London v. Insurance Placement Facility

703 A.2d 45

• Court: Superior Court of Pennsylvania
• Decided: November 10, 1997
• Docket: Nos. 01285, 01495
• Status: Published

Opinions

HUDOCK, Judge:

In this appeal, we are asked to decide whether the Insurance Placement Facility (Facility) should be permitted to depreciate the cost of repairs to a building when a policyholder under the Pennsylvania Fair Plan Act (Fair Plan)¹ sustains a loss by fire. Under the specific terms of these Fair Plan policies, we hold that the Facility may depreciate the cost of repairs. Therefore, we affirm in part, reverse in part and remand with instructions.

The pertinent facts and procedural history of this case can be summarized as follows: The Facility provided basic property insurance to each of the policyholders pursuant to the terms of the Fair Plan, which requires the Facility to provide such insurance against “loss to real or tangible personal property at a fixed location caused by perils defined and limited in the standard fire policy prescribed” in 40 P.S. section 636.² 40 P.S. § 1600.103(2). Specifically, the policies provided that:

IN CONSIDERATION OF THE PROVISIONS AND STIPULATIONS HEREIN OR ADDED HERETO, AND OF THE PREMIUM SPECIFIED in the Declarations or in endorsements made a part hereof, this Company, for the term of years specified in the Declarations ... at a location of property involved, to an amount not exceeding the limit of liability specified in the Declarations, does insure the Insured named in the Declarations and legal representatives, to the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after such loss....

See, e.g., Standard Dwelling Property Ins. Policy of Christina Walls, 04/07/93, at SFP-1 (emphasis added). Endorsements to the policies go on to define the term “actual cash value” in language identical or similar to the following:

In this policy ... “Actual Cash Value” means the cost to repair or replace the damaged property less deductions for physical deterioration (depreciation) and obsolescence.

See, e.g., Id. at DP-301 FP (emphasis added).

Each of the policyholders sustained a partial loss by fire to property covered by their respective policies with the Facility. While the parties agreed on the cost to repair the partially damaged properties, they disagreed as to whether the Facility should deduct depreciation from those costs. When the Facility deducted depreciation from the policyholders’ repair costs, the policyholders brought suit to recover the sums deducted. Additionally, they claimed that the Facility acted in bad faith. The Facility then filed a motion for summary judgment to which the policyholders filed a cross-motion for summary judgment.

The trial court granted summary judgment in favor of the policyholders on the depreciation issue and in favor of the Facility on the bad faith issue. The Facility then filed an appeal to this Court on the depreciation issue, and the policyholders cross-appealed on the bad faith issue. A three-member panel of this Court affirmed the trial court. We then granted reargument to review these issues.³

We first note our scope and standard of review. As this Court has noted:

When we review the grant of a motion for summary judgment made under Pa.R.C.P. 1035, the appellate court’s scope of review is well-settled: summary judgment is properly granted where “there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law.” Pa.R.C.P. 1035(b)[⁴] Summary judgment may be granted only where the right is clear and free from doubt. The moving party has the burden of proving that there is no genuine issue of material fact. The record and any inferences therefrom must be viewed in the light most favorable to the nonmoving party, and any doubt must be resolved against the moving party. The trial court will be overturned on the entry of summary judgment only if there has been an error of law or a clear abuse of discretion.

First Wis. Trust Co. v. Strausser, 439 Pa.Super. 192, 198, 653 A.2d 688, 691 (1995) (footnote added) (citations omitted).

Policyholders in the instant appeal urge upon us the argument that existing precedent disallows a deduction for depreciation in a partial loss situation where coverage is provided under a Standard Fire Policy (thereby placing Pennsylvania in a minority position among the states). They may be correct. See, e.g., Wendy Evans Lehmann, J.D., Annot., Depreciation as Factor in Determining Actual Cash Value for Partial Loss under Insurance Policy, 8 A.L.R.4th 534, 551-52. However, the narrow issue before us does not involve a Standard Fire Policy, but rather one issued under the Fair Plan, and that distinction is critical.

The rules of statutory interpretation in our Commonwealth require us to ascertain and effectuate the legislative intent underlying the enactment of a particular statute. 1 Pa.C.S.A. § 1921(a). Where the words of a statute are clear and free from ambiguity, the legislative intent is to be gleaned. from those very words. Where, however, the statute is unclear or susceptible of differing interpretations, the courts must look to the necessity of the act, the object to be attained, the circumstances under which it was enacted and any legislative or administrative interpretations thereof. Pennsylvania Fin. Resp. Assigned Claims Plan v. English, 541 Pa. 424, 429, 664 A.2d 84, 87 (1995).

As stated by our legislature, one of the purposes of the Fair Plan is “[t]o encourage maximum use, in obtaining basic property insurance, as defíned in this act, of the normal insurance market provided by the private property insurance industry.” 40 P.S. § 1600.102(2) (emphasis added). “Basic property insurance” is further defined as “insurance against direct loss to real or personal property ... caused by perils defined and limited in the standard fire policy.... ” 40 P.S. § 1600.103(2) (emphasis added).

