When State Farm notified homeowners that it was amending their policies in 2015, the insurer told consumers that the revision was “not intended to change coverage.”

But the new policy provision actually slashed coverage for homeowners, despite being in a section called “additional coverages,” a Morrisville couple claimed in a lawsuit against State Farm. And the couple, Lisa and Rodney Aguiar, won $46,000 last fall for their breach-of-contract claim in Philadelphia Common Pleas Court.

Now, the Philadelphia law firm representing the Aguiars is considering the national implications of the local case, arguing that State Farm used deceptive language in reducing coverage for consumers across the country, all while failing to cut premiums.

“They’ve added this entire provision into your policy and they call it additional coverage,” said Anthony DiUlio, a property-damage lawyer for the Aguiars. “They guise what is indisputably a reduction in coverage in confusing language that by no means helps an insured understand what is happening.”

Philadelphia lawyer Anthony DiUlio argues State Farm used deceptive language in notifying homeowners of a reduction in coverage. His clients, Lisa and Rodney Aguiar, won $46,000 in a lawsuit against State Farm.
Philadelphia lawyer Anthony DiUlio argues State Farm used deceptive language in notifying homeowners of a reduction in coverage. His clients, Lisa and Rodney Aguiar, won $46,000 in a lawsuit against State Farm.

In a statement, State Farm said it is “disappointed with the judge’s overall ruling," but said it “stands by its court filings.”

The insurer’s lawyers had noted that the notice to homeowners included the bold heading “Potential Reduction in Coverage.” The notice also advised policyholders to view the amendment as “either an actual or potential” reduction or elimination of coverage. The Aguiars did not have to renew their policy after receiving it, and the amended policy did not cover their insurance claim, State Farm lawyers argued.

At issue was a toilet overflow that flooded a master bathroom and a policy provision that deals with accessing broken water lines.

In March 2016, Lisa Aguiar said, her toilet soaked the bathroom and bedroom in their former Levittown home, causing minor 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, Lisa Aguiar said.

Previously, the Aguiars’ State Farm policy said it would pay for tearing out and replacing “any part of the building” necessary to repair the plumbing system, if damage was caused by water or steam.

By contrast, the new provision covered costs for tearing out “only that particular part of the building” that is needed to access the “specific point” where water or steam escaped.

State Farm’s notice of the language revision told homeowners the change “could potentially reduce or eliminate coverage depending on how it is interpreted.”

“It was very difficult for a consumer to understand," Lisa Aguiar said of the notice. “I just felt misled.”

The Aguiars sued State Farm in October 2016, claiming breach of contract, and later accused State Farm of bad faith and violations of Pennsylvania’s consumer protection act.

In November 2018, Judge D. Webster Keogh awarded them $46,000 including lawyers’ fees on only the breach-of-contract claim, according to Keogh’s office. In issuing the verdict, Keogh said he agreed that State Farm’s notice was confusing but said he wasn’t sure whether the insurer was willfully deceptive.

“I think there was clearly confusion and misunderstanding generated by what was sent out by State Farm,” the judge said, according to court transcripts. “But I’m not certain that it jumps from the nonfeasance side to the misfeasance side.”

DiUlio, who unsuccessfully tried to turn the case into a Pennsylvania class action, said his firm is reviewing the nationwide implications of the ruling, saying he’s received calls from consumers as far away as California with similar stories.

“This change has been nationally implemented. So this is not something that is just going to affect 100 or 200 people,” said DiUlio, of the firm Wheeler, DiUlio & Barnabei in Philadelphia.

State Farm changed its tear-out policy while it battled a proposed class action over a similar issue in Arizona. In that case, a woman wanted to replace her entire plumbing system after she suffered water damage, according to court records. She expected State Farm to cover the associated tear-out cost, citing the “any part of the building" part of her homeowners' policy. State Farm said it would cover only access to “the portion of the pipe from where water escaped," court records show.

A proposed class-action case started in 2007 and lasted nearly eight years before the parties settled in April 2015. State Farm ultimately had to reimburse 144 people who had similar claims denied, court records show.

Meanwhile, in Pennsylvania, the state Insurance Department approved State Farm’s policy change in October 2014, narrowing the tear-out language from covering “any part” to the “specific part” of a building. The state did not approve the allegedly deceptive language in the notice to consumers, a department spokesperson said.

Asked whether State Farm changed the tear-out policy because of the Arizona class-action suit, State Farm spokesperson Anna Bryant said decisions to change policy language are “based on a variety of factors.”

“In recognition of a fluid and ever-changing environment and industry, we regularly review and amend our policy language,” she said in an email.

State Farm is the market leader for homeowners insurance in Pennsylvania, with a nearly 18 percent share of the premiums written in 2016, the most recent year that data are available.