American General Life Insurance Company v. Harshman

Filing 100

MEMORANDUM OPINION AND ORDER: American General's 60 Motion for Summary Judgment is GRANTED. Mrs. Harshman's 73 Motion for Summary Judgment and 76 Motion to Strike are DENIED. A separate judgment shall enter concurrently herewith. Signed by Judge William O. Bertelsman on September 17, 2015. (AWD) cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION AT LEXINGTON
CIVIL ACTION NO. 2013-129 B WOB-REW
AMERICAN GENERAL LIFE
INSURANCE COMPANY
VS.

PLAINTIFF

MEMORANDUM OPINION AND ORDER

ELLEN V. HARSHMAN

DEFENDANT

Plaintiff/Counterclaim

Defendant

American

General

Life

Insurance Co. (“American General”) brought this suit pursuant to
the

Declaratory

Judgment

Act,

seeking

a

declaration

that

policy of insurance existed between it and Peter Harshman.
1, at ¶¶ 21-25.

no

Doc.

Defendant/Counterclaim Plaintiff Ellen Harshman

-- Peter Harshman’s wife and purported beneficiary -- filed an
Answer and Counterclaims.
General

for

violation

of

She asserts claims against American
Kentucky

Revised

Statutes

section

304.12-030, breach of contract, breach of the implied covenant
of good faith and fair dealing, bad faith under the common law
and

Unfair

Claims

Settlement

Practices

Act

(“UCSPA”)

and

Kentucky Consumer Protection Act (“KCPA”), unjust enrichment,
and punitive damages.

Doc. 11, at ¶¶ 54-80.

This matter is now before the Court on cross motions for
summary judgment (Docs. 60, 73) and a motion to strike (Doc.
76).

The Court previously heard oral argument on these motions

and took them under advisement.

Doc. 99.

Having further reviewed this matter, the Court now issues
the following Memorandum Opinion and Order.
Factual and Procedural Background
On February 2, 2011, Columbus Life Insurance Co. issued a
$500,000 policy insuring the life of Peter Harshman.

Doc. 60-5.

Also in 2011, Mr. Harshman applied for another life insurance
policy from American General in the amount of $1,000,000.

Doc.

60-14, at 23-32.
Mr.

Harshman

signed

and

submitted

an

application

for

insurance (“Application”) to American General on September 26,
2011.

Id. at 26.

Mrs. Harshman testified in her deposition

that the information in the Application came from her and Mr.
Harshman and that the signature on Part A of the Application is
her husband’s.
Perry,

assisted

Doc. 60-20, at 3-4. A Paramedical Examiner, Erin
Mr.

Harshman

with

completing

questions contained in Part B of the Application.
14, at 30.

the

medical

See Doc. 60-

Part B of the Application contains Mr. Harshman’s

electronic signature and Erin Perry’s electronic signature, both
dated September 26, 2011.

Id.

2

Part A of the Application -- which indisputably bears Mr.
Harshman’s actual signature -- contains the following important
language1 above the signature line:
I, the Primary Proposed Insured and Owner signing
below, agree that I have read the statements contained
in this application and any attachments or they have
been read to me.
They are true and complete to the
best of my knowledge and belief.
I understand that
this application: (1) will consist of Part A, Part B,
and if applicable, related attachments including
supplement(s) and addendum(s); and (2) shall be the
basis for any policy and any rider(s) issued.
I
understand that any misrepresentations contained in
this application and relied on by the Company may be
used to reduce or deny a claim or void the policy if:
(1) such misrepresentation materially affects the
acceptance of the risk; and (2) the policy is within
its contestable period.
Except as may be provided in any Limited Temporary
Life Insurance Agreement, I understand and agree that
even if I paid a premium no insurance will be in
effect under this application, or under any new policy
or any rider(s) issued by the Company, unless or until
all three of the following conditions are met: (1) the
policy has been delivered and accepted; and (2) the
first full modal premium for the issued policy has
been paid; and (3) there has been no change in the
health of the Proposed Insured(s) that would change
the answers to any question in the application before
items (1) and (2) in this paragraph have occurred. I
understand and agree that if all three conditions
above are not met: (1) no insurance will begin in
effect; and (2) the Company’s liability will be
limited to a refund of any premiums paid, regardless
of whether loss occurs before premiums are refunded.
Doc. 60-14, at 26 (emphasis added).

