The Ohio Casualty Insurance Company v. Cox et al

Filing 99

MEMORANDUM OPINION & ORDER: 49 MOTION for Summary Judgment by Barbara Cox is OVERRULED, and 50 MOTION for Partial Summary Judgment by The Ohio Casualty Insurance Company is OVERRULED. Signed by Judge Henry R. Wilhoit, Jr.(STC)cc: COR

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FILl D

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
LEXINGTON

MAR 28 2014
AT ASHLAND
ROBERT R. CARR
CLERK U.S. DISTRICT COURT

Civil Action No. 11-334-HRW

PLAINTIFF,

THE OHIO CASUALTY COMPANY,

v.
BARBARA COX, et al.,
DEFENDANTS,

v.
JERRY HENRY, et al.,

THIRD-PARTY
DEFENDANTS.

MEMORANDUM OPINION AND ORDER
This matter is before the Court upon Defendant Barbara Cox's Motion for
Summary Judgment [Docket No. 49] and Plaintiffs Motion for Partial Summary
Judgment [Docket No. 50]. The motions have been fully briefed [Docket Nos. 53,
54, 55 and 56]. For the reasons stated herein, the Court finds that factual issues
preclude summary judgment.
I.

BACKGROUND
This case arises from Plaintiff The Ohio Casualty Company's (hereinafter

"Ohio Casualty") role as surety for a sole proprietorship, David Cox d/b/a DBR
Engineering.

On January 31, 2007, David Cox requested bonding from Ohio Casualty
through David Henry at Griffith Catlett & Hampton Insurance (hereinafter
"GCH") for a potential DBR Engineering job in the range of $2.25 to 2.5 million.
[Bid Request, Docket No. 49-3]. This request was denied by Ohio Casualty.
On February 5, 2007, Mr. Henry sent Ohio Casualty an email advising the
following: "I didn't know at the time, but [DBR] actually had 2 requests we were
to be looking at. The first was obviously the large job we turned down. The second
is a performance/payment request for the attached job." [Docket No. 49-4].
On February 20, 2007, Ohio Casualty approved DBR's request for $314,099
bonding on this second DBR Engineering job and sent a letter to Mr. Henry
forwarding an Indemnity Agreement for execution. [Docket No. 49-5].
The Indemnity Agreement (hereinafter "Agreement") provides, in pertinent
part:
Second: That we, the contractor (and the indemnitors, if any) will at
all times indemnify and save the surety harmless from and against any
and all loss, cost, claim, demand, liability and expenses of whatever
kind or nature which it shall at any time sustain, incur, or be put to,
for by reason, or in consequence of such bonds which have been or
may hereinafter be executed or procured on behalf of the contractor,
including all costs, counsel fees and expenses incurred in
investigating any claims made under or concerning such bonds, or in
collecting any premiums due or losses sustained on such bonds, or in
prosecuting or defending any actions, suits, or other proceedings
which may be commenced or prosecuted against the contractor, or
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against the surety, upon such bonds, or in anyway relating thereto; we
the contractor (and the indemnitors, if any) further agreeing, that in
any accounting which may be had between the surety and contractor,
or between the surety and the indemnitors, or either or both of them,
the surety shall be entitled to charge for any and all disbursements
made by it in good faith in and about the matters herein contemplated
by this Agreement of Indemnity, under the belief that it is or was
liable for the sums and amounts so disbursed, or that it was necessary
or expedient to make such disbursements, whether or not such
liability, necessity or expediency existed; and that the vouchers or
other evidence of any such payments made by the surety shall be
prima facie evidence of the fact and amount of our liability to the
surety.
[Docket No. 49-2].
On its first page, the Agreement states that is "made and entered into this 18t
day of February, 207." [Id.]. Pages three and four bear the signatures of David
Cox and his wife, Barbara Cox, as well as that of Jerry Catlett, as a witness. [Id].
On the last page, there are three acknowledgments by David Henry, as Notary
Public, for DBR, David Cox and Barbara Cox, all dated February 1,2007.
Barbara Cox denies signing the Agreement.
When Ohio Casualty initially approved a final bond in the amount of
$314,099.00 on February 20, 2007, it did so on the condition that DBR, David
Cox and Barbara Cox execute the Agreement and commit to obtaining a CPA
prepared financial statement as of December 31,2006. [Affidavit of Paul
Chapman, Docket No. 53-1, ,-r3]. However, the latter was not provided.
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[Id., ,-rS]. After issuance of the $314,099.00 bond, Ohio Casualty received no
further communication from GCH concerning DBR. As a result, its underwriter
Paul Chapman, sent an email to GCH on July 21, 2007, requesting the status of
Principal and the December 31, 2006, financial statement. [Id. ,-r4]. Chapman
received no response to his inquiry. Thereafter, on September 19, 2008, Chapman
received a new submission on DBR from another agent, Smith-Manus. The
submission included updated financial information, work-in-process information,
and bank line of credit information. Based on the updated financial information,
Chapman approved the requested bond in the approximate amount of $400,000.00,
on the condition that DBR obtain a current year-end CPA prepared financial
statement. [Id. ,-rS].

