Wellman et al v. Safeco Insurance Company of America et al

Filing 23

MEMORANDUM OPINION & ORDER, granting 18 MOTION for Partial Summary Judgment by Safeco Insurance Company of America. Signed by Judge Henry R. Wilhoit, Jr on 5/11/16.(SMT)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
ASHLAND
Civil Action No. 14-166-HRW

CARL AND DENICE WELLMAN,

PLAINTIFFS,

MEMORANDUM OPINION AND ORDER

v.

SAFECO INSURANCE COMPANY OF AMERICA.,

DEFENDANT.

This matter is before the Court upon Defendant Safeco Insurance Company of America's
Motion for Partial Summary Judgment [Docket No. 18]. The motions has been fully briefed by
the patties [Docket Nos. 18-1, 19 and 20]. For the reasons set forth below, the Court finds that
Plaintiffs' breach of contract claim fails as a matter of law.
I.

FACTUAL AND PROCEDURAL BACKGROUND

This case arises from a July 30, 2012 fire that occurred at Plaintiffs Carl and Denice
Wellman's residence at 2030 West Hearthstone Lane in Ashland, Kentucky. As a result of the
fire, the Plaintiffs' home was a total loss. At the time of the fire, Safeco Insurance Company of
America ("Safeco") insured Plaintiffs' residence and personal property subject to the terms,
conditions, and exclusions of Policy Number OK5622106 ("the Policy"), which provides, in
pertinent part:
5. Loss Settlement. Covered property losses are settled as follows:
a. Replacement Cost. Property under Coverage A or B at
replacement cost, not including those items listed in 5.b.(2) and (3)
below subject to the following:
(I)
We will pay the full cost of repair or replacement,
but not exceeding the smallest of the following
amounts:

(a)
(b)

( c)

(d)
(e)

the limit of liability under the policy
applying to Coverage A orB;
the replacement cost of that pati of the
damaged building for equivalent
construction and use on the same premises
as determined shortly following the loss;
the full amount actually and necessarily
incurred to repair or replace the damaged
building as determined shortly following the
loss;
the direct financial loss you incur; or
our pro rata share of any loss when divided

with any other valid and collectible
insurance applying to the covered prope1ty
at the time ofloss.
(2)

When more than one layer of siding or roofing
exists for Building Property We Cover, we will pay
for the replacement of one layer only. The layer to
be replaced will be at your option. The payment
will be subject to all other policy conditions relating
to loss payment.
When more than one layer of finished flooring
exists we will pay for the finish of only one layer

(3)

If the cost to repair or replace is $1,000 or more, we
will pay the difference between actual cash value
and replacement cost only when the damaged or
destroyed prope1ty is repaired or replaced.

(4)

You may disregard the replacement cost loss
settlement provisions and make claim under this
policy for loss or damage to buildings on an actual
cash value basis but not exceeding the smallest of
the following amounts:
(a)
the applicable limit of liability;
(b)
the direct financial loss you incur; or
( c)
our pro rata share of any loss when divided
with any other valid and collectible
insurance applying to the covered property
at the time ofloss.

You may still make claim on a replacement cost
basis by notifying us of your intent to do so within

180 days after the date of loss.

[Docket No. 18-3 at p. 12].
Consistent with the policy, Safeco offered Plaintiffs three options after the fire: purchase
another home, rebuild their old home, or take a lump-sum settlement from Safeco reflecting the
actual cash value of their home. [Deposition of Carl Wellman, Docket No. 18-7, pp. 99-100].
Plaintiffs elected to rebuild their home at the same location. Id. In accordance with their
decision to rebuild, Safeco's adjuster, Mandy Savage, provided them with an estimate reflecting
the Actual Cash Value of the home and the Replacement Cost Value of the home. Neither
estimate was disputed by Plaintiffs. Id. at p. Ill.
Pursuant to the Loss Settlement provisions of the Safeco Policy, Safe co issued the
Wellmans a check for $199,550.67 on August 31,2012 and another on September 26,2012 for
$4,761.96, which represented the Actual Cash Value of the home. [Docket No. 18-4].
In November 2012, construction began on the Plaintiffs' new residence. At that time,
Citizens National Bank informed the Plaintiffs that it was accelerating the approximately
$190,000 outstanding on the mortgage loan on the Plaintiffs prior home that had been destroyed
by the fire. Plaintiffs did not apply for an additional mortgage. [Docket No. 18-7, pp. 133-134].
Instead, in order to finance the construction, Plaintiffs chose to sell their vehicles, borrow money
from family members, and put the money from their personal propetiy settlement that had been
paid to them by Safeco toward rebuilding their home.Jd. at pp. 135, 143.
Ultimately, Plaintiffs were unable to pay their contractor McKnight Construction. In
March 2103, McKnight abandoned the project. Id. at p. 148. In April2-013, Plaintiffs hired
Carver Construction to continue the rebuild. Subsequently, however, Plaintiffs finished the

rebuilding of the home themselves; they moved back in to their new home on May 31, 2013. !d.
atpp. 150-51; 165.
Based upon Mr. Wellman's deposition testimony, Plaintiffs "upgraded" during
construction, installing more expensive countertops, heating units, lighting and flooring. !d. at
pp. 184-185. The estimated value of their new home was $336,400.00, compared to $237,500.00
of their old home. !d.
The dispute which forms the basis of this lawsuit arose when Plaintiffs demanded that
Safeco advance the replacement cost payments they needed to finish the rebuild before the repair
or replacement work was complete.