1

Part B of the Application -- which bears Mr. Harshman’s electronic signature
-- contains nearly identical language. Doc. 60-14, at 30.

3

Additionally, when completing Part A of the Application,
Mr.

Harshman

indicated,

by

checking

a

“yes”

box

in

Section

10.A., that he wanted to “replace” his Columbus Life Policy with
the American General policy for which he was applying.
24.

The Application defines “replace” as follows:

Id. at
“Replace

means that the insurance being applied for may replace, change
or

use

any

insurance

monetary

policy

or

value

of

any

annuity.”

existing

Id.

But

or

Mr.

pending

Harshman

life
never

actually replaced his Columbus Life policy; it remained in force
until his death.

See Doc. 60-18, at 2-3.

Following Mr. Harshman’s submission of his Application to
American General, but before the company issued a policy, he
received medical treatment on three different occasions.
Harshman

first

visited

Dr.

Peter

Liu

complaining of muscle pain and weakness.

on

October

21,

Doc. 60-8, at 4.

Mr.
2011,
Dr.

Liu referred Mr. Harshman to a neurologist, Dr. Patrick Leung,
for a consultation; Mr. Harshman then saw Dr. Leung on November
18, 2011.

Doc. 60-10, at 2.

Dr. Leung’s notes from the visit

indicate that Mr. Harshman’s symptoms could be consistent with
“[m]otor neuron disease or ALS.”

Id. at 3.

treatment

visit

was

an

emergency

room

on

The final medical
November

26, 2011;

while walking down a flight of stairs, Mr. Harshman’s legs gave

4

out and he fell, hitting his head.

Doc. 60-12, at 2.

consulted Dr. William Wooster at the emergency room.
On

November

16,

2011,

Mr.

Harshman

signed

He

Id. at 3.
a

Policy

Acceptance and Amendment of Application (“Amendment”) form sent
to him by American General.

Doc. 60-9, at 2.

The Amendment

first noted some changes that Mr. Harshman needed to make to his
answers on Part B of his Application.

Id.

The form then

required Mr. Harshman to make the following representation to
American General:
I represent, on behalf of myself and any dependent who
may have been proposed for insurance, that to the best
of my knowledge and belief:
1. There have been no changes since the date of the
application in my health or in any other condition;
and
2.
Neither I nor any other proposed insured has
since the date of the application:
a. Consulted a licensed health care provider or
received medical or surgical advice or treatment;
or
b. Acquired any knowledge or belief that any
statements made in the application are now
inaccurate or incomplete.
Doc. 60-9, at 2 (emphasis added).
representation

on

November

16,

Mr. Harshman signed this

2011,

without

disclosing

to

American General that he had visited Dr. Liu, a licensed health
care provider, on October 21, 2011.

See id.

Mr. Harshman paid the first premium due on the policy on
November 29, 2011.

Doc. 60-13, at 2.
5

The $1,000,000 policy

insuring his life purportedly took effect on December 15, 2011.
Doc. 60-14, at 4.
On

October

26,

2012,

Mr.

Harshman

failure, a complication due to ALS.

died

of

respiratory

Doc. 60-17, at 2.

Mrs.

Harshman submitted a claim for payment of the $1,000,000 death
benefit to American General on November 21, 2012.
Mr.

Harshman

policy,

died

American

within
General

two

years

of

conducted

the

a

Id.2

issuance

contestable

Because
of

the

claims

investigation in response to Mrs. Harshman’s claim for benefits.
Doc. 60-19, at 3.
On April 10, 2013, American General sent Mrs. Harshman a
letter denying her claim for benefits.

Id.

In that letter,

American General referenced the language quoted above from the
Application and the Amendment.

Id. at 2-3.

With respect to the

Application, American General cited the language stating that
“no insurance will be in effect” unless certain conditions were
satisfied.

Id.

With respect to the Amendment, American General

cited the representation Mr. Harshman made stating that he had
not consulted a licensed health care provider since the date he
applied for insurance.

Id. at 3.

2

As noted above, Mr. Harshman’s Columbus Life policy was still in force at
the time of his death.
Mrs. Harshman therefore received approximately
$250,000 from Columbus Life in August of 2012 as part of an accelerated death
benefits claim following her husband’s March 2012 ALS diagnosis; she received
another approximately $250,000 payment from Columbus Life in January of 2013
following her husband’s death. Doc. 60-18, at 2-3.