Subsequently, on February 20, 2009, Chapman's office

received a phone call from Henry of GCH wanting to know why Chapman had
agreed to write a bond for DBR and was considering further bonds for DBR. He
was told that Smith-Manus was being given the same opportunity given to provide
a CPA prepared financial statement as of December 31,2008. [Id.]. Smith­
Manus obtained the December 31, 2008, CPA prepared financial statement for
DBR and presented it to Chapman for consideration. [Id. ,-r7]. Ohio Casualty, as
surety, executed various other performance and payment bonds for DBR,
including, but not limited to, work related to the University of Kentucky Additions
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and Renovations to Livestock Disease Diagnostic Center ("UK Livestock
Project") on May 6, 2009, in the amount of$1,929,000.00, and work related to the
University of Kentucky College of Pharmacy ("UK Pharmacy Project") on
September 27,2010, in the amount of $2,394,000.00.
DBR Engineering defaulted in its performance and payment obligations
under its bonded contracts and Ohio Casualty received notice of various claims
thereunder. In performance of its bonded obligations for DBR, Ohio Casualty has
currently paid $759,997.44 in claims and incurred $44,386.74 expenses, for a total
loss amount of$803,486.66. [Affidavit of James Rumpf, Docket No. 53-5].
David Cox died on May 31, 2011. Barbara Cox was appointed and is
currently serving as Administratrix for his estate. Ohio Casualty filed a Proof of
Claim on the Estate of David Cox on July 27,2011, for $925,965.09 plus
attorney's fees. Mrs. Cox denied Ohio Casualty's claim against the Estate. Ohio
Casualty demanded that she indemnify, reimburse, and exonerate Ohio Casualty
for its losses and expenses resulting from the execution of its bonds. Mrs. Cox did
not comply. This litigation followed.
In its Complaint [Docket No.1] and Amended Complaint [Docket No. 30],
against Mrs. Cox in both her capacity as Administratrix for her husband's estate
and individually, Ohio Casualty alleges the following causes of action: breach of
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Indemnity Agreement (Count I), exoneration (Count II), quia timet (Count III),
specific performance (Count IV), access to books and records (Count V) and
recovery pursuant to KRS § 412.080 (Count VI).
Mrs. Cox filed a Third Party Complaint against Jerry Catlett, David Henry
and Western Surety Company [Docket No.5], alleging negligence and violation of
KRS § 423.010, et seq. and seeking to enforce the bond against Western Surety.
Barbara Cox seeks summary judgment as to all claims asserted against her
individually by Ohio Casualty. Ohio Casualty seeks summary judgment as to
Counts I and II of its Complaint.

II.

STANDARD OF REVIEW
Summary judgment is appropriate only if the pleadings, depositions,

answers to interrogatories, and affidavits show there is no genuine issue as to any
material fact and the moving party is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56. The burden to show that there are no genuine issues of material
fact falls on the parties seeking summary judgment. Celotex Corp. v. Catrett, 477
U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "Credibility
determinations, the weighing of the evidence, and the drawing of legitimate
inferences from the facts are jury functions, not those of a judge[.]" Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255,106 S.Ct. 2505,91 L.Ed.2d 202 (1986).
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This Court will consider the evidence in the light most favorable to the non­
moving parties, drawing all justifiable inferences in their favor. Id. The ultimate
question is whether the evidence presents a sufficient factual disagreement to
require submission of the case to the jury, or whether the evidence is so one-sided
that the moving parties should prevail as a matter of law. Id. at 251-52, 106 S.Ct.
2505.
III. ANALYSIS
A.

