Kane v. State Farm Fire and Cas. Co.

• Decision Date: 22 December 2003
• Citation: 841 A.2d 1038
• Parties: William KANE and Dorothy Kane, his wife, William Mellinger, Noel Weiss, Michael Foster and Merrilee Foster, his wife, Keith McCall, Epiphaniana Beckham, Adnan Jaffar, Michael Raffaele and Margaret Muller, Vincent Carcia and Christine Carcia, his wife, James Miller and Elizabeth Miller, His Wife, on their own behalf and as representatives of similarly situated persons, Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, Allstate Insurance Company, Metropolitan Property and Casualty Insurance Company, Ace American Insurance Company, Ace Fire Underwriters Insurance Company, Markel American Insurance Company, One Beacon Insurance d/b/a Pennsylvania General Insurance Company, Keystone Insurance Company and Erie Insurance Company, Appellees.
• Court: Pennsylvania Superior Court

841 A.2d 1038

William KANE and Dorothy Kane, his wife, William Mellinger, Noel Weiss, Michael Foster and Merrilee Foster, his wife, Keith McCall, Epiphaniana Beckham, Adnan Jaffar, Michael Raffaele and Margaret Muller, Vincent Carcia and Christine Carcia, his wife, James Miller and Elizabeth Miller, His Wife, on their own behalf and as representatives of similarly situated persons, Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, Allstate Insurance Company, Metropolitan Property and Casualty Insurance Company, Ace American Insurance Company, Ace Fire Underwriters Insurance Company, Markel American Insurance Company, One Beacon Insurance d/b/a Pennsylvania General Insurance Company, Keystone Insurance Company and Erie Insurance Company, Appellees.

Superior Court of Pennsylvania.

Argued May 22, 2003.

Filed December 22, 2003.

Reargument Denied March 3, 2004.

Jonathan Wheeler, Philadelphia and Joseph A. Zenstein, Jenkintown, for appellants.

Mark J. Levin, Philadelphia, for Allstate.

Moira C. Duggan, Philadelphia, for Keystone Insurance.

Before: TODD, GRACI, and TAMILIA, JJ.

TODD, J.

¶ 1 In this class action,¹ Appellants, who are home owner's insurance policy holders and who have sued on their own behalf and as representatives of classes of similarly situated persons, ask us to review the order entered in the Berks County Court of Common Pleas sustaining the preliminary objections in the nature of a demurrer filed by the Appellee insurers. We affirm in part, reverse in part, and remand.

¶ 2 As this appeal comes to us following the sustaining of preliminary objections against Appellants, the following background is gleaned from Appellants' amended complaint.² Appellants have "replacement cost" home owner's insurance policies, separately and variously, with Appellees State Farm Fire and Casualty Company ("State Farm"), Allstate Insurance Company ("Allstate"), Metropolitan Property and Casualty Insurance Company ("Metropolitan"), Ace American Insurance Company ("Ace American"), Ace Fire Underwriters Insurance Company ("Ace Fire"), Markel American Insurance Company ("Markel"), One Beacon Insurance d/b/a Pennsylvania General Insurance Company ("One Beacon"), Keystone Insurance Company ("Keystone"), and Erie Insurance Company ("Erie"). Each of Appellants have suffered partial physical losses to buildings covered under their respective policies.

¶ 3 At the core of this present dispute is the meaning of the phrase "actual cash value," as used and, to varying degrees, defined in the replacement cost policies at issue. Appellants assert that they have not received full indemnification under their insurance policies with Appellees for their partial losses because Appellees have deducted depreciation from the actual cost to repair or replace the damaged portion of their buildings. Appellants contend that, under Pennsylvania law, unless the phrase "actual cash value" is specifically defined in an insurance policy to include depreciation, depreciation is not to be included, and a policy holder is entitled to repair/replacement cost. They assert that the definition of "actual cash value" in the policies issued by Appellees lacks the necessary specificity, and that, as a result, Appellees breached their contracts with Appellants by failing to proffer repair/replacement costs.

¶ 4 Appellees, on the other hand, assert that the issue is one of timing: they do not dispute Appellants' entitlement to replacement cost coverage, but, rather, assert that the policies specify that Appellants must first undertake to repair or replace the damaged property before being fully compensated. Until the damage is repaired or replaced, Appellees assert that, given the definition and usage of the phrase "actual cash value" in the respective policies, Appellants are entitled only to repair/replacement cost minus depreciation.

¶ 5 Challenging Appellees' practice of deducting depreciation from Appellants' loss settlements, Appellants brought suit alleging breach of contract, insurance bad faith under 42 Pa.C.S.A. § 8371, and violation of the Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. § 201-1 et seq. As noted, Appellants brought this suit as a class action, on their own behalf and as representatives of classes of similarly situated persons in Pennsylvania.