6

The letter then went on to explain the basis for American
General’s

denial

of

Mrs.

Harshman’s

claim

and

the

company’s

decision to rescind the policy:
After the physical examination on September 26, 2011
but prior to the signing of the Good Health statement
on the Policy Amendment and prior to the first premium
payment on November 30, 2011; Mr. Harshman consulted
Dr. Peter Liu on October 21, 2011 complaining of a
history of muscle spasms and weakness of both arms and
legs beginning in September. He indicated that there
were
no
changes
in
this
Condition
after
he
discontinued taking Simvastatin.
This office visit
should have been included on the Health Statement and
the policy returned to American General.
True
information concerning this office visit would have
changed the answers to Application questions Part B
5A9 and 5G from “no” to “yes”.
A neurology referral with Dr. Patrick Lueng on
November 18, 2011 noting a history of rapidly
progressing weakness in the right arm and leg with
muscle twitches since September, 2011 and EMG/NCS done
on the same day suggests a diagnosis of motor neuron
disease.
Additionally there was treatment at St
Joseph Hospital Emergency Department on November
26, 2011 for a head injury caused by his legs giving
out.
Both these medical interventions occurred after
the Good Health Statement was signed but prior to the
payment of the policy premium on November 30, 2011 and
prior to the policy effective date of December 15,
2011[.]
If American General’s Underwriting department had been
aware of the true facts concerning Mr. Harshman’s
health history and condition, it would not have issued
this policy.
If the symptoms had first manifest[ed]
prior to the application date of September 26, 2011
and the Underwriting Department had been aware of
those symptoms, they would have delayed issuing the
policy until a full neurological work-up could have
been completed.
Therefore, due to the misrepresentation of pertinent
information on the application and its attachments,
7

supplements and addendums, it is necessary to rescind
this policy, making the policy null and void from its
inception date.
Premium received since the effective
date will be refunded to you.
Id. (emphasis added).
On May 6, 2013, American General initiated this declaratory
judgment action.

Doc. 1.

On August 12, 2103, Mrs. Harshman

filed an Answer and Counterclaim against American General.

Doc.

11.
Analysis
A.

Harshman’s Motion to Strike
1.

The Amendment Form

There is a signed copy of the Amendment form in the record,
and the form clearly states that it “will be made a part of the
policy.”

Doc 60-9, at 2.

Mr. Harshman therefore gave his

written consent to the changes to the Application by signing the
Amendment.

Contrary

interpretation,
requires:

this

to
is

Mrs.

Harshman’s

plainly

all

that

counsel’s
the

statutory

insurance

code

“Any application for insurance in writing by the

applicant shall be altered solely by the applicant or by his
written consent . . . .”

Ky. Rev. Stat. Ann. § 304.14-090(1)

(emphasis added).
Mrs.

Harshman’s

counsel

also

advances

an

ill-founded

reading of the Kentucky statutes in support of his argument that
an unsigned Amendment form cannot be made part of the policy via
8

attachment.

This argument ignores the reality that American

General sent Mr. Harshman the policy for review -- including as
part of the policy an unsigned Amendment form and both parts of
the Application -- at the same time it requested that he sign
the

Amendment

requires.

form

because

Kentucky’s

insurance

code

so

Ky. Rev. Stat. Ann. § 304.12-030(2)(b) (“The policy

or contract owner shall have the right to return the policy or
contract within thirty (30) days of the delivery of the policy
or contract and receive an unconditional full refund of all
premiums or considerations paid on it, including any policy fees
or charges . . . .”); see also Doc. 86-1 (2011 Delivered Policy
with

unsigned

Amendment

form

attached);

Doc.

75-41,

(Letter

dated November 10, 2011 requesting the return of the signed
Amendment form).3
By attaching a blank Amendment form to the copy of the
insurance policy that it sent to Mr. Harshman for his review,
American

General

complied

with

Kentucky’s

insurance

code:

“‘Policy’ means the written contract of, or written agreement
for,

or

effecting

insurance,

by

whatever

name

called,

and

includes all clauses, riders, indorsements, and papers which are
attached thereto.”

