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In Whitmoyer Ford, Inc. vs. Republic Franklin Insurance Company, the court considered summary judgment motions by each party in a dispute concerning the insurer’s fulfillment of its coverage obligations.  The insureds purchased a commercial insurance policy to cover their automobile lots.  The policy took effect on March 19, 2009, and the inventory was recorded for the purpose of determining the amount of coverage on March 7, 2009.  The lots suffered damages in a hail storm on March 29, 2009, and by that date the inventory had increased in value by over $250,000 since March 7.  The insureds sued because the insurer declined to pay over $50,000 of the reported losses after applying a “co-insurance” penalty provision from the policy.

The insureds had the option of choosing between two premium bases for its coverage.  They could choose a “reporting” premium basis, where it would have to submit quarterly or monthly reports to the insurer that detailed the value of the covered automobiles and the insurer would then calculate premiums pro rata based on these reports.  The other option was a “non-reporting” premium basis, where the premiums do not change based on the inventory, but a stated limit of insurance was applied to its policy.

The insureds chose the non-reporting premium basis, and the contract stated that under this option, “if, when ‘loss’ occurs, the total value of your covered ‘autos’ exceeds the Limit of Insurance shown in the Declarations, we will pay only a percentage of what we would be otherwise obligated to pay. We will determine this percentage by dividing the limit by the total values you actually had when ‘loss’ occurred.”

The court held that the insurer clearly followed the terms of the policy, and if the insureds wanted to increase their level of coverage, they should have selected the reporting premium basis and thus agreed to pay premiums that were calculated pro rata.  Because the insurer did not display a frivolous or unfounded refusal to pay proceeds of the policy and did not exhibit a dishonest purpose, there was no possibility of bad faith, and the court granted summary judgment for the insurer.

Date of Decision: April 1, 2010

Whitmoyer Ford, Inc. v. Republic Franklin Ins. Co., Civil Action No. 09-CV-034752010, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 32607 (E.D. Pa Apr. 1, 2010) (Golden, J.).