Burton v. Republic Ins. Co.

Decision Date16 March 2004
Citation845 A.2d 889
CourtPennsylvania Superior Court
PartiesJeffrey David BURTON and Terri L. Burton, on Behalf of Themselves and All Others Similarly Situated, Appellants, v. REPUBLIC INSURANCE COMPANY, Appellee.

Ellen M.M. Doyle, Pittsburgh, for appellant.

Bryan J. Smith, Pittsburgh, for appellee.

BEFORE: JOYCE, TODD and BOWES, JJ.

OPINION BY BOWES, J.:

¶ 1 Appellants, Jeffrey and Terri Burton, appeal on behalf of themselves and others similarly situated from the judgment entered on the verdict on October 22, 2002, after the trial court, sitting without a jury, found in favor of Appellee, Republic Insurance Co. We affirm.

¶ 2 Appellee is licensed to sell homeowners' insurance within Pennsylvania, and it sold a homeowners policy with a personal property endorsement to Appellants. On October 28, 1993, Appellants suffered a substantial loss to their home and personal property as a result of a fire at their residence. Appellee estimated the cost to repair the home at $114,924.70, and after deducting depreciation of $14,051.02, it paid Appellants $100,219, representing the actual cash value of the repairs. Once Appellants completed the repairs, Republic paid an additional $11,709.37 reflecting the withheld depreciation. Appellants did not repair certain items contemplated in the estimate and performed additional construction without authorization. Since the finished home strayed from the specifications in the estimate, Appellee retained the $2,341 balance. Notwithstanding the alterations, Appellants assert that they are entitled to the $2,341 balance under the terms of the insurance policy.

¶ 3 In addition, Appellants submitted a personal property claim with an extensive inventory of damaged property. Appellee issued $49,785.25 on the claim, the actual cash value of the property loss, and withheld the depreciated value. After Appellants provided Appellee with supplemental information, Appellee paid an additional $4,504.11. Appellants assert that Appellee improperly continued to withhold $979.82 for property that Appellants could not demonstrate they replaced with items of like kind and quality.

¶ 4 On October 26,1994, Appellants initiated this matter by filing a class action complaint against Appellee alleging that it had denied them the full benefit of property insurance coverage. On October 3, 1996, the court of common pleas certified this matter as a class action. The court defined the class as follows:

All Pennsylvania insureds with homeowners policies issued by Republic who have suffered a residential dwelling loss or a personal property loss on or after October 26, 1993[,] and who have been or are being denied the difference between the actual cash value of their residential or personal property and the replacement or repair cost or such property pending completion of the repair or replacement.

Trial Court Opinion, 10/03/96, at 1.

¶ 5 On April 12, 1999, the trial court granted partial summary judgment in favor of Appellee dismissing two counts of Appellants' complaint regarding unconscionable insurance contracts and the alleged breach of the duty of good faith and fair dealing. The court also denied Appellants' cross-motion for summary judgment. The case proceeded to a bifurcated trial on the remaining breach-of-contract claim, and on June 7, 2002, the trial court found that Appellee was not liable to the class members for additional benefits. This appeal followed.

¶ 6 Although articulated differently in Appellants' brief, the issues before this Court essentially are whether the terms of Republic's insurance policy concerning replacement costs are ambiguous or unconscionable, and whether Republic's practice of requiring claimants to replace the lost property with property of like kind constitutes a breach of contract.

¶ 7 As with all questions of law, our review of an insurance contract is plenary. Cresswell v. Pennsylvania National Mutual Casualty Insurance Co., 820 A.2d 172 (Pa.Super.2003). In interpreting the terms of an insurance contract, we examine the contract in its entirety, giving all of the provisions their proper effect. Riccio v. American Republic Insurance. Co., 550 Pa. 254, 705 A.2d 422 (1997). Our goal is to determine the intent of the parties as exhibited by the contract provisions. Standard Venetian Blind Co. v. American Empire Insurance Co., 503 Pa. 300, 469 A.2d 563 (1983). In furtherance of our goal, we must accord the contract provisions their accepted meanings, and we cannot distort the plain meaning of the language to find an ambiguity. Tyler v. Motorists Mutual Insurance Co., 779 A.2d 528 (Pa.Super.2001). Moreover, we will not find a particular provision ambiguous simply because the parties disagree on the proper construction; if possible, we will read the provision to avoid an ambiguity. Id.