Ky. Rev. Stat. Ann. § 304.14-020 (emphasis

3

This argument further ignores that Mr. Harshman indisputably signed Part A
of the Application where he explicitly agreed that Parts A and B of the
Application and any “related attachments” would be made part of the policy.
Doc. 60-14, at 26.

9

added).

Contrary to counsel’s assertion, there simply is no

provision

in

Kentucky’s

insurance

code

that

requires

all

of

those documents to be signed before they are attached to the
policy.
American General accordingly would be able to present an
admissible version of the Amendment form at trial.

The Court

will thus deny Mrs. Harshman’s motion to strike this document.
2.

Part B of the Application
Mrs. Harshman similarly argues that American General cannot

rely on Part B of the Application because it is not signed by
Mr.

Harshman

signature.

personally,

but

rather

bears

his

electronic

Her counsel relies on a statement made during the

deposition of American General’s 30(b)(6) witness:
Q
Okay. And, again, I believe I asked you earlier
if there’s any proof that he actually did an
electronic signature.
MR. DONAHUE: Object to the form.
A

I don't know if there’s any proof that he did it.

Doc. 74-2, at 49.
But,
Kentucky

as
law

discussed

above,

that

Harshman

Mr.

there
had

is

no

requirement

to

sign

Part

B

under

of

the

Application personally in order for it to be incorporated into
the policy.
prohibition:

Mrs. Harshman relies on the following evidentiary
“No

application

for
10

the

issuance

of

any

life

insurance policy shall be admissible in evidence in any action
relative to such policy, unless a true copy of the application
was attached to or otherwise made a part of the policy when
issued and delivered.”
(emphasis added).

Ky. Rev. Stat. Ann. § 304.14-100(1)

No record evidence questions that American

General attached a correct copy of Mr. Harshman’s answers to
Part

B

of

the

Application

when

it

delivered

the

policy.

Doc. 86-1, at 27-30.
American General accordingly would be able to present an
admissible version of Part B of the Application at trial.
Court

will

thus

deny

Mrs.

Harshman’s

motion

to

strike

The
this

document as well.
B.

American General’s Request to Prevent Mrs. Harshman
from Relying on Donna Reznicek’s Deposition Statement

In its Consolidated Reply and Response, American General
objects to Mrs. Harshman’s “reliance on the statement, ‘I don’t
know for sure that I would have made a different decision’ as
evidence” pursuant to Federal Rule of Civil Procedure 56(c)(2).
Doc. 81, at 9 & n.1.

Donna Reznicek, the American General

underwriter who processed Mr. Harshman’s Application, made that
statement during her deposition.
Rule 56(c)(2) provides that “[a] party may object that the
material cited to support or dispute a fact cannot be presented
in

a

form

that

would

be

admissible
11

in

evidence.”

American

General argues that the statement lacks a sufficient foundation
because Ms. Reznicek testified that (1) “she only learned during
her deposition preparation that additional information has come
to light that triggered American General’s decision to rescind
the policy” and (2) “she did not remember the details of this
additional information.”
points

out

that

Mrs.

Doc. 81, at 10.
Harshman’s

American General also

counsel

did

not

show

Ms.

Reznicek any of the documents or additional information at issue
before asking her the question that elicited the response on
which he relies so heavily.

Id.

The relevant portions of Ms. Reznicek’s deposition at issue
proceeded as follows:
Q
Okay. And, so, are you aware that American
General has declined to pay his beneficiary’s claim?
A

I am now.

Q

You didn't know before I asked you the question?

A
I did not know before the -- that I -- that I
found it out when I was gonna be deposed.
Q
Okay. So since August of 2014 when you learned
you were gonna be deposed, what have you learned? Why
was this claim -- why was his beneficiary’s claim
denied?
MR. DONAHUE: Object to the form.
A

I don't know the specific details.

Doc. 81-5, at 6 (emphasis added).

12

Q
Okay. Do you have any reason to believe, as you
sit here today, that you did not have all of the
medical records on Mr. Harshman[?]
A
Without looking at it, I’m not sure of the dates
of the information and when they occurred.
Q
And
when
did
you
additional doctor visits?

learn

of

these

alleged

MR. DONAHUE: Object to the form. Foundation.
A

After I learned of this deposition.