Factual issues preclude summary judgment in favor of Barbara
Cox.

Barbara Cox contends that the Agreement Ohio Casualty seeks to enforce
by way of this civil action is not enforceable. She denies signing it. In support
of her argument she first points out that Mr. Henry did not receive the Indemnity
Agreement from Ohio Casualty until it was sent to him by Ohio Casualty in a letter
dated February 20, 2007, nineteen (19) days after the Indemnity Agreement was
allegedly executed by her. This discrepancy, according to Mrs. Cox, belies the
validity of the Agreement. Indeed, Mr. Henry cannot explain how he could
notarize a document almost three weeks before it was in his possession. He
testified about this about this obvious incongruity in his Deposition as follows:
Q. [... ] so you don't have any reason to doubt that the form would
have been this form that you received on February 20th, 2007
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[Exhibit D]?
A. That's dated February the 1st [ ... ] I don't remember the
circumstances behind it but with that dated February the 1st and this
February the 20th, I don't see them being the same documents but I
don't know that. I don't know. I don't remember.
[Deposition of David Henry, Docket No. 45, pg. 42, In. 2-5, 10-15].
Mrs. Cox points out that it was not until February 27,2007, that Mr. Henry
forwarded the notarized Indemnity Agreement to Ohio Casualty. [Docket No. 49­
8].
Moreover, Mrs. Cox denies ever meeting Mr. Henry, whose Notary
Certificate reflects that she allegedly the Indemnity Agreement on February 1,
2007. [Affidavit of Barbara Cox, Docket No. 49-6, ~ 14]. Nor does Mrs. Henry
recall meeting with Barbara Cox. [Deposition of David Henry, Docket No. 45, pg.
29, In. 18-29]. In fact, he testified that he does not know what she looks like. [ld.

p. 48, In. 23-24].
As for Jerry Catlett, who signed the Indemnity Agreement in the capacity of
a witness, Mrs. Cox denies meeting him until after the death of her husband,
David Cox, on May 31, 2011,14 more than four years after her purported
execution of the Indemnity Agreement on February 1,2007. [Affidavit of Barbara
Cox, Docket No. 49-6,

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12-13.] Her son, Ryan Cox, testified that he first

introduced Mr. Catlett to his mother, at his father's visitation in June, 2011. Jerry
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Catlett indicated at that time that he had never previously met Barbara
Cox. [Affidavit of Ryan Cox, Docket No. 49-11, ,-r 5]. Nor does Jerry Catlett recall
ever meeting Barbara Cox prior to David Cox's death on May 31, 2011.
[Deposition of Jerry Catlett, Docket No. 44, p. 29, In. 14-17]. Mrs. Cox argues
that, based upon this testimony, it is clear that she never appeared before either
Mr. Henry or Mr. Catlett and never signed the Agreement.
Further casting a shadow upon the validity of the Agreement, Mrs. Cox
points out that shortly after the death of David Cox, Ohio Casualty's employee,
James Rumpf, appeared at the offices of Griffith Catlett & Hampton Insurance to
inquire as to the circumstances surrounding the execution of the Agreement.
Rumpf showed Mr. Henry a copy of the Indemnity Agreement and asked him to
sign a statement that indicated that he had "personally witnessed the signatures
[ ... ] at the time and date the document was signed by them on February 1,2007".
[Statement of David Henry, Docket No. 49-15]. Mr. Henry testified that he
signed this statement based only upon the recognition of his own signature, and
not upon some independent personal recollection of the alleged execution of the
Indemnity Agreement. [Deposition of David Henry, Docket No. 45, pg. 55, In. 9­
23]. Immediately after meeting with Mr. Henry, Mr. Rumpf approached Jerry
Catlett regarding a proposed affidavit about the execution of the Indemnity
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Agreement. Mr. Catlett refused to sign a proposed affidavit that he had witnessed
Barbara Cox sign the Indemnity Agreement. [Deposition of Jerry Catlett, Docket
No. 44, pg. 35, In. 17-19].
Mrs. Cox presents these facts as undisputed proof that she did not sign the
Agreement and, thus, it is unenforceable. However, Ohio Casualty disputes them.
It contends that if Mr. Catlett testified that it was definitely true that he would not

