Auman et al vs. Erie Insurance No. 2011-00922

Civil Action-Law-Motion for Partial Summary Judgment-Interpretation of Insurance Policy-Ambiguous Language Construed in Favor of Coverage-Loss of Residence due to Fire-Automatic Adjustment of Coverage Clause-Amount of Insurance on Declarations Page-Reasonable Expectations of the Insured

1. Plaintiffs, whose home severely was damaged in a residential fire, filed a Motion for Partial Summary Judgment based upon interpretation of their homeowners’ insurance policy.

2. Plaintiffs asserted that they were entitled to full replacement cost of their residence of $200,000.00 under an Automatic Adjustment of Coverage clause of their homeowners’ insurance policy, while Defendants contended that the Plaintiffs were entitled to the amount of insurance reflected on the Declarations page of the policy of $150,500.00.

3. Under Pa.R.C.P. Rule 10352, a party may move for summary judgment in whole or in part when the evidentiary record establishes that the moving party is entitled to judgment as a matter of law.

4. Interpretation of an insurance policy is a question of law for the Court to which the rules of contract interpretation are applicable. In interpreting an insurance policy, the Court must ascertain the intent of the parties as manifested by the language of the written policy. The reasonable expectations of the insured serve as a focal point in interpreting the language of an insurance policy.

5. When policy language of an insurance policy is clear and unambiguous, the Court must give effect to the language of the policy. However, an ambiguity in the language of the policy will be construed in favor of coverage. A provision of an insurance policy is ambiguous if reasonably intelligent persons, considering the policy as a whole, honestly could differ as to its meaning when applied to the facts at issue. Since words that are unambiguous in one context may become susceptible to more than one interpretation when applied to a particular set of facts, it is incumbent that the insurance company, as drafter of the policy, delineate as precisely as possible the full extent of coverage or bear the consequences of failing to do so.

6. In this case, the Automatic Adjustment of Coverage clause indicated that it provided “…a guard against the effect of inflation in construction costs…” and that “…if for any reason other than inflation or construction costs, the amount of insurance…becomes inadequate, the amount of insurance shown on the Declaration will be the full amount available…”

7. The Court found that the language of the insurance policy was ambiguous when the Automatic Adjustment of Coverage clause was read in conjunction with the Declarations page of the policy, as a reasonable reading of the above-stated language of the Automatic Adjustment of Coverage clause suggests that the Defendants would keep track of construction costs and the rate of inflation and would adjust the amount of coverage for the Plaintiffs’ residence if it appeared that the amount of coverage might be insufficient to compensate the Plaintiffs for a total loss of their home for the rate of inflation or construction costs. The Court held that the language of the Automatic Adjustment of Coverage clause was not in conflict with the language of the Declarations page, which language also inferred that the Plaintiffs would be compensated with that amount if any rise in replacement cost of their residence was due to something other than normal inflation or increased construction costs.

8. The Court explained that the Defendants came forward with no evidence indicating that the replacement cost of the claimant’s residence had increased due to some factor other than inflation or increased construction costs. As such, the Court found that the increased replacement cost must have been due to those factors and that the Plaintiffs were not limited to the $150,500.00 amount set forth in the Declarations page, as that amount represents the highest amount available only if that amount is due to a reason other than inflation and/or increased construction costs.

9. The Court also recognized that the Plaintiffs, who had purchased their residence in 1978 for $150,500.00, had paid increased premiums at nearly every renewal period since the purchase of the property. The Court indicated that the increased premium amounts over the years further supported the reasonableness of the Plaintiffs’ expectations under the policy that the increased premiums were related to increased coverage for their residence beyond the $150,500.00 reflected on the Declarations page of the policy.

10. The Court granted the Plaintiffs’ Motion for Partial Summary Judgment and held that the Plaintiffs were not limited to the $150,500.00 amount set forth in the Declarations page of the homeowners’ insurance policy.

L.C.C.C.P. No. 2011-00922, President Judge John C. Tylwalk, June 25, 2015.

Edward J. Coyle, Esquire, for Plaintiffs

Stephen I. Banko, Esquire, for Defendants Erie Insurance Exchange

Henry F. Canelo, Esq. for Defendants Consolidated Insurance Services, Inc.