Id. at 8-9 (emphasis added).
Q
Well,
you
said
there’s
additional
medical
evidence.
Was it something [Mr. Donahue] told you?
Was there a document you were provided? I'm trying to
figure out what you’re referring to.
A

I believe there was a document.

Q

And what did the document tell you?

A

I don’t remember the specific details.

Q
So if you don’t remember the specific details on
something you were shown yesterday, how can you sit
here today and tell me that based on that document
your decision would have been otherwise?
MR. DONAHUE: Object to the form.

Argument[at]ive.

A
I don’t know for sure that I would have made a
different decision.
Id. at 12 (emphasis added).
The

Court

grants

American

General’s

request

based

on

Federal Rule of Evidence 602, which provides that a witness may
only testify to matters within the witness’s personal knowledge.
Fed. R. Evid. 602 (“A witness may testify to a matter only if
13

evidence is introduced sufficient to support a finding that the
witness has personal knowledge of the matter.”).

The deposition

transcript shows that Ms. Reznicek did not have any personal
knowledge

about

American

General’s

decision

to

rescind

the

policy or the additional medical information on which American
General relied to do so.
Furthermore,

Ms.

Reznicek’s

statement

that

she

did

not

“know for sure” that she “would have made a different decision”
is not an admission that American General would have issued Mr.
Harshman’s policy even if it had known of the additional doctor
visits that he did not disclose to American General between his
date of application and the date he paid his first premium.
American
averred:

General’s

30(b)(6)

witness,

Kathleen

Maio,

“I can state unequivocally that American General would

not have issued the Policy had it known the true facts regarding
Mr.

Harshman’s

weakness.”

symptoms

and

treatment

Doc. 60-21, at ¶ 12.

for

progressing

muscle

No evidence in the record

contradicts Ms. Maio’s assertion, and Mrs. Harshman’s quotation
of Ms. Reznicek’s statement out of context does not create a
genuine dispute of material fact.

14

C.

American General’s Claim
American General seeks a declaration from the Court stating

that

Mr.

Harshman’s

policy

never

took

effect

due

to

his

misrepresentations on Part of the Application or that the policy
was void ab initio due to Mr. Harshman’s misrepresentations.
Doc. 1, at ¶ 25.

Because the undisputed facts demonstrate that

Mr. Harshman did not disclose three medical treatments that he
received between the date he applied for insurance and the date
he

paid

his

first

premium,

American

General

is

entitled

to

summary judgment on this basis as well.
There can be no dispute that Mr. Harshman applied for an
American General policy of insurance on September 26, 2011, Doc.
60-14, at 26, that he signed an Amendment form on November 16,
2011, Doc. 60-9, at 2, and that he paid his first premium on
November 29, 2011, Doc. 60-13, at 2.

There also is no dispute

that Mr. Harshman visited Dr. Liu on October 21, 2011, Doc. 608, at 4, Dr. Leung on November 18, 2011, Doc. 60-10, at 2, and
the emergency room on November 26, 2011, Doc. 60-12, at 2, and
that all of those visits occurred prior to the date on which Mr.
Harshman

paid

Furthermore,

his

Mrs.

first

Harshman

premium
has

not

to

American

identified

any

General.
evidence

contradicting American General’s assertion that Mr. Harshman’s
misrepresentations were material because they would have changed
15

answers on Part B of his Application.

Under Kentucky law, these

undisputed facts entitle American General to a declaration that
no policy of insurance ever existed between it and Mr. Harshman.
1.
“It

Condition Precedent Argument

would

seem

unnecessary

to

cite

authority

for

the

proposition that where there is a clearly expressed condition
precedent to liability, the court must give that condition force
and effect.”

Mullins v. Nat’l Cas. Co., 117 S.W.2d 928, 931

(Ky. 1938).

On Part A of the Application quoted in detail

above, Mr. Harshman indisputably signed an unambiguous condition
precedent to coverage:
I understand and agree that even if I paid a premium
no insurance will be in effect under this application,
or under any new policy or any rider(s) issued by the
Company, unless or until all three of the following
conditions are met: (1) the policy has been delivered
and accepted; and (2) the first full modal premium for
the issued policy has been paid; and (3) there has
been no change in the health of the Proposed
Insured(s) that would change the answers to any
question in the application before items (1) and (2)
in this paragraph have occurred.
I understand and
agree that if all three conditions above are not met:
(1) no insurance will begin in effect; and (2) the
Company’s liability will be limited to a refund of any
premiums paid, regardless of whether loss occurs
before premiums are refunded.
Doc. 60-14, at 26.
On these facts, the first two conditions were satisfied.
American General delivered the policy, and Mr. Harshman accepted
it and paid the first premium.