have signed the Indemnity Agreement as a witness to the signature of Cox if he, in
fact, did not witness a signature and Mrs. Henry does not recall any circumstances
in which he would have notarized the signature of Mrs. Cox if she had not
appeared before him personally to execute the document, she obviously must have
signed the Agreement.
As for the discrepancy regarding the date on the Agreement, Ohio Casualty
concedes that the date stated by Mr. Henry is not the correct date that he notarized
Cox's signature but insists that Mrs. Cox makes much ado about nothing in this
regard. It explains that the dating of the notary section to coincide with the stated
effective date of an Indemnity Agreement is a common practice in the surety
industry. [Affidavit of Paul Chapman, Docket No. 53-1,

~3-4].

In addition, Ohio Casualty retained a handwriting expert, Steven A. Slyter,
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to determine whether the signature on the Indemnity Agreement was, in fact, the
signature of Barbara Cox. In conducting his analysis, Mr. Slyter examined the
original Indemnity Agreement, a 1999 deed from the public record for the
purchase ofDBR's office in Winchester, Kentucky, and Mrs. Cox's application in
June 2011 with Lincoln Financial Group for life insurance benefits resulting from
David Cox's death. Upon comparing the "Barbara Cox" signatures on 1999 deed
and the life insurance benefits application to the original Indemnity Agreement,
Mr. Slyter stated:
The subject signature [on the Indemnity Agreement] in this
examination shows a lengthy, complex collection of pen-strokes
forming the first name (Barbara). Examination of the original
document shows this uninterrupted patter of strokes was produced at
a natural, moderately fast pen-speed. The second name (Cox) also
shows a complex pattern of quickly done pen-strokes but is, of
course, a shorter set of strokes. These patterns of pen movements
accurately repeat the patterns of movements defined by the exemplar
signatures.
As a result, Mr. Slyter opined that all three signatures were of common
authorship. [Docket No. 53-6] .
Third Party Defendants Mr. Catlett and Mr. Henry also retained a
handwriting expert, Jane Eakes. Ms. Eakes compared Mrs. Cox's signature from
12 documents to the signature on the Indemnity Agreement. Ms. Eakes concluded

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that there are no significant structural differences between the signature on the
Indemnity Agreement and the signatures on the 12 other documents, and that there
were an abundance of similarities. As a result, Ms. Eakes opined that the
Indemnity Agreement was executed by Cox. [Docket No. 53-7].
The parties have differing versions of what occurred in February 2007. It is
clear to the Court that the record is replete with conflicting evidence which bears
directly upon the ultimate issue in this case, to-wit, the validity of the Agreement.
In considering motion for summary judgment, it is not for the Court to weigh the
evidence and determine the truth of the matter. See Browning v. Levy, 283 F .3d
761. Rather, the Court determines whether there is a genuine issue for trial. Id.
In this case, genuine issues of fact exist. As such, summary judgment is not
appropriate.
Defendant also argues that the Agreement is unenforceable because Ohio
Casualty materially increased the risk of the indemnitors. She points out that on
January 31, 2007, DBR Engineering submitted an initial bond request from Ohio
Casualty for a DBR e bid of approximately $2.25 to 2.5 million, which was turned
down by Ohio Casualty on February 5, 2007 because the amount requested was
too high. Yet, just 2 years later, on or around March 12, 2009, Ohio Casualty