The Fair Plan was enacted in 1968. It was written at the invitation of the federal government⁵ and designed as a response to the urban riots and social upheaval during the 1960s. The Plan requires each insurer that writes property insurance in this Commonwealth to participate in providing insurance for high-risk property for which insurance is not normally available. 40 P.S. § 1600.201(a).

This Court previously has had the opportunity to review the purposes of this legislation. At that time, we stated:

The Pennsylvania Fair Plan Act ... was enacted to make insurance coverage available to protect property for which basic property insurance was not available through the normal insurance market. It was also intended to create a reinsurance arrangement whereby the responsibility for insuring such properties would be shared by all insurance companies doing business in the Commonwealth.

Stallo v. Ins. Placement Facility of Pa., 359 Pa.Super. 157, 518 A.2d 827, 829 (1986), alloc. den., 515 Pa. 609, 529 A.2d 1082 (1987).

Considering the plain language of the statute, its purposes as enunciated by our legislature and the societal pressures that gave rise to its enactment and prior precedent, we cannot reach the conclusion that “basic property insurance” as used in the Fair Plan is the equivalent of a standard fire insurance (section 636) policy. Our legislature knew of section 636 and its interpretation when it wrote and enacted the Fair Plan. It could have chosen to define basic fire insurance as the section 636 policy. It did not. Instead, the legislature carefully defined the term as insurance against “perils defined and limited in the standard fire policy.” 40 P.S. § 1600.103(2). This definition references only a small portion of section 636, that which deals with defining and limiting perils. The limited reference to the standard fire policy should be given effect. The statute does not require more.

Ultimately, nothing in the language, purposes or history of the Act suggests that our legislature meant to require Fair Plan insurers to provide anything other than no-frills insurance for the benefit of those who could not otherwise obtain coverage.⁶ Analogizing to the ambit of automobile insurance, we would compare Fair Plan policies with Assigned Risk Plan⁷ policies. Both programs are designed to provide insurance to those persons who could not otherwise obtain it, due to the high-risk they represent. All insurers who write policies in the Commonwealth for auto or property are required by statute to participate in the Assigned Risk or Fair Plans, respectively. Finally, the risk of loss from these policies is then shared by all the insurers in the pool.

Similarly to the policyholders in the instant appeal, Assigned Risk Plan policyholders do not obtain “normal” auto insurance under the plan. They receive only very basic auto insurance. With the Assigned Risk Plan, the legislature intended to promote the limited public policy goal of all drivers having at least some auto insurance in the event of an unfortunate accident. Likewise, the Fair Plan is designed to provide property owners with some measure of insurance for their buildings. However, there is no evidence that the legislature intended for Assigned Risk or Fair Plan policies to be “standard” auto or “standard” property insurance policies. They provide basic, no-frills protection and nothing more.

Moreover, if the analysis urged by the policyholders were to be accepted, it would essentially provide Fair Plan policyholders with replacement cost coverage. This type of policy is considered to be nearly the best type of coverage because “[it] allows recovery for the actual value of property at the time of loss, without deduction for deterioration, obsolescence, and similar depreciation of the property’s value.” Gilderman v. State Farm Ins. Co., 437 Pa.Super. 217, 220, 649 A.2d 941, 943 (1994), quoting, Randy R. Koenders, J.D., Annot., Construction and Effect of Property Insurance Provision Permitting Recovery of Replacement Cost of Property, 1 A.L.R. 5th 817, 827-28 (1992) (emphasis added). Clearly, the benefits of a replacement cost coverage policy are greater, and thus cost more than those contemplated by a basic, no-frills Fair Plan policy. Since the result proposed by the policyholders would provide replacement cost protection to those who bought only basic coverage, it fails to comport with intrinsic ideas of fairness as well.

Given our determination that Fair Plan policies are not standard fire insurance policies under section 636, we apply the policies at issue in this appeal as written. In interpreting an insurance contract, we must ascertain the intent of the parties as manifested by the language of the written agreement. When policy provisions are clear and unambiguous, a court must give effect to the language used by the parties in the contract. Paylor v. Hartford Ins. Co., 536 Pa. 583, 585, 640 A.2d 1234, 1235 (1994); Steinbacher v. Page, 410 Pa.Super. 586, 587, 600 A.2d 608, 609 (1991). A court may not re-write an insurance contract, or construe clear and unambiguous policy language to mean anything other than what it says. Guardian Life Ins. Co. of America v. Zerance, 505 Pa. 345, 352, 479 A.2d 949, 953 (1984); Jeffrey v. Erie Ins. Exch., 423 Pa.Super. 483, 488, 621 A.2d 635, 638 (1993).

All of the Fair Plan policies at issue in this appeal were issued by the Facility. They promised to pay the “actual cash value of the property at the time of loss.” In all of the policies, “actual cash value” was further defined:

Actual Cash Value is the cost to repair or replace the damaged property less deduction for physical deterioration (depreciation) and obsolescence! ⁸]

The policyholders contend that this language prevents the Facility from deducting depreciation in the event of a partial loss to the property. We disagree.

