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Woodworth v. Erie Insurance Co.

September 21, 2010


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



Plaintiffs are suing to recover amounts which they maintain they are owed under a homeowner's insurance policy issued by Defendant. Now before the Court is Defendant's motion for partial summary judgment on Plaintiff's claim seeking additional living expenses. For the reasons that follow, the application is granted in part and denied in part.


On or about December 18, 2002, Defendant issued Plaintiffs an insurance policy, covering plaintiffs' home located in Canandaigua, New York. The policy purports to insure the home in the amount of $221,000.00., and Plaintiffs paid premiums on that amount. The policy, however, requires Defendant to pay up to, inter alia, "the replacement cost at the time of the loss." This has led to an intense disagreement between the parties, inasmuch as Plaintiffs contend that the replacement cost is essentially double the amount for which they insured the home. Defendant maintains that Plaintiffs misrepresented the value of the home at the time they purchased the policy, or that they are now misrepresenting the replacement value. Plaintiffs respond that they never indicated that the house was worth only $221,000.00, and that this amount was selected by the insurance agent who sold them the policy. Plaintiffs further contend that they built the home for approximately $280,000.00, which is well below the home's actual value and replacement cost, because they acted as their own general contractor, which resulted in considerable savings. Additionally, Plaintiffs maintain that Defendant has treated them unfairly during the claims adjustment process, and is ignoring its obligations under the policy. Against this backdrop of mutual distrust, this dispute, which seemingly should have been settled long ago, has dragged on for more than seven years.

The policy states that, in the event of a loss, Defendant will pay Plaintiffs either the actual cash value of the property, or, if Plaintiffs replace or rebuild the property, the cost of replacing or rebuilding. In that regard, in pertinent part, the policy states:

Loss to Dwelling Coverage, Other Structures Coverage and Personal Property Coverage will be settled on a replacement cost basis, without deduction for depreciation.

a. Under Dwelling Coverage and Other Structures Coverage:

1) Payment will not exceed the smallest of the following amounts: -any amount of insurance applying to the building; - the replacement cost of that part of the building damaged for equivalent construction and use on the same premises; -the amount actually and necessarily spent to repair or replace the damaged building;

2) We will pay no more than the actual cash value of the damage until the actual repair or replacement is completed.

Erie Insurance Company Policy #Q60-6800396. The policy also states, in pertinent part, that Defendant will pay certain living expenses:

LOSS OF USE COVERAGE -- OUR PROMISE If an insured property loss makes your residence premises uninhabitable, we will pay all reasonable additional living expenses while you and members of your household reside elsewhere.

Payment shall be for the shortest time required to repair or replace the premises or, if you choose, for you to permanently relocate. These payments will not exceed a 12 month period.

Id. The policy further provides for an appraisal process, in the event the parties disagree as to an amount of loss:


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 your residence premises is located to select an umpire.

The appraisers shall then set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon shall be the amount of loss. If they cannot agree, they will submit their difference to the umpire. A written award by two [sic] will determine the amount of loss.

Id. Such appraisal clause is statutorily required in fire insurance policies sold in New York, and is binding on both the insurer and insured, pursuant to New York Insurance Law ("Insurance Law") § 3404(e) & (g).

On August 16, 2003, Plaintiffs' home was completely destroyed by an explosion and fire, apparently caused by a defective tankless water heater. On October 14, 2003, Plaintiffs submitted a statement of loss, indicating that the replacement cost of the home was $498,745.50. On November 13, 2003, Defendant informed Plaintiffs that it rejected their proof of loss forms, "based on the amount of your demand." Affidavit of Nancy Mowins ("Mowins"), Docket No. [#82-13], Ex. C. Instead, Defendant paid Plaintiffs the sum of $308,183.00, which Defendant maintains was the actual cash value of the home. In that regard, Defendant estimated that the total replacement cost would be $399,565.50, and then calculated actual cash value by applying a depreciation factor. Defendant withheld the difference between the alleged actual cash value and the replacement cost, to be paid when and if Plaintiffs rebuilt the house at a cost exceeding that amount.*fn1 Defendant calculated the estimated replacement cost, based on the opinion of a professional builder, Len Scofero ("Scofero"), who indicated that the house could be rebuilt for $381,935.50. Defendant took that figure, and added certain expenses, such as landscaping, to arrive at the replacement cost set forth above.

