Appeals court dismisses class action against State Farm

By Kyla Asbury | Jun 6, 2014

PHILADELPHIA, Penn. (Legal Newsline) - The U.S. Court of Appeals for the Third Circuit has ruled that a district court property dismissed a breach of contract class action against State Farm.

Louis Pellegrino and Christine Pellegrino's breach of contract claim, on behalf of themselves and all others similarly situated, was dismissed after the appeals court ruled that the U.S. District Court for the Eastern District of Pennsylvania properly dismissed the claim in 2013, according to the June 2 opinion.

Circuit judges Marjorie O. Rendell, D. Brooks Smith and Thomas M. Hardiman voted in the majority, with Smith authoring the opinion.

"For...the reasons advanced by the district court, we agree that neither the contract nor state law imposes a duty upon State Farm to pay the cost of full replacement of the Pellegrinos' roof and siding as part of the 'Actual Cash Value Payment,'" the opinion states.

On March 10, 2011, the Pellegrinos, who had a homeowners insurance policy from State Farm, suffered storm damage to their home, including damage to small portions of their roof and three faces of siding.

At the Pellegrinos' request, State Farm provided an estimate for the damage, which listed a replacement cost value of $27,105.77, and included the cost to replace the damaged portions of the Pellegrinos' roof and siding. It did not include the cost to replace the entire roof and siding.

In State Farm's estimate, there was a section called "Maximum Additional Amounts Available If Incurred," which listed a "Total Amount of Claim if Incurred" of $43,711.21.

"This value includes...the cost to replace the Pellegrinos' entire roof and three entire faces of siding," according to the opinion. "The cost of full replacement is classified as a 'Paid When Incurred (PWI)' item."

The Pellegrinos claimed the term "paid when incurred" did not appear in the insurance policy, but was defined on this summary page as "items, which may not be necessary to the repair of your property damaged by a covered loss."

After receiving this estimate, the Pellegrinos chose not to undergo a full roof and siding replacement and seek reimbursement from State Farm. Instead, they filed a complaint in the Philadelphia Court of Common Pleas, alleging that State Farm was required to pay them the cost of a full roof and siding replacement as part of the "Actual Cash Value Payment," regardless of whether these repairs were actually made.

The complaint alleged that State Farm had determined that it was contractually obligated to replace the entire roof and the siding on three faces of the house because a partial repair could not be completed with "matching" materials.

Despite this determination, the Pellegrinos argued, State Farm imposed an impermissible precondition to reimbursement by designating full-replacement costs as "PWI" and deducting them from the "Actual Cash Value Payment."

State Farm removed the action to the United States District Court for the Eastern District of Pennsylvania and moved to dismiss the complaint for failure to state a claim.

The Pellegrinos amended their complaint on May 15, 2012, alleging that State Farm's refusal to pay them the full actual cash value of their loss constituted a breach of contract, bad faith, and a violation of the Unfair Trade Practices and Consumer Protection Law

On July 29, the district court granted State Farm's motion to dismiss the amended complaint and held that "there is no duty upon State Farm, either within the contract or derived from Pennsylvania law, to provide its insureds with matching costs on an actual cash value basis prior to repair or replacement."

The appeals court noted that State Farm agreed to pay the costs of the repairs once they were contracted to be completed, so the Pellegrinos would not be burdened with the obligation of paying for the repairs up front.

"We also agree that allowing the Pellegrinos to recover the cost of replacing their entire roof and siding when they had no intention of undertaking these repairs would result in a 'windfall' and produce 'absurd results,'" the opinion states.

"Accordingly, we conclude that the district court properly dismissed the Pellegrinos' breach of contract claim," the opinion states. "Because the Pellegrinos' bad faith and UTPCPL claims require proof that State Farm breached its contract, we conclude that the district court properly dismissed these claims as well."

U.S. Court of Appeals for the Third Circuit case number: 13-3571

From Legal Newsline: Kyla Asbury can be reached at classactions@legalnewsline.com.

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