The policy language at issue could not be any clearer. It plainly states that a deduction for depreciation will be taken either when an insured property is replaced or when it is repaired. In this context, “repair” can only mean work done to rehabilitate a building which has been damaged, but is not a total loss. Any other construction fails to effect the clear import of the contract terms. Therefore, we conclude that the parties’ unambiguous contract allows the Facility to depreciate partial losses. Thus, the trial court erred when it granted the policyholders’ motion for summary judgment on the depreciation issue.

Additionally, assuming arguendo that the policyholders are correct and the Facility cannot depreciate partial losses under the standard fire insurance policy, the definitional endorsements added to these policies by the Facility must be given effect. As our Supreme Court has stated:

The [insurance] companies prepare their own policy forms and presumably exclude therefrom anything for which they desire not to assume liability.

* * *

[I]f the [companies] wish to bring about a different result under circumstances similar to those present here, they will have to change the terms of their policies in order to achieve that end.

Farber v. Perkiomen Mut. Ins. Co., 370 Pa. 480, 486-88, 88 A.2d 776, 779-80 (1952). The Farber decision arguably prevents insurance companies from deducting depreciation in the event of a partial loss that does not exceed the depreciated value of the whole property. If the companies wanted to avoid such a result, the court plainly suggested that they should modify their policies.

As the endorsement defining “actual cash value” demonstrates, the Facility has done exactly what the Farber court advised. Presumably dissatisfied with the interpretation of “actual cash value” by the court, the Facility sought to define the phrase with greater precision.⁹ Especially when the high-risk associated with insuring property under the Fair Plan is considered, it is logical that the Facility would choose to protect itself with specific definitions of terms or phrases. Finally, it is an extremely unremarkable choice when one considers that our Supreme Court invited insurance companies to do this in Farber.

Having concluded that the Facility is permitted to depreciate partial losses under the terms of the Fair Plan policies before us, we must reject the policyholders’ allegation of bad faith. Therefore, we hold that the trial court properly entered summary judgment in favor of the Facility on the policyholders’ claim of bad faith. Accord, Alberici v. Safeguard Mut. Ins. Co., 444 Pa.Super. 351, 664 A.2d 110 (1995) (issues were complex and no bad faith shown).

Summary judgment in favor of the Facility on the bad faith claim affirmed. Summary judgment in favor of the policyholders on the depreciation issue reversed. Remanded with instructions to enter summary judgments in favor of the Facility. Jurisdiction relinquished.¹⁰

FORD ELLIOTT, J., files a Concurring and Dissenting Opinion.

SCHILLER, J., files a Concurring and Dissenting Opinion.

1 . 40 P.S. §§ 1600.101-1600.502.

2 . Hereinafter, 40 P.S. section 636 will be referred to as the “standard fire insurance policy.”

3 . The Facility claims the insureds did not preserve the bad faith issue for review on reargument. (Supplemental Brief for Appellant on the Cross-appeal of Appellees on Reargument at 4.) Because a grant of reargument entitles the parties to en banc de novo review of the issues raised on appeal, however, we disagree.

4 .Since the order from which the parties appeal was docketed March 20, 1995, old rule 1035(b) applied.

5 . See, Urban Property Protection and Reinsurance Act of 1968, Pub.L. No. 90-448, sec. 1103, § 1211(a), 82 Stat. 476 (codified at 12 U.S.C. § 1749bbb-3 (1997)).

6 . Accord, Wells v. Missouri Fair Plan, 653 S.W.2d 207, 212 (1983).

7 . 75Pa.C.S.A. §§ 1741 — 1747.

8 . As already noted, even if this language was not exactly the same in each policy, all policies contained substantially the same language.

9 . According to an affidavit submitted by the General Manager of the Facility, and uncontradicted by insureds, the Facility submitted for approval to the Insurance Department of Pennsylvania the endorsement at issue here, pursuant to 40 P.S. section 477b, requiring the Department’s approval of all endorsements to fire insurance policies and 40 P.S. section 1600.206 requiring the operation of the Facility at all times be subject to the supervision and regulation of the Insurance Commissioner. The Pennsylvania Insurance Department approved these endorsements, effective July 1, 1992.

10 . In her concurring and dissenting opinion, our colleague Judge Ford Elliott suggests that the Farber decision invited the insurance companies to lobby the General Assembly for a change in the standard fire insurance policy, and not, as we suggest, to change the language of their existing policies. The plain language of Farber invites the insurance companies to change the terms of their policies if they dislike the result in that case. "[I]f the [companies] wish to bring about a different result ... they will have to change the terms of their policies in order to achieve that end.” Farber, 88 A.2d at 780.

In his concurring and dissenting opinion, Judge Schiller states that the premium payments of the insureds did not decline as the value of the properties depreciated. Thus, he concludes that the Facility either covered the properties up to the full policy limits in a partial loss situation or collected excess premiums. Our careful review of both the certified record and the parties’ briefs discloses no support for this claim.