Mr. Wellman explained his claim during this colloquy

with Defendant's counsel:

Q.... And it's my understanding- correct me ifl'm wrong- your claim
is that [Safeco] didn't advance the extra money to get the contractors paid
so they would continue working; is that correct?
A. Yes.
Q. And they didn't do that because ... the damaged property hadn't been
repaired or replaced yet. They weren't going to advance the money,
correct?
A. Correct. There was no way to keep the workers there working if we
did not have the money to pay them to stay and work and buy the
materials and supplies and they needed to do it.

!d. at pp. 39-40.
However, in accordance with the terms of the Policy, Safeco could only provide
additional funds to the Plaintiffs once the Plaintiffs submitted receipts showing that the repairs
were complete. Mr. Wellman testified:
A. ... we had requested money from Safeco, but we were told no.
Q. Who told you no?
A. Mandy Savage.

***

Q. Did you send her any proof that you had repaired or replaced anything at the
house?
A. That is when we started putting all of our stuff into the spreadsheets, so that we
could
send that to her.
Q. Did she say you had to do that before you could be paid?
A. She said we had to do that before she could request an advance.

Id at pp. 32-33.
Upon receipt of such documentation, Safeco reimbursed the Plaintiffs for the repairs in
accordance with the Safeco Policy. Jd at p. 33. In total, Safeco reimbursed the Plaintiffs
$315,915.54 to rebuild their residence, which represented the full amount of the agreed cost of
repair.
Plaintiffs filed this lawsuit Safeco and its adjusters Many Savage and Elizabeth Tobler in
Boyd Circuit Court alleging breach of contract and violations Kentucky's Unfair Claims
Settlement Practices Act, KRS § 304.12-230. Circuit Judge David Hagerman dismissed Savage
and Tobler and Defendant removed the case to this Comi.
Safeco seeks summary judgment as to the breach of contract claim.

II.

STANDARD OF REVIEW
Summary judgment is appropriate where "the pleadings, the discoveq and disclosure

materials on file, and any affidavits show that there is no genuine issue as to any material fact and
that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56( c). The moving
party "bears the initial responsibility of informing the district court of the basis for its motion,
and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence
of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The

Court views all evidence in the light most favorable to the non-moving patiy. Matsushita Elec.

Indus. Co .. Ltd v. Zenith Radio C01p., 475 U.S. 574,587 (1986)." 'The mere existence of a
scintilla of evidence in support of the [non-moving party's] position will be insufficient [to
defeat a motion for summary judgment]; there must be evidence on which the jury could
reasonably find for the [non-moving party].'" Moldowan v. City of Warren, 578 F.3d 351, 374
(6th Cir.2009) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)).

III.

ANALYSIS
The interpretation of an insurance contract is a matter of law for the Court to determine.

lvf orgmifield National Bank v. Damien Elder & Sons, 836 S.W.2d 893 (Ky. 1992). Under
Kentucky law, "an insurance policy is a contract, and insofar as it does not contravene the law
any recovery against the insurance company is governed solely by its terms." State Farm lv!ut.

Ins. Co. v. Fireman's Fund American Ins. Co., 550 S. W.2d 554, 557 (Ky. 1977). Accordingly,
the terms used within an insurance contract "should be given their ordinary meaning as persons
with an ordinary and usual understanding would read and construe them." Sutton v. Shelter Mut.

Ins. Co., 971 S.W.2d 807,808 (Ky. App. 1997) (quoting City ofLouisville v. McDonald, 819
S.W.2d 319 (Ky. App. 1991)).
In their Complaint, Plaintiffs allege that Safe co breached the contract of insurance in
tln·ee instances: first, "[W] hen advances were needed by contractors [Safeco ]4 refused to advance
funds that were provided for in the approved bid by [Safeco's] selected contractor Jeff Wolf of
JWI Restoration" [Complaint, Docket No. 1-1, ,; 12]; second, "[Safeco] forced the Plaintiffs to
use their personal savings to fund the rebuilding of the home" ld. at,; 13; and, finally, "[Safeco]
forced the Plaintiffs to borrow money from friends and relatives in order to provide for
themselves and their child." !d. at,; 16.