IN THE COURT OF COMMON PLEAS OF LEBANON COUNTY

PENNSYLVANIA

CIVIL DIVISION NO. 2011-00922

WILLIAM F. AUMAN, JR., ET AL, CAROLE M. AUMAN, ET AL

v.

ERIE INSURANCE EXCHANGE, CONSOLIDATED INSURANCE SERVICES, INC.

ORDER OF COURT

AND NOW, this 25th day of June, 2015, upon consideration of Plaintiffs’ Motion for Partial Summary Judgment, Defendants’ Response thereto, the Briefs submitted by the parties, and Oral Argument, we construe the insurance policy at issue to provide full replacement cost coverage for the loss of Plaintiffs’ dwelling. Accordingly, the Motion is GRANTED. A hearing to determine that amount, in addition to any other issues relating to the amount of damages in this matter, will be scheduled upon the request of any party.

BY THE COURT:

JOHN C. TYLWALK, P.J.

APPEARANCES:

EDWARD J. COYLE, ESQUIRE FOR PLAINTIFFS

BUZGON DAVIS LAW OFFICES

STEPHEN I. BANKO, ESQUIRE

MARGOLIS EDELSTEIN FOR ERIE INSURANCE EXCHANGE

HENRY F. CANELO, ESQUIRE FOR CONSOLIDATED INSURANCE

WILSON, ELSER, MOSKOWITZ, SERVICES, INC.

EDELMAN & DICKER LLP

OPINION, TYLWALK, P.J., JUNE 25, 2015.

This matter involves the interpretation of a homeowner’s insurance policy issued by Defendant Erie Insurance Exchange (“Erie”). The insureds, Plaintiffs William F. Auman, Jr. and Carole M. Auman (“Aumans”) have filed a Motion for Partial Summary Judgment based upon the amount of coverage they are entitled to for the total loss of their home in a fire. Erie claims that the policy provided only for the amount of coverage set forth on the Declarations page of the policy, $150,500.00. The Aumans argue that they are entitled to the significantly higher replacement cost of the home. The parties have stipulated to the following pertinent facts for our resolution of this issue.

In April 1978, Plaintiffs purchased their home located at 720 Kimmerlings Road in Lebanon. Originally, they procured their homeowner’s policy through the local Erie insurance agent, Reist Insurance Agency (“Reist”). The initial policy period was from April 30, 1978 to April 30, 1979. The policy was renewed annually for ongoing additional terms of one year each through 2010.

The Declarations Page of the policy stated: “AUTOMATIC ADJUSTMENT OF COVERAGE WAS APPLIED TO DWLG.” (Exhibit “B” to Joint Stipulation of Facts) The policy also contained a provision labeled “Right and Duties – Conditions – Section I, paragraph (3) Automatic Adjustment of Coverage Amounts,” which states:

This policy provides you with a guard against the effect of inflation in construction costs.

We will keep track of costs and at the next policy period we will adjust the amount of your building coverage if necessary. Adjustments in other coverages (other Structures Coverage and Personal Property Coverage) will also be made proportionately. Your premium will be adjusted at each policy period to reflect any change in the amount of insurance.

During the policy period, if there is an increase in construction costs and a loss occurs, we will reflect the increase in the amount of insurance before making payment. There will be no charge for this additional coverage.

However, if for any reason other than inflation or constructions costs, the amount of your insurance on your home becomes inadequate, or if you made substantial improvement to your home and failed to notify us to increase the amount of your insurance, the amount of insurance shown on the Declarations will be the full amount available should a loss occur.

(Exhibit “A” to Joint Stipulation of Facts at p. 12) The policy also contained the following provision:

Section I – Property Protection Amount of Insurance Premiums

Dwelling $150,500 $199.00

On October 18, 2010, the Aumans’ home and its contents were severely damaged and/or destroyed by a fire. The Aumans submitted a claim for the loss to Erie seeking, in part, damages for the destruction of their dwelling. Erie paid the Aumans $150,500.00 for the loss to the dwelling pursuant to its own interpretation of the policy. However, the actual replacement cost of the dwelling related to the loss was in excess of $200,000.00. The Aumans claim that under the foregoing language of the policy, they are entitled to the replacement cost of the dwelling. Erie refused to pay the higher amount.