However, the third condition was
16

not

satisfied.

The

undisputed

evidence

shows

that

Mr.

Harshman’s health did change and that his change in health would
have led to different answers on two questions of Part B of his
Application.

Accordingly “no insurance [began] in effect” and

American General is entitled to judgment as a matter of law.
Mrs. Harshman’s argument that the “mend the hold” doctrine
should prevent American General from relying on the condition
precedent to rescind the insurance policy is meritless.

First,

Mrs. Harshman cites no Kentucky case law adopting the doctrine.
Second, even if the doctrine does apply in Kentucky, it would
not

bar

American

precedent.

General

from

relying

on

the

condition

The claim-denial letter that American General sent

to Mrs. Harshman’s explicitly referenced the language of the
condition

precedent,

so

American

General

has

not

actually

changed its litigation position.
2.

Misrepresentation Argument

Mr. Harshman misrepresented the state of his health when he
signed the Amendment form, stating that he had not “[c]onsulted
a licensed health care provider or received medical or surgical
advice

or

treatment”

insurance policy.

since

applying

Doc. 60-9, at 2.

for

an

American

General

There can be no dispute

that he had consulted Dr. Liu for medical treatment in October

17

of 2011, approximately three weeks before signing the Amendment
form.
But
General

the

provision

relies

110(3),

on,

provides

of

the

Kentucky
that

insurance

Revised

code

Statutes

that

American

section

misrepresentations

on

301.14-

insurance

applications “shall not prevent a recovery under the policy”
unless:
The insurer in good faith would either not have issued
the policy or contract, or would not have issued it at
the same premium rate, or would not have issued a
policy or contract in as large an amount, or would not
have provided coverage with respect to the hazard
resulting in the loss, if the true facts had been made
known to the insurer as required either by the
application for the policy or contract or otherwise.
American General therefore must demonstrate that it would not
have

issued

Harshman’s

the

policy

health.

had

But,

it
as

known

the

discussed

true

state

above,

there

of
is

Mr.
no

evidence in the record that contradicts Ms. Maio’s affidavit
stating that American General would not have issued the policy
had it known the true state of Mr. Harshman’s health.

Indeed,

the Court could take judicial notice that an insurance company
would

not

issue

possibly has ALS.

a

life

insurance

to

a

person

that

American General was thus within its rights

to rescind the policy at issue.

18

policy

D.

Harshman’s Claims
1.

Mrs.
Kentucky’s
when

it

Violation of the Replacement Statute

Harshman

alleges

replacement
contested

Harshman’s policy.

that

statute,

$500,000

of

American

Ky.

Rev.

the

General

Stat.

death

§

violated

304.12-030,

benefit

on

Mr.

This claim fails as a matter of law because

the plain language of the replacement statute shows that it does
not apply on these facts.
The insurance code defines replacement as follows:
(a) “Replacement” means any transaction in which a
life insurance policy or annuity contract is to
purchased and it is known or should be known to
proposing producer, or to the proposing insurer
there is no producer, that by reason of
transaction, an existing life insurance policy
annuity contract has been or is to be:

new
be
the
if
the
or

1. Lapsed, forfeited, surrendered or partially
surrendered, assigned to the replacing insurer, or
otherwise terminated;
2. Converted to reduced paid-up insurance, continued
as extended term insurance, or otherwise reduced in
value by the use of nonforfeiture benefits or other
policy values;
3. Amended so as to effect either a reduction in
benefits or in the term for which coverage would
otherwise remain in force or for which benefits
would be paid;
4. Reissued with any reduction in cash value; or
5. Used in a financed purchase[.]
Id. § 304.12.-030(1)(a).