¶ 6 Following the filing of Appellants' amended complaint, Appellees filed preliminary objections in the nature of a demurrer to each of Appellants' causes of action, asserting, inter alia, that given the language of the policies at issue, Appellants had failed to allege a breach of contract.

¶ 7 On November 18, 2002, the trial court granted the preliminary objections, finding that under the policy language and Pennsylvania caselaw, Appellants had failed to allege claims for breach of contract. The court rejected Appellants' arguments that the phrase "actual cash value" could never include depreciation under Pennsylvania law, and that, as used and defined in their respective policies, the phrase did not include depreciation. Thus, the court concluded that under the policies, Appellees were not required, in the first instance, to proffer repair or replacement costs without depreciation. For related reasons, the trial court found that Appellants had failed to allege claims for bad faith and a violation of the UTPCPL. Accordingly, the court dismissed Appellants' amended complaint. (Trial Court Order, 12/18/02.)

¶ 8 Appellants appealed this determination, and now ask: "Is an insurance company permitted to withhold depreciation from a policyholder's actual cash value payment from partial losses where the phrase `actual cash value' is not defined in the insurance policy or where the insurance policy states that there may be a deduction for depreciation when determining actual cash value?" (Appellants' Brief at 3.)

¶ 9 Our review of an order sustaining preliminary objections is plenary. Sunbeam Corp. v. Liberty Mut. Ins. Co., 740 A.2d 1179, 1183 (Pa.Super.1999). We will sustain the demurrer only if, assuming the material facts pled in the complaint to be true, "plaintiff has failed to assert a legally cognizable cause of action." Id. When considering the grant of preliminary objections in the nature of a demurrer, this Court must "resolve the issues solely on the basis of the pleadings; no testimony or other evidence outside the complaint may be considered." Mellon Bank, N.A. v. Fabinyi, 437 Pa.Super. 559, 567-68, 650 A.2d 895, 899 (1994) (citation omitted). Any doubt as to the legal sufficiency of the complaint should be resolved in favor of overruling the demurrer. 220 Partnership v. Philadelphia Electric Co., 437 Pa.Super. 650, 654, 650 A.2d 1094, 1096 (1994). ¶ 10 Further, to support a claim for breach of contract, "a plaintiff must plead: 1) the existence of a contract, including its essential terms; 2) a breach of a duty imposed by the contract; and 3) resultant damage." Presbyterian Medical Center v. Budd, 832 A.2d 1066, 1070 (Pa.Super.2003). There is no dispute in this case that elements one and three have been pled sufficiently. At issue, therefore, is whether Appellants have pled sufficiently a duty on the part of Appellees.

¶ 11 Whether a contract imposes a duty is a matter of contract interpretation. In turn, interpretation of an insurance contract is a matter of law. Madison Const. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 606, 735 A.2d 100, 106 (1999). Our standard of review, therefore, is plenary. Young v. Equitable Life Assurance Soc'y of the United States, 350 Pa.Super. 247, 252, 504 A.2d 339, 341 (1986). In interpreting the language of an insurance policy, the goal is "to ascertain the intent of the parties as manifested by the language of the written instrument." See Madison, 557 Pa. at 606, 735 A.2d at 106. Indeed, our Supreme Court has instructed that the "polestar of our inquiry ... is the language of the insurance policy." Id.

¶ 12 Furthermore, when construing a policy, "[w]ords of common usage ... are to be construed in their natural, plain and ordinary sense ... and we may inform our understanding of these terms by considering their dictionary definitions;" where "the language of the [policy] is clear and unambiguous, a court is required to give effect to that language." Id. at 606-608, 735 A.2d at 106-108 (citations omitted). However, "[w]here a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement." Id. at 606, 735 A.2d at 106. Thus, while a court will not "distort the meaning of the language or resort to a strained contrivance in order to find an ambiguity", it must find that "contractual terms are ambiguous if they are subject to more than one reasonable interpretation when applied to a particular set of facts." Id.

¶ 13 We begin by reviewing the relevant language of the policies at issue. Each of the policies is a replacement cost policy, but each, Appellees assert, requires the insured first to endeavor to repair or replace damage before full replacement costs will be proffered. The policies refer to "actual cash value" as the compensation that will be provided until repairs are completed, and, to varying degrees, the policies define "actual cash value" as including a deduction for depreciation. In order to facilitate our analysis of these policies, we break them into three groups. In the first group, comprised of the State Farm, Keystone, Ace American, and One Beacon policies, the policies are silent as to the definition of "actual cash value." In relevant part, the State Farm policy provides:

a. We will pay the cost to repair or replace ... subject to the following:

(1) until actual repair or replacement is completed, we will pay only the actual cash value at the time of the loss of the damaged part of the property ...;

(2) when the repair or the replacement is actually completed, we will pay the covered...