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Pellegrino v. State Farm Fire and Casualty Co.

United States District Court, Third Circuit

July 29, 2013

LOUIS PELLEGRINO, et al., Plaintiffs,
STATE FARM FIRE AND CASUALTY COMPANY, individually and on behalf of all other affiliated insurance companies, Defendant.


Mitchell S. Goldberg, J.

This case involves a somewhat atypical property insurance coverage dispute. The parties agree that a portion of both the siding and roof of Plaintiffs’ home suffered storm damage. The parties also agree that such damage constituted a covered loss under the controlling insurance policy. Plaintiffs Louis and Christine Pellegrino insist, however, that they are entitled to an actual cash value payment for both the damaged and undamaged portions of the roof and siding because State Farm determined that it was unable to replace the damaged property with “similar construction.”

Plaintiffs commenced this case as a class action against Defendant State Farm Fire and Casualty Company (“State Farm”), alleging that State Farm has developed a scheme to deprive its insureds of money owed to them under their homeowner’s insurance policies. In addition to demanding the depreciated value of the entire roof and all siding, Plaintiffs assert that State Farm’s practice of categorizing certain repairs as “Paid When Incurred” (“PWI”) constitutes a breach of contract (Count I), bad faith (Count II) and a violation of the Unfair Trade Practices and Consumer Protection Law’s catch-all provision, 73 P.S. 201-2(4)(xxi) (“UTPCPL”) (Count III).

Before the Court is State Farm’s motion to dismiss the amended class action complaint for failure to state a claim upon which relief can be granted. Oral argument on the motion was held on May 30, 2013, wherein several concessions were made and the parties’ positions were clarified. For the reasons stated below, State Farm’s motion will be granted.


The amended complaint alleges that on March 10, 2011, Plaintiffs’ home, located at 410 Tower Road, Sellersville, Pennsylvania, suffered storm damage. (Am. Compl. ¶ 11; Pls.’ Am. Resp., Doc. No. 12, p. 2.) At the time the damage occurred, Plaintiffs’ home was covered by a State Farm homeowner’s insurance policy. Plaintiffs submitted a claim for damages and State Farm determined that the damage was a “covered loss” under the terms and conditions of the policy. (Am. Compl. ¶¶ 11, 13-14.)

Plaintiffs hired Alliance Adjustment Group to compile an estimate of the cost to repair the damage. That estimate valued the total cost of repairs at $80, 443.13, which included the total replacement of the home’s roof and siding. (Id. at Ex. B; Pl.’s Am. Resp., p. 3.) State Farm obtained its own estimate, which concluded that covered damage occurred to small portions of the siding on three of the four sides of the house, as well as approximately thirty square feet of the roof. (Am. Compl., Ex. C.) State Farm’s estimate listed the “Total Amount of Claim If Incurred” as $43, 711.21. This estimate was divided into two categories: (1) $17, 091.58 to be paid to Plaintiffs up front as a net actual cash value payment;[2] and (2) $26, 619.63 to be “paid when incurred” by Plaintiffs. (Id. at Ex. C, p. 3.)

Although the term “paid when incurred” does not appear in the homeowner’s policy, the State Farm estimate defines it as follows:

Paid When Incurred (PWI) items refer to items which may not be necessary in the repair of your property damaged by a covered loss. If incurred, or contracted to be completed, reimbursement of reasonable costs will be made up to the maximum amounts identified as eligible for PWI in this estimate.

(Id.) Plaintiffs acknowledge that the roofing and siding amounts designated as PWI are amounts that would go toward the replacement of undamaged portions of siding and roofing.[3] Although State Farm asserts that it is not contractually obligated to pay for any undamaged portion of the property, State Farm has stated that it stands ready and willing to pay Plaintiffs for these PWI costs, as a matter of customer service, once Plaintiffs provide proof that they have contracted for the replacement of these undamaged portions of the home. (Hrg. Tr., pp. 10-11, 15.)

Plaintiffs respond that they are not obligated to contract for replacement of the siding and roof. Instead, Plaintiffs posit that under the language of the insurance policy and under Pennsylvania law, State Farm is required to pay them the actual cash value of the entire roof and siding because “State Farm determined that it could not replace the damaged portion of [P]laintiffs’ dwelling with products and/or materials that matched the color, size, and texture of the undamaged portions of [P]laintiffs’ dwelling.” Plaintiffs urge that State Farm’s “scheme” of unilaterally designating the amounts to replace undamaged portions of roofing and siding as PWI when State Farm determines it is unable to match these materials, constitutes a breach of contract, bad faith and violation of the UTPCPL. (Am. Compl. ¶¶ 20-21, 23.)

The pertinent policy provision states:

A1 – Replacement Cost Loss Settlement – Similar Construction

a. We will pay the cost to repair or replace with similar construction and for the same use on the premises shown in the Declarations, the damaged part of the property covered under SECTION I – COVERAGES, COVERAGE A – DWELLING, except for wood fences, 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, up to the applicable limit of liability shown in the Declarations, not to exceed the cost to repair or replace the damaged part of the property;
(2) when the repair or replacement is actually completed, we will pay the covered additional amount you actually and necessarily spend to repair or replace the damaged part of the property, or an amount up to the applicable limit of ...

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