There was no replacement transaction

under Kentucky law between American General and Mr. Harshman
19

because there is no evidence that Mr. Harshman used his previous
Columbus Life policy in any way listed in the statute.
evidence supports the opposite conclusion:

The only

that Mr. Harshman’s

Columbus Life policy remained in full force until his death.
There

is

apparently

no

Kentucky

interpretation of this statute.
statute,

its

purpose

is

authority

on

the

As the Court interprets the

to

prevent

an

insured

from

inadvertently, or upon being persuaded by an insurance agent,
replacing a policy that is no longer contestable with a new
policy that is contestable.

This did not happen here, however,

for the first policy was not cancelled, was not contestable, and
the insured’s beneficiary collected under it.
If there was no replacement transaction under Kentucky law,
then American General could not have violated the replacement
statute.

The Court accordingly will grant summary judgment to

American General on Mrs. Harshman’s claim for violation of the
replacement statute.
2.
It

is

Breach of Contract and Breach of Covenant of
Good Faith and Fair Dealing
axiomatic

that

the

first

element

in

a

claim

breach of contract is the existence of a valid contract.

for
See

Barnett v. Mercy Health Partners-Lourdes, Inc., 233 S.W.3d 723,
727 (Ky. Ct. App. 2007) (identifying the elements of the claim
as the existence of a contract, breach of that contract, and
20

damages).

And a party can only breach the covenant of good

faith and fair dealing where a valid contract exists.

Quadrille

Bus. Sys. v. Ky. Cattleman’s Assoc., 242 S.W.3d 359, 365 (Ky.
Ct.

App.

2007)

(“Under

Kentucky

law,

in

the

absence

of

an

underlying contract, no covenant of good faith and fair dealing
arises.”).

Because the condition precedent to Mr. Harshman’s

policy was never satisfied, there never was a valid contract
between

American

General

and

Mr.

Harshman.

The

Court

accordingly will grant summary judgment to American General on
Mrs. Harshman’s claims for breach of contract and breach of the
covenant of good faith and fair dealing.
3.

Bad Faith Claims

Mrs. Harshman brings three claims for bad faith against
American General.

The first is a common law tort claim.

second is a claim for violating the UCSPA.

The

The third is a claim

for violating the KCPA.
To succeed on a claim for bad faith, whether common law or
statutory, Mrs. Harshman must show (1) that the insurer was
obligated to pay the claim under the terms of the policy, (2)
that the insurer lacked a reasonable basis in law or fact for
denying the claim, and (3) that the insurer knew there was no
reasonable

basis

for

denying

the

claim.

Davidson

Freightways, Inc., 25 S.W.3d 94, 100 (Ky. 2000).
21

v.

Am.

Because an

element of each bad faith claim is American General’s obligation
to

pay

on

the

policy

and

there

was

no

valid

contract

of

insurance between it and Mr. Harshman, American General did not
have an obligation to pay.
summary

judgment

to

The Court accordingly will grant

American

General

on

all

three

of

Mrs.

Harshman’s claims for bad faith.
4.

Unjust Enrichment

Mrs. Harshman also brings a claim for unjust enrichment,
arguing

that

American

General

refused to pay on the policy.

was

unjustly

enriched

when

it

This argument is without merit.

The elements of a claim of unjust enrichment under Kentucky
law are (1) a “benefit conferred on [American General] at [Mrs.
Harshman’s] expense,” (2) “a resulting appreciation of benefit
by

[American

General],”

and

(3)

“inequitable

benefit without payment for its value.”
S.W.3d

73,

78

(Ky.

Ct.

App.

2009).

retention

of

Jones v. Sparks, 297
On

these

facts,

Harshman has not conferred a benefit on American General.

Mrs.
It is

undisputed that after rescinding Mr. Harshman’s policy American
General
interest.

returned

to

Mrs.

Harshman

all

premiums

paid

with

The Court accordingly will grant summary judgment to

American General on Mrs. Harshman’s claim for unjust enrichment.

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5.

Punitive Damages

There is no recovery and no bad faith, therefore obviously
the insured cannot recover punitive damages.

Therefore, having reviewed this matter, and being otherwise
sufficiently advised,
IT IS ORDERED that American General’s motion for summary
judgment (Doc. 60) be, and is hereby, GRANTED.

Mrs. Harshman’s

motion for summary judgment (Doc. 73) and motion to strike (Doc.
76) be, and are hereby, DENIED.

A separate judgment shall enter

concurrently herewith.

This 16th day of September, 2015.

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