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approved a bond request submitted through Smith Manus Agency, Inc. for DBR
Engineering's bid on a $1,600,000 contract for the University of Kentucky's
Livestock Disease Center. The bid was successful and Ohio Casualty agreed to a
bond in the amount of $1,929,000.29 Then again, on August 17,2010, Ohio
Casualty approved a bond request submitted via the Smith Manus Agency on
DBR's bid for a $2,394,000 contract for the University of Kentucky's Pharmacy
College, which bid was also successful. Hence, after rejecting David Cox's bond
request in 2007 for only $2.25 to 2.5 million in bonding capacity for DBR
Engineering for being too high, Ohio Casualty shortly thereafter approved an
aggregate bidding amount of more than double that amount, totaling
approximately $4,323,000. Mrs. Cox concludes that the "massive" increase in
DBR's bonding capacity was due to Ohio Casualty's desire for premiums, with no
regard for Mrs. Cox's personal exposure. Mrs. Cox argues that Ohio Casualty's
conduct violated its fiduciary duty to her. Therefore, she contends that it should
not be able to enforce the Agreement.
Ohio Casualty refutes this charge. It asserts that Mr. Chapman's decision to
underwrite and approve the various bonds written for DBR, including those which
are the subject matter of this action, was based on the financial strength and
condition of DBR, its prior experience and its ability to perform the requested
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bonded work. It specifically denies that he approved any bonds on behalf ofDBR
simply to generate premium income. [Affidavit of Paul Chapman, Docket No. 53­
1,

~8].

Ohio Casualty further insists that it was DBR who actively sought the

bonds. So the increased risk, if any, was brought upon by DBR's own actions.
Again, factual issues prohibit this Court from granting summary judgment
on this basis.
C.

Factual issues preclude summary judgment in favor of Ohio
Casualty as to Counts I and II of the Complaint.

In performance of its bonded obligations for its Principal, Ohio Casualty has
currently paid $803,486.66 in claims and expenses [Affidavit of James Rumpf,
Docket No. 50-2]. Counts I and II of the Complaint relate to the Cox's duty to
indemnify, reimburse, and exonerate Ohio Casualty for its losses and expenses
resulting from the execution of its bonds. In seeking judgment as a matter of law
as to these claims, Plaintiff argues that Mr. Cox executed the Agreement in the
capacity of an individual indemnitor and that, by virtue of the clear terms of the
agreement, he, through his estate, is obligated to indemnify Ohio Casualty. In
support of its argument, Plaintiff states that the signature on the Agreement of
David Cox was witnessed by Mr. Catlett and notarized by Mr. Henry. Plaintiff
reiterates its argument that Mr. Catlett testified that he would not have signed the
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Indemnity Agreement as a witness to the signature of Mr. Cox if he, in fact, did
not witness his signature. [Deposition of Jerry Catlett, Docket No. 44, p. 42].
Plaintiff again points out that Mr. Henry testified that his signature appeared as the
notary on the Agreement for the signature of Mr. Cox. [Deposition of David
Henry, Docket No. 45, p. 61]. Mr. Henry does not recall any circumstances in
which he would have notarized the signature of Mr. Cox ifhe had not appeared
before him personally to execute the document. Therefore, according to Plaintiff,
Mr. Cox must have appeared before Mr. Henry as he would not have notarized
their signatures otherwise. [Id.]. Thus Plaintiff maintains, ipso facto, the
Agreement was properly executed and indemnification is due.
Yet Plaintiffs argument obscures the fact that the validity of the
agreement has been called into question. As Defendant points out in her own
motion as well as in her response to Plaintiffs dispositive motion, although Mr.
Cox purportedly signed the agreement on February 1, 2007, written
correspondence between Ohio Casualty's representative and Mr. Henry Insurance
document that the Agreement was not forwarded for signature until February 20,
2007. Moreover, Mr. Cox passed away prior to this lawsuit and is therefore
unable to admit or deny whether the signature on the Agreement is in fact his, or
provide any testimony or details regarding the circumstances of the purported
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execution of the Agreement.
As discussed, supra, credibility judgments and weighing of the evidence
are prohibited on a motion for summary judgment. See Sharp v. Aker Plant
Services Group, Inc., 726 F.3d 789 (6 th Cir. 2013). Yet, that is precisely what
Plaintiff seeks, an adjudication of disputed facts by the undersigned. Again, that is
for the jury.

IV.

CONCLUSION
The parties' briefs demonstrate that factual issues abound in this case.

Moreover, the facts in dispute bear directly upon the claims and defenses asserted
by the parties. As such, summary judgment is inappropriate.
Accordingly, IT IS HEREBY ORDERED Defendant Barbara Cox's
Motion for Summary Judgment [Docket No. 49] be OVERRULED and Plaintiffs
Motion for Partial Summary Judgment [Docket No. 50] be OVERRULED.
This _ _ day of March, 2014.

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