Plaintiffs argue that Defendant's estimates were too low. With respect to replacement cost, Plaintiffs maintain that Scofero's estimate was incomplete, because it omitted or undervalued many elements of the destroyed house. Scott Woodworth Affidavit, [#85-13], Ex. B. For example, on January 7, 2004, Plaintiffs told Defendant that Scofero's estimate had "thirty-one (31) incorrect or omitted items." Defendant's claims adjuster, Mowins, states that, after she received Plaintiffs' list of items that were allegedly omitted from, or undervalued in, Scofero's estimate, she discussed it with Scofero, "to be sure that we did include everything that was in the house, that the insureds claim [was] in the house." Mowins Dep. 103-104. According to Mowins, Scofero responded that his estimate was sufficient to rebuild the house as before, even with Plaintiffs' list of allegedly omitted items. Mowins Dep. 104.*fn2 Scofero, however, disagrees. At his deposition, Scofero testified that he prepared his estimate based on specifications that were provided to him by Mowins. Scofero Dep. 26 ("She had mentioned what was in the home as far as upgrades and options."). Scofero stated that subsequently, after he submitted his estimate, no one advised him that it omitted or undervalued certain items. Scofero Dep. 46, 49, 51. Scofero also stated that prior to his deposition, he never saw Plaintiffs' list of "Incorrect and Omitted Items." Scofero Dep. 47, 49-50. Scofero further indicated that, if he had been advised that Plaintiffs' home actually contained the allegedly omitted items, he would have prepared a supplemental estimate. Scofero Dep. 68.

From Defendant's perspective, a significant sticking point in this case has been its insistence that Plaintiffs provide detailed records concerning the materials used and the actual cost to build the home, and Plaintiff's refusal to do so. In that regard, Defendant questions how the replacement cost urged by Plaintiffs could be realistic, since Plaintiffs purportedly built the house at a cost of only $280,000.00 two years earlier.*fn3 Defendant asked Plaintiffs to provide documentation concerning the items and materials that they claim are omitted from Scofero's estimate.*fn4 For example, on October 28, 2003, Mowins requested that Plaintiffs provide "verification as to your purchase of the items that were in [the] home at the time of the loss," including proof of purchase concerning various appliances, cabinets, marble tile, and marble and granite countertops. Scott Woodworth Aff. [#17-3], Ex. B.

Plaintiffs counter that they have submitted sufficient proof of their loss, and on this point, they rely on Scofero's estimate, supplemented with information concerning the items that they contend are missing or undervalued in such estimate. For example, Plaintiffs state that they provided additional information on November 3, 2003 and January 7, 2004. See, Woodworth Aff. [#17-3], Ex. I, Letter of Scott Woodworth to Jeffrey Ludrof, dated March 5, 2004. For example, on November 3, 2003, in response to Mowin's request described above, Plaintiffs provided her with invoices for certain items, such as marble tile and marble countertops, and also provided photographs of certain appliances, including a stove, refrigerator, microwave, and dishwasher. Id., Ex.

B. Mowins Responded that she Needed Additional Information Concerning the Appliances, since Photos were not Sufficient

Apparently, though, Mowins later accepted such photographs as proof, at least with regard to the microwave and refrigerator, since she added those items onto Scofero's estimate. Id.

On October 8, 2004, Defendant informed Plaintiffs that it still needed additional information from them, stating, in pertinent part:

Mr. Rupp [Defendant's attorney] will be sending you and your representative, NFA [National Fire Adjustment Co., Inc., the public adjuster firm retained by Plaintiffs], a letter next week outlining the items we need you to supply us with in order to further evaluate this claim. This will include the photos and receipts referred to in your voice mail. Mr. Rupp will comprehensively outline what will be needed to bring this claim to a conclusion. We encourage you to cooperate and supply us with all the needed documentation.

Letter of Jeffrey A. Ludrof dated Oct. 8, 2004. Subsequently, on October 13, 2004, Rupp asked Plaintiffs to provide, inter alia, "a detailed list of each and every contractor who assisted in the original construction of your home," "invoices and payment histories with respect to different portions of the work, as well as the base cost of materials used in constructing [the] home," banking records, records related to the original mortgage. See, Woodworth Aff. [#17-3], Ex. L. In that regard, Rupp asked Plaintiffs to provided signed authorizations, to allow him to obtain their banking and mortgage records. Id. Subsequently, Plaintiffs provided some of the information, explaining that they could not remember some of the contractors' information or where some of the materials were purchased. Additionally, Plaintiffs refused to provide six of the requested authorizations to Rupp, because they contended that they had already provided information to Mowins. Id., Ex. M. Plaintiffs later relented and sent the authorizations.*fn5

On February 10, 2005, Defendant informed Plaintiffs that it was still gathering "banking records, estimates, invoices, brochures, and other documents from dozens of sources with regard to the original construction of your home." See, Woodworth Aff. [#17-3], Ex. M., Rupp letter dated Feb. 10, 2005. Defendant added that, if the information it gathered suggested that "further discussions with you or your representatives are likely to lead to an agreement on the theoretical replacement cost value of your claim, you will be contacted accordingly." Id. Otherwise, Defendant essentially indicated that Plaintiffs' claim for further payments was denied, and that any further discussion would take place when and if Plaintiffs rebuilt the house. Id.

In March 2005, Plaintiffs retained an attorney, Harry P. Begier, Jr. ("Begier"), who wrote to Defendant and demanded an appraisal concerning actual cash value and replacement cost:

The purpose of an appraisal is to determine the Actual Cash Value and the Replacement Cost in a loss. It is important to the Insured to establish the Replacement Cost in order to know how much money he can spend in rebuilding. . . . Your client's refusal ...

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