State Farm Must Pay Couple $46K for Breach of Contract for Homeowner Policy

State Farm Must Pay Couple $46K for Breach of Contract for Homeowner Policy

In a case that could have sweeping national implications, a Pennsylvania court has ordered State Farm, the Commonwealth’s largest purveyor of homeowners’ insurance policies, to pay a couple $46,000 for breaching the terms of their policy. The case arose from the highly questionable, unilateral revision of policies State Farm launched in 2015.

According to a report on, the company “notified homeowners that it was amending their policies,” but “told consumers that the revision was ‘not intended to change coverage.’” Although the changes were mentioned in a section of the policy labeled “additional coverages,” the new provisions “actually slashed coverage for homeowners.”

The incident that led to the suit occurred in March 2016, when the toilet in the Levittown home of Lisa and Rodney Aguiar soaked the bathroom and bedroom causing water damage. “The couple wanted to fix a break in the sewer line that they said had caused the problem. But State Farm refused to cover the cost of their plan to tear up their laundry room, living room, and bathroom to access the sewer line.”

The prior terms of the Aguiars’ State Farm policy obligated that company to pay for tearing out and replacing “any part of the building” to repair the plumbing when water or steam caused damage. The new policy provision limited the work to “only that particular part of the building” needed to access the “specific point” where water or steam had escaped. Feeling misled, the Aguiars sued State Farm in October 2016, and later accused the insurer of “bad faith and violations of Pennsylvania’s consumer protection act.”

In November 2018, Judge D. Webster Keogh awarded the Aguiars $46,000 including lawyers’ fees on their breach-of-contract claim, but nothing for bad faith. Judge Keogh “agreed that State Farm’s notice was confusing but said he wasn’t sure whether the insurer was willfully deceptive.”

Judge Keogh’s ambivalence about bad faith is certainly good news for State Farm, which claims the notice of revisions did include a “bold heading ‘Potential Reduction in Coverage,’ along with a warning to “view the amendment as ‘either an actual or potential’ reduction or elimination of coverage.”

A finding that State Farm had used deceptive practices could have exposed the insurance giant to bad faith claims all across the nation. Ironically, a dispute over “tear-out” provisions in Arizona was a factor that led State Farm to revise its policy on the matter.

In Arizona, the insurer had denied coverage for extensive tear-outs to remediate water damage, prompting the threat of a class action and about eight years of litigation before a settlement was reached with 144 policyholders. Could similar lawsuits continue to crop up in other states?

When an insurance company denies a valid claim, policyholders may have to assume crushing losses. If your insurance company has wrongly denied coverage to your business, contact our firm for immediate assistance.


Steve Hochfelsen

Steve Hochfelsen is an Orange County, California business litigation lawyer and author.

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