In Papurello v. State Farm Fire & Casualty Company, the insureds brought individual and class-wide claims for breach of contract and bad faith against an insurer for paying initial amounts under homeowners’ insurance policies determined by a two-step procedure, under which the insurer made a payment under the first step equal to the amount of estimated replacement costs of materials, taxes, and labor less depreciation.
Specifically, the insureds alleged on behalf of a putative class of Pennsylvania homeowners that: “(i) the insurer breached a contractual duty imposed by the express Policy term “actual cash value”; or (ii) in the alternative, the insurer breached the implied contractual duty of good faith and fair dealing in the policy.”
In support of their argument that the insurer violated the policy’s implied duty of good faith and fair dealing, the insureds claimed that the policy did not specify whether the insurer may subtract depreciation from the estimated replacement costs, and that by subtracting depreciation, the insurer “knowingly” and “intentionally” frustrated their reasonable expectations that the actual cash value would not be altered in any way.
The court rejected this argument, and reasoned that the policy language was not confusing, misleading, or ambiguous in providing that the insureds “must first endeavor to repair or replace before receiving full replacement cost” from the insurer. In addition, the court noted that the two-step loss settlement provision was set forth conspicuously in the policy. Consequently, the insureds’ class-wide breach of contract bad faith claim was dismissed.
The court also found that the insureds failed to state plausible class-wide statutory bad faith claims, and noted that the success of the statutory bad faith claim was contingent upon a finding that the insurer’s payment procedure constituted a breach of contract with respect to putative class members.
However, the court found that the insureds did state a plausible individual statutory bad faith claim against the insurer because the parties disputed whether the insurer had a reasonable basis upon which to deny the insureds benefits under the policy.
Date of Decision: November 16, 2015
Papurello v. State Farm Fire & Cas. Co., Civil Action No. 15-1005, 2015 U.S. Dist. LEXIS 154356 (W.D. Pa. November 16, 2015) (Conti, J.)