The parties seek judicial interpretation of the Automatic Adjustment of Coverage clause so that the Aumans’ claim may be finalized. Thus, we must determine whether, under the relevant language, the Aumans are entitled to the full replacement cost for their dwelling, or, as claimed by Erie, they are entitled only to the amount of insurance ($150,500.00) as shown on the Declarations page of the policy.

The Aumans contend that they understood that Erie would keep track of construction costs and inflation and adjust coverage for their residence accordingly so that they would receive full replacement coverage if their home was destroyed in a covered event. They understood this to be the case unless the replacement cost had increased for some reason other than inflation or increased construction costs, such as if they had made a substantial improvement to their residence without notifying Erie of the improvement. Thus, they believed that the amount indicated on the Declaration page ($150,500.00) was the total they would receive only if the shortfall was due to some other reason. Since they made no substantial improvement to their residence, they believed that the only other factors which made the amount indicated on the Declarations page inadequate are inflation and increased construction costs. They further believed that Erie had adjusted the amount of their coverage in consideration of those factors throughout the course of the policy.

In its Answer with New Matter to the Partial Motion for Summary Judgment, Erie states its belief that at the time of the initial purchase of this policy, the Aumans were offered two options regarding the amount and type of coverage for their dwelling by Reist. The first option was “Automatic No-Depreciation Settlement Plan (Guaranteed Replacement Cost Settlement)” and the second option was ‘Automatic Renewal Service (Replacement Cost Settlement Not Guaranteed).” Erie asserts that since the Aumans opted for the less costly “Automatic Renewal Service (Replacement Cost Settlement Not Guaranteed)” version of coverage, they received annual Renewal/Continuation/Declarations through April 30, 1984 which stated that the policy did not provide Automatic No-Depreciation Settlement. After April 30, 1984, all Policy Declarations issued by Erie to the Aumans indicated that “[C]overage is Provided Only If a Specific Amount of Insurance is Shown.” Erie argues that these facts, along with the language of the policy, establish that the Aumans are not entitled to full replacement cost of their dwelling.

Pursuant to Pa.R.C.P. No. 1035.2, a party may move for summary judgment when the evidentiary record reveals that the moving party is entitled to judgment as a matter of law:

Rule 1035.2. Motion

After the relevant pleadings are closed, but within such time as not to unreasonably delay trial, any party may move for summary judgment in whole or in part as a matter of law

(1) whenever there is no genuine issue of any material fact as to a necessary element of the cause of action or defense which could be established by additional discovery or expert report, or

(2) if, after the completion of discovery relevant to the motion, including the production of expert reports, an adverse party who will bear the burden of proof at trial has failed to produce evidence of facts essential to the cause of action or defense which in a jury trial would require the issues to be submitted to a jury.

Pa.R.C.P. No. 1035.2. The Note to Rule 1035.2 provides, in part that:

The evidentiary record may be one of two types. Under subparagraph (1), the record shows that the material facts are undisputed and, therefore, there is no issue to be submitted to a jury.

…

Under subparagraph (2), the record contains insufficient evidence of facts to make out a prima facie cause of action or defense and, therefore, there is no issue to be submitted to a jury. The motion in this instance is made by a party who does not have the burden of proof at trial and who does not have access to the evidence to make a record which affirmatively supports the motion. To defeat this motion, the adverse party must come forth with evidence showing the existence of the facts essential to the cause of action or defense.

Pa.R.C.P. No. 1035.2 – Note.

Summary judgment may be granted only in cases where the right is clear and free from doubt. Marks v. Tasman, 589 A.2d 205 (Pa. 1991). The moving party has the burden of proving the nonexistence of any genuine issue of material fact. Thompson Coal Co. v. Pike Coal Co., 412 A.2d 466 (Pa. 1979). The court is required to view the record in the light most favorable to the nonmoving party and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. Davis v. Pennzoil, 264 A.2d 597 (Pa. 1970).