Defendants argue that the unambiguous terms of the Policy require repair or replacement
of the property as a condition precedent to the payment of replacement cost funds, and it did not
breach the Policy as a matter of law.
The Policy explicitly provides: "[i]fthe cost to repair or replace is $1,000 or more, we
will pay the difference between actual cash value and replacement cost only when the damaged
or destroyed property is repaired or replaced." [Docket No. 18-3, p. 21] (emphasis added). The
Policy forbids "advancing" replacement cost value payments before the property was actually
repaired or replaced. This condition has been upheld by Kentucky comis. See Snellen v. State

Farm Fire and Cas. Ins. Co., 675 F.Supp. 1064 (W.D. Ky. 1987); See also, Hampton v. Safeco
Ins .Co. ofAmerica, 614 Fed.Appx. 321,324 (6th Cir. 2015).
In Snellen v. State Farm Fire and Cas. Ins. Co., 675 F.Supp. 1064 (W.D. Ky. 1987),
Judge Simpson considered the exact issue before this Court, to-wit, whether an insured was
entitled to replacement cost value before the property at issue had been repaired or
replaced. Applying Kentucky law, the Court, interpreting a similar policy provision, held "the
plaintiff is not entitled to claim replacement cost under the circumstances presented here, where
she has not repaired or replaced nor even evidenced an intention to do so." !d. at !067. Judge
Simpson concluded: "[t]he policy in question is not ambiguous with respect to the insurer's
obligation to pay replacement cost. Actual replacement, and the incurrence of costs in that
endeavor, is clearly a condition precedent to such a claim." !d. at I 067.
In this case, the Policy required Safeco to "pay the difference between actual cash
value and replacement cost only when the damaged or destroyed property is repaired or
replaced," and this is exactly what Safeco did, paying Plaintiffs a total of $315,915.54 as they
rebuilt their home.

In an effort to resurrect their claim, Plaintiffs attempts to raise a dispute as to the
adequacy of Safeco 's Actual Cash Value payment. Yet, they fail to establish, or specifically
allege how the payment was deficient. To the contraty, during their depositions, Plaintiffs
admitted that the Actual Cash Value figure was not in dispute, and even went so far as to state
that they were not qualified to offer opinions as to the Actual Cash Value of their home. Neither
law or equity would permit Plaintiff to accept the actual cash value payment as conect and then
later have second thoughts and sue. See Stale Auto. Prop. & Cas. Co. v. There is

Hope Cmty. Church ex rei. Blacklock, No. 4:1 lCV-149-JHM, 2014WL 2003302, at *3 (W.D.
Ky. May 15, 2014) (where insured agrees with actual cash value figure and receives payment,
insured cannot later sue for breach of contract). Plaintiffs have not, and cannot, point to an issue
of material fact in this regard.
Nor do Plaintiffs' Responses to Safeco's Interrogatories create a genuine issue of
material fact. As evidenced by their Interrogatory Responses, Plaintiffs' breach of cotract claim
against Safeco is premised upon the belief that they were entitled to advances on the replacement
cost funds they needed to finish the rebuilding of their home because Plaintiffs' mortgage lender
accelerated the $190,000 outstanding on the mortgage loan on the Plaintiffs' home. Mrs.
Wellman confirmed this at her deposition:

Q .... And it's my understanding- correct me ifi'm wrong- your claim is that
[Safeco] didn't advance the extra money to get the contractors paid so they would
continue working? is that correct?
A. Yes.
Q. And they didn't do that because ... the damaged property hadn't been repaired
or replaced yet. They weren't going to advance the money, correct?
A. Correct. There was no way to keep the workers there working if we did not
have the money to pay them to stay and work and buy the materials and supplies
and they needed to do it.

[Deposition of Denise Wellman, Docket No. 20-2, pp. 39-40]. Yet Safeco had no involvement
with the bank's decision to accelerate the mortgage loan. Nor did Safeco, or its adjustors, advise
Plaintiffs to forego a new mortgage. According to the Policy, Safeco could only provide
additional funds to the Plaintiffs once the Plaintiffs had completed repairs on their home, which
is exactly what Safeco did in this case.
As for Plaintiffs' argument that they are owed an additional $50,320.00, they have not
completed the repairs for which they claim they are entitled to an additional $50,320.00, and
therefore, under the terms of the Policy, Plaintiffs are not entitled to this amount.

IV.

CONCLUSION
Plaintiffs' Response to Safeco's dispositive motion disregards the clear and unambiguous

language of the Policy and fails to identify any genuine issue of material fact. According to the
plain language of the Policy, Safeco owed Plaintiffs the difference between the Actual Cash
Value and the Replacement Cost Value of their property "only when the damaged or destroyed
property is repaired or replaced." Under the Policy, Safeco was not required to pay
Plaintiffs "advances" as Plaintiffs have claimed in their Complaint, in their discovery responses,
and in their deposition testimony; nor was Safeco required to pay the Plaintiffs' "estimated"
replacement cost figures. Pursuant to the Policy and established Kentucky law, Safeco was only
required to reimburse Plaintiffs for the property that was repaired or replaced. Safeco did, in
fact, pay Plaintiffs $315,915.54 for the property that was repaired or replaced. As such, Safeco
did not breach its contract and Plaintiffs claim for the same fails as matter of law.
Accordingly, IT IS HEREBY ORDERED that Defendant Safeco Insurance Company of

®

America's Motion for Partial Summary Judgment [Docket No. 18] be SUSTAINED.
This 11'h day of May, 2016.

,..

llgnad By:
/1tOf'Y B. WUholt Jr.
United States Olatrlct Judge