In Mee v. Safeco Ins. Co., No. 2006 EDA 2005, 2006 WL 2623901( Pa. Super. Sept. 14, 2006), the Superior Court of Pennsylvania found that a homeowner was owed overhead and profit for repairs to his home if he could show that a general contractor would have been reasonably likely to incur these items for making the repairs.

 

James Mee purchased replacement cost homeowners coverage from Safeco, but the policy also allowed for settlement at actual cash value. Mee suffered a loss to his home when a toilet overflowed. Safeco sent a general contractor to Mee's home to prepare a repair and replacement cost estimate. Safeco's estimate did not include a line item for a general contractor's overhead and profit (O&P).

 

Safeco sent Mee a settlement that did not include O&P. Mee accepted it as partial settlement and presented a claim for 20 percent O&P. Safeco offered 20 percent O&P with regard to an unresolved amount for floor damage and asked Mee to provide the general contractor's name who would be making the repairs.

 

Mee did not respond to Safeco's request for the general contractor's name and filed suit for breach of contract, bad faith, and violation of the Unfair Trade Practices and Consumer Protection law. Safeco filed for and was granted summary judgment, which Mee appealed in this case.

 

The trial court said that Safeco did not owe O&P because Mee did not use a general contractor to repair the damage. Mee said that the lower court did not properly interpret the court's finding in Gilderman v. State Farm Ins. Co., 649 A.2d 941 (Pa.Super. 1994).

 

Mee said that the Gilderman case “stands for the proposition that, in any claim where more than one trade is required to perform the repairs, it is 'reasonably likely' that the services of a general contractor will be required, and accordingly, the insurance company must include O&P as part of its actual cash value payment, even if the insured makes the repairs himself, hires a handyman instead of a team of contractors, or chooses not to make the repairs at all.”

 

The court said that the real issue is what the insurer agreed to pay, which, in this case, was actual cash value, which the policy defined as repair and replacement costs minus depreciation. The court said that “repair and replacement costs include any cost that an insured is reasonably likely to incur in repairing or replacing a covered loss.” In some instances, the court said, the costs might include using a general contractor and his O&P.

 

Safeco also asserted that by paying for O&P when no general contractor was used would provide a windfall for the insured. The court, though, said that there would be no windfall if the insured paid additional premium for these types of costs.

 

The court found that summary judgment in favor of Safeco was improper and remanded the case back to the lower court for further proceedings.