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Woodworth v. Erie Insurance Co.

January 17, 2006


The opinion of the court was delivered by: Charles J. Siragusa United States District Judge



This action involves a dispute between the parties to a homeowner's insurance policy over the replacement value of the plaintiffs' home, which was destroyed by a propane gas explosion. Now before the Court are the following applications: 1) Defendant's motion [#12] to dismiss plaintiffs' first cause of action and a portion of plaintiffs' second cause of action*fn1, pursuant to Federal Rule of Civil Procedure ("FRCP") 12, subsections (b)(1) and (b)(6); and 2) Plaintiffs' cross-motion [#16] for partial summary judgment on their first cause of action, seeking a declaratory judgment that defendant must participate in the appraisal procedure set forth in the policy. For the reasons that follow, plaintiffs' application is denied and defendant's application is granted.


Defendant issued plaintiffs a policy of homeowner's insurance covering plaintiffs' home located in Canandaigua, New York. Subsequently, plaintiff's home was destroyed by a gas explosion. Defendant offered plaintiffs the sum of $308,183.00 as the actual value of the destroyed home. Defendant further offered to settle plaintiffs' replacement-cost claim based on a total estimated replacement cost of $399,565.50. In other words, in addition to the $308,183.00 that it already paid to plaintiffs, defendant offered to pay an additional $91,382.50 to cover the additional expenses of rebuilding or replacing the home. Plaintiffs rejected the replacement-cost offer, claiming that the actual replacement cost would be $540,897.91. Thereafter, plaintiffs repeatedly asked defendant to negotiate the replacement cost, however, defendant asserted that it had no obligation to negotiate the replacement cost unless and until plaintiffs actually replaced their home, at a cost exceeding the $308,183.00 already paid:

Your recent letter suggests that you remain unwilling to make any decisions regarding your next residence until Erie has engaged in further "dwelling cost discussions" with you. You claim that you cannot replace your home "without agreement on additional funds." . . . Erie is under no obligation to accept, in advance of any actual construction, what it believes is an inflated replacement cost estimate relating to your former home. Because the home has not been repaired or replaced as of this writing, there is no replacement cost claim pending at this time. If and when a replacement cost claim is submitted by you in compliance with all applicable terms and conditions of your policy, Erie will consider it. If an agreement cannot be reached at that time, you have several potential remedies -- including appraisal and litigation -- that you may seek to pursue.

Cross-motion for Partial Summary Judgment, Ex. J, August 30, 2004 Letter of R. Anthony Rupp, III. At the same time, however, defendant stated that it "prefer[red] to reach a negotiated resolution of [the] replacement cost claim in advance of actual construction." Id. at Ex. M, January 17, 2004 Rupp letter, p. 4. Defendant requested that plaintiffs provide detailed information concerning the original construction of their home. In this regard, defendant claimed that, according to plaintiffs, the house had been built just two years prior to the explosion at a total cost of $270,000, which caused defendant to question why plaintiffs' estimate to rebuild the house was almost twice that amount. See Id., p. 2. Plaintiffs responded that they had been able to build the house for significantly less money than it would cost to replace, because they had acted as the general contractors and had done much of the work themselves. Id., Ex. N. Plaintiffs also maintained that they had already provided defendant with the information that it was requesting.

Eventually, plaintiffs demanded an appraisal, "in accordance with lines 123-140 of the standard 165 lines [of the standard New York State fire insurance policy] as well as section 3404 of the New York State Insurance Law," Id., Ex. K. The appraisal clause of the parties' insurance contract states, in relevant part:

If you and we fail to agree on the amount of loss, either party may make written demand for an appraisal. Each party will select an appraiser and notify the other of the appraiser's identity within 20 days after the demand is received. The appraisers will select a competent and impartial umpire. If the appraisers are unable to agree upon an umpire within 15 days after both appraisers have been identified, you or we can ask a judge of a court of record in the state where you residence premises is located to select an umpire.

Defendant's Motion [#12] Ex. F, p. 9. Defendant rejected plaintiffs' demand for an appraisal on December 20, 2004, stating:

You demand for appraisal is rejected, among other reasons, because you have not submitted a replacement cost claim to Erie Insurance. By the terms of you policy, a pre-condition to a valid replacement cost claim is the expenditure of funds toward the repair or replacement of your home in an amount that exceeds the actual cash value payment previously made to you.

Id., Ex. M. In other words, defendant stated that it had no obligation to comply with the policy's appraisal procedure unless and until plaintiffs actually replaced their home at a cost exceeding the $308,183.00 already paid them.

Plaintiffs commenced this action on June 30, 2005, on the basis of diversity jurisdiction under 28 U.S.C. § 1332, as plaintiffs are citizens of the State of New York, and defendant is a citizen of the State of Pennsylvania. The Amended Complaint [#5] purports to state three separate causes of action: 1) a claim for a declaratory judgment that defendant "is obligated to proceed and engage in the appraisal process contained in the policy"; 2) a claim for breach of contract; and 3) a claim for punitive damages based on bad faith. Plaintiffs subsequently withdrew the bad faith claim, leaving only the declaratory judgment and breach of contract claims. As for the breach of contract claim, plaintiffs allege that defendant breached the agreement in two ways: First, by failing to comply with the appraisal clause; and second, by "failing to pay [them] under the Policy to the full extent of the loss, including but not limited to Additional Living Expenses." Amended Complaint [#5] ¶ 17. In regard to the alleged failure to pay, while it is not spelled out in the Amended Complaint, plaintiffs apparently contend that defendant improperly calculated the actual value of their destroyed home, and failed to reimburse them for certain additional living expenses, such as hotel and telephone charges.

Defendants have moved to dismiss the Amended Complaint, on two grounds. First, defendant contends that, in the State of New York, an insured is not permitted to sue for specific performance of the appraisal clause in the standard New York fire insurance policy. Second, defendant contends that plaintiffs cannot assert a claim for breach of contract involving the appraisal clause, since they have not submitted a bona fide claim for replacement costs actually incurred that exceed the amounts already paid to them. Plaintiffs cross-moved for partial summary judgment on their first ...

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