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Harold G. Seto and Rosemary Seto v. State Farm Insurance Company

January 11, 2012


The opinion of the court was delivered by: Terrence F. McVerry United States District Court Judge


Pending before the Court is the MOTION FOR PARTIAL SUMMARY JUDGMENT filed by Defendant, State Farm Insurance Company ("State Farm") (Document No. 28). The motion has been thoroughly brief by both State Farm and Plaintiff, Harold G. Seto and Rosemary Seto (Document Nos. 29, 32, and 34). The parties have fully stated their respective positions regarding the Concise Statement of Material Facts and have submitted numerous exhibits (Document No. 30, 31, and 33). The motion is ripe for disposition.


This is an insurance coverage case in which Plaintiffs allege breach of contract and bad faith under 42 Pa. C.S.A. § 8371. The case arises out of two fires of undetermined cause that occurred in Plaintiffs, Harold G. Seto and Rosemary Seto (the "Setos") home on December 24, 2008 and March 2, 2009. At the time of the fires, Plaintiffs maintained a homeowner's insurance policy issued by State Farm. The policy included coverage for the Setos' dwelling, personal property, and additional living expense ("ALE"). Plaintiffs contend that State Farm has not fully compensated them for the loss arising from the two fires that destroyed their home.

On December 25, 2008, one day after the first fire, a State Farm representative spoke with Mr. Seto, who advised that the fire marshal was investigating the cause of the fire. During the conversation, the State Farm representative authorized a hotel stay for the Setos and advised Mr. Seto to save all receipts, including those for clothing and toiletries. On December 26, 2008, Justin Sullivan ("Sullivan"), the State Farm Claim Representative who handled the Setos' claim submissions under their homeowner's insurance policy, retained an origin and cause expert to inspect the Setos' property. On December 28, 2008, Sullivan met with Mr. Seto and completed an initial inspection. At that meeting, Sullivan explained coverage under the policy and issued an advance. According to Sullivan, as a result of this initial inspection, he made the following determinations:

"a. All contents were damaged beyond cleaning.

b. The structure had been partially destroyed and suffered extension (sic) framing damage. The estimated period of repair was eight months.

c. Housing would be set up through "ALE solutions." In the interim, the Setos' hotel bills would be paid under coverage for Additional Living Expense ("ALE")."

Sullivan Affidavit, at ¶ 5.

On December 29, 2008, Sullivan spoke with the origin and cause expert retained by State Farm. The expert advised Sullivan that the cause of the fire was undetermined and that Christmas lights may have caused the fire.

On January 27, 2009, within a month of beginning its investigation and review, State Farm issued the Setos a draft in the amount of $116,321.67, which represented the actual cash value ("ACV") for the damages to their dwelling. Contemporaneously with sending the payment for the damages to the dwelling, State Farm also sent the Setos an estimate which itemized damages, replacement costs, and ACV.

After the first fire, the Setos hired Mihalko's General Contracting, Inc. to perform a damage appraisal. Brian Mrozek performed the appraisal on behalf of Mihalko's, and his estimate set replacement cost value ("RCV") at $208,061.01. On February 23, 2009, Mrozek sent his estimate to Sullivan of State Farm, which was $50,000 higher than State Farm's estimate. That same day, Sullivan called Mr. Seto and explained that he would review the Mihalko's estimate, and would get back to him the following week.

One week later, on March 2, 2009, a second fire occurred, which totally destroyed the Setos' home. The second fire appeared to be incendiary. After the second fire, State Farm referred the Setos' claim to its Special Investigative Unit (the "SIU"). Ultimately, the SIU's investigation did not reveal the origin and/or cause of the second fire and the referral to SIU for the second fire was closed.

State Farm thereafter prepared an estimate for the additional damages caused as a result of the second fire. On May 4, 2009, State Farm issued to the Setos a draft in the amount of $43,635.02 along with a copy of its estimate.

On August 15, 2009, the Setos acquired a second estimate from Mihalko's for the total damage caused to their dwelling by the two fires. This estimate, however, was not given to State Farm until after this lawsuit had been filed.*fn1

On November 20, 2009, the parties settled the property loss portion of the claims by virtue of State Farm issuing to the Setos a check in the amount of $157,717.00. State Farm had previously advanced $2,500.00 to the Setos. State Farm also paid ALE benefits totaling $30,425.01.

On December 9, 2009, the Setos filed a Praecipe for Writ of Summons in the Court of Common Pleas of Fayette County, Pennsylvania. On December 22, 2009, State Farm was served with the Praecipe for Writ of Summons. On March 24, 2010, State Farm was served with the Complaint.*fn2 Prior to the Setos filing suit, State Farm had paid total benefits, for the two fires combined, equal to $355,098.70. On March 15, 2011, State Farm issued a supplement ACV payment to the Setos in the amount of $29,000.00 based upon its review of the Mihalko's second estimate.

From April 2009 to February 2010, the Setos resided in Florida. The Setos have sold their fire-damaged property to a gas company for $15,000.00.

The Setos are claiming that State Farm engaged in bad faith conduct in three ways:

1. In engaging in unreasonable delay in responding to the second ...

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