Where the non-moving party bears the burden of proof on an issue, he may not merely rely on his pleadings or answers in order to survive summary judgment; rather, he must present depositions, affidavits, or other acceptable documents that show the existence of factual issues for the jury’s consideration. DeWeese v. Anchor Hocking Consumer and Indus. Products Group, 628 A.2d 421, 427 Pa.Super. 47 (Pa. Super.1993)

The interpretation of an insurance policy is a question of law for the court. Jefferson v. State Farm Insurance Companies, 551 A.2d 283 (Pa. Super. 1988). An insurance policy is a contract and the rules of contract interpretation apply. Miller v. Poole, 45 A.3d 1143 (Pa. Super. 2012). In interpreting an insurance policy, a Court must ascertain the intent of the parties as manifested by the language of the written agreement. Harleysville Insurance Companies v. Aetna Casualty and Surety Insurance Company, 795 A.2d 383, 386 (Pa. 2002), quoting Travelers Casualty and Surety Company v. Castegnaro, 772 A.2d 456, 459 (Pa. 2001). An insured’s reasonable expectations are the focal points in interpreting the language of an insurance policy. Winters v. Erie Insurance Group, 532 A.2d 885 (Pa. Super. 1987).

Words of common usage are to be construed in their natural, plain, and ordinary meaning. Kropa v. Gateway Ford, 974 A.2d 502, 508 (Pa. Super. 2009). When policy language is clear and unambiguous, the Court is required to give effect to the language of the contract. Harleysville Insurance Company, supra at 386. However, Pennsylvania courts will construe any ambiguity in favor of coverage. Kropa v. Gateway, 974 A.2d 502 (Pa. Super. 2009). A provision is ambiguous if reasonably intelligent persons, considering the policy as a whole, could honestly differ as to its meaning when applied to the facts at issue. An insurance policy is ambiguous if the terms are subject to more than one reasonable interpretation when applied to a particular set of facts. Id. At 508. “Because words which are unambiguous in one context may become susceptible to more than one interpretation when applied to a particular set of facts, it is incumbent upon the insurance company, as drafter of the policy, to delineate as precisely as possible the full extent of coverage or bear the consequences for failing to do so.” Techalloy Company, Inc. v. Reliance Insurance Company, 487 A.2d 820, 823-24 (Pa. Super. 1984).

We do find the language of the policy is ambiguous when the provision entitled “Automatic Adjustment of Coverage Amounts” in the “Rights and Duties – Conditions” section is read in conjunction with the Declarations page. Thus, we fully understand how the Aumans could interpret the language of the policy to mean that they would be covered for a higher amount than the figure stated in the Declarations page. The policy specifies that it provides “a guard against the effect of inflation in constructions costs” and that “if for any reason other than inflation or constructions costs, the amount of insurance … becomes inadequate, the amount of insurance shown on the Declaration will be the full amount available … .” A reasonable reading of these provisions certainly makes it appear that Erie would keep track of construction costs and the rate of inflation and would adjust the coverage for the Aumans’ home if it appeared that the amount of insurance coverage might be insufficient to compensate them for a total loss of their home for those two reasons. This is not in conflict with the provisions of the Declarations page, as that language also infers that the Aumans would be compensated with that amount if any rise in replacement cost of their home was due to something other than normal inflation or a rise in construction costs.

Since Erie has come forth with no evidence to indicate that the replacement cost for the home had increased due to some factor other than inflation or increased construction costs, we agree with the Aumans that the increase must have been due to these factors. Thus, they are not limited to the amount of $150,500.00 indicated on the Declarations page as that figure is the highest amount available only if it is inadequate due for some reason other than inflation and/or increased construction costs.

We reach this conclusion even when considering the additional facts raised by Erie in New Matter in its response to this Motion. The option chosen by the Aumans – “Automatic Renewal Service (Replacement Cost Settlement Not Guaranteed)” does not specify that they would not receive replacement cost under any circumstances. Rather, that language merely indicates that replacement cost is not guaranteed, i.e., that there is a possibility that they would not receive replacement cost if the increase was attributable to something other than inflation or increased construction costs.

The Aumans’ reasonable belief was bolstered by the history of the parties’ relationship. At the time the Aumans originally purchased the policy in 1978, they had just paid $150,500.00 for their home. Since that time through 2010, they have paid premiums which increased at nearly every renewal period. Even though the policy stated that the adjusted coverage was available at no charge, it was reasonable for them to believe that the increase in premiums was related to increased coverage for their home.

For these reasons, we will grant the Aumans’ Motion for Partial Summary Judgment.

 

(1) Erie Insurance Company, Erie Insurance Property & Casualty Company, Erie Insurance, and Erie Insurance Group were previously named defendants to this action. However, the parties indicate that the action has been discontinued as to all the other “Erie parties.”

(2) The parties agree that the fire was a covered loss.