¶ 8 Appellants level several arguments contending that the terms of the insurance policy and the personal property endorsement were ambiguous and therefore should be construed against Appellee. An ambiguous contract is one that is subject to two or more constructions. Gamble Farm Inn, Inc. v. Selective Insurance Co., 440 Pa.Super. 501, 656 A.2d 142 (1995). As Appellants note, we construe an ambiguous insurance provision against the insurer. Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Insurance Co., 825 A.2d 641 (Pa. Super.2003).

¶ 9 With these principles in mind, we examine the relevant portions of the insurance policy, which provide as follows:

Loss Settlement. Covered property losses are settled as follows:
....
b. Buildings under Coverage A or B at replacement cost without deduction for depreciation, subject to the following:
(1) If, at the time of the loss, the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of deductible and without deduction for depreciation, but not more than the least of the following amounts:
(a) The limit of liability under this policy that applies to the building;
(b) The replacement cost of that part of the building damaged for like construction and use on the same premises; or
(c) The necessary amount actually spent to repair or replace the damaged building.
....
(4) We will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement is complete, we will settle the loss according to the provisions of b.(1) and b.(2) above.

Homeowner Broad Form, at 8-9 (emphasis added). In addition, the personal property endorsement provides, in pertinent part, as follows:

Replacement Costs
The following loss settlement procedure applies to all property insured under this endorsement:
a. We will pay no more than the least of the following amounts:
(1) Replacement cost at the time of loss without deduction for depreciation;
(2) The full cost of repair at the time of the loss:
b. When the replacement cost for the entire loss under this endorsement is more than $500, we will pay no more than the actual cash value for the loss or damage until the actual repair or replacement is complete.
c. You may make a claim for loss on an actual cash value basis after the loss for any additional liability in accordance with this endorsement.

All other provisions of this policy apply.

Personal Property Endorsement, at 1 (emphasis added).

¶ 10 Appellants contend that the phrase "actual cash value" is ambiguous because the policy does not define it, and it otherwise lacks an accepted meaning outside of the insurance industry. Appellants further assert that although Appellee purportedly interprets the phrase to mean replacement cost minus depreciation, it attributes different meanings to the phrase when referring to claims for items that do not depreciate such as antiques and collectors' items.

¶ 11 Since the crux of Appellants' contention is that the insurance policy is ambiguous with respect to the deduction and withholding of depreciation until a claimant completes actual repair or replacement, our focus is not limited to the definition of a single phrase. Indeed, we cannot conclude that an isolated phrase is ambiguous simply because Appellee failed to define it specifically in the policy. See Riccio, supra

(insurance contract must be construed as a whole). Rather, we examine the policy in its entirety to determine whether it clearly, explicitly, and unambiguously conditions full replacement benefits upon the actual repair or replacement of the damaged property. We conclude that it does.

¶ 12 A routine reading of the policy and endorsement demonstrates that replacement benefits are conditioned upon complete repair or replacement. Section 3(b)(4) of the policy explains that Appellee "will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement is complete, we will settle the loss according to the provisions of b.(1) and b.(2) above [regarding replacement costs without deduction]." Homeowner Broad Form Policy, at 9 (emphasis added). The personal property endorsement contains language that parallels this provision. Hence, notwithstanding the divergent meaning of the phrase when applied to antiques and collectibles, when the aforementioned policy language is read in its entirety, it is clear and unambiguous. As the policy plainly sets forth the procedure for recovering replacement costs, a contrary construction is unreasonable.

¶ 13 Appellants also posit that the personal property endorsement is ambiguous because it contains conflicting promises. Specifically, Appellants assert that since the endorsement limits payment of claims in excess of $500 to actual cash value until the repair or replacement is complete, it conflicts with Appellees' previous promise to settle a property loss at replacement cost at the time of...

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