.” Id., at 943 (quotation marks omitted). The panel observed that the term had been “consistently … interpreted as meaning the actual cost of repair or replacement less depreciation.” Id. (citation and quotation marks omitted).
Importantly, the panel did not address the issue of public policy. See id., at 944. Rather, the panel addressed the issue of what the insurer “agreed to pay to its insureds[.]” Id., at 945. And concluded that 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. Id. Under this definition, actual cash value would sometimes include GCOP, given that it would sometimes be reasonably likely. See id.
However, Gilderman does not set forth binding Pennsylvania law defining how actual cash value is calculated. It defined the term in the absence of any definition in the policy itself, and thus analyzed the intent of the parties.
Slip Op. at 7-8 (footnote omitted). Having found that Gilderman is not binding precedent for calculating actual cash value, because it only defines the term when the policy lacks a definition by looking at the intent of the parties, Superior Court applied Kane v. State Farm Fire and Casualty Co., 841 A.2d 1038 (Pa. Super. 2003), in which Superior Court held that explicit policy language could overcome definitions established by case law. Superior Court held that insurance policies may explicitly exclude GCOP from actual cash value settlements and there is no policy under Pennsylvania law that requires including GCOP in actual cash value settlements, concluding:
As recognized in Kane, the definitions supplied by case law in Pennsylvania demonstrate the parties’ intent only where the policy does not explicitly provide for a different outcome. Here, Truck’s policy clearly and obviously provides that GCOP will not be paid to an insured until the insured actually incurs that cost. Thus, we conclude the trial court erred as a matter of law in granting summary judgment to Kurach and Wintersteen
The Supreme Court will decide the following 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?