Proctor v. GEICO Insurance Agency, Inc.
Filing
71
MEMORANDUM OPINION & ORDER: (1) Defendant's 41 AMENDED MOTION for Summary Judgment is GRANTED; and (2) Judgment in favor of the Defendant will be entered contemporaneously herewith. Signed by Judge Joseph M. Hood on 1/2/2019.(JJ)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
LAWRENCE PROCTOR,
)
)
)
)
)
)
)
)
)
)
Plaintiff,
v.
GEICO GENERAL INSURANCE
COMPANY,
Defendant.
Case No.
17-cv-348-JMH-MAS
MEMORANDUM OPINION
AND ORDER
***
Lawrence Proctor claims that he was involved in an accident
involving
his
January 2015.
truck
and
fifth-wheel
recreational
vehicle
in
After the accident, Proctor submitted an insurance
claim to GEICO to compensate him for damages to his RV.
After
investigating the claim, however, GEICO denied coverage because
GEICO concluded that the damage to the RV claimed by Proctor
preexisted the accident in January 2015.
As a result, Proctor
brought this lawsuit for breach of contract and bad faith.
But
Proctor made a misrepresentation of material fact pertaining to
the purchase price of the RV that permitted GEICO to deny coverage
under the insurance policy.
As a result, GEICO is entitled to
judgment as a matter of law.
I.
Factual and Procedural Background
Plaintiff Lawrence Proctor claims that he was involved in a
single-vehicle accident on January 6, 2015, in Mount Vernon,
Kentucky, involving his truck and 2003 Keystone Challenger RV.
1
[DE 1-1 at 6].
On the Initial Loss Report, Proctor described the
accident using the following narrative:
I was turning into a [s]ervice station when a
“DRUGGIE” walked out in front of me. I veered off the
road to keep from hitting the man with my truck and my
RV [f]ifth[-]wheel [t]railer. I went down into a Catch
basin alongside the road. This basin was approximately
6 feet deep and was very rough. I needed a wrecker to
get pulled back onto hard surface. The rear stabilizers
[were] pushed back and folded over twisting all of the
metal and ruining the stabilizers. The Skirting
[alongside] the door was twisted and mangled. The
plastic end caps were [shaken] loose and lost. The spare
tire is carried underneath the belly of the RV. It may
be damaged. The three slides were dislodged, and are
sitting disoriented in the RV. All three slides are now
sitting at an angle to the RV. I have attempted to
tighten the slides up to prevent air leakage, I reside
in this 37[-]foot RV and it has been cold outside.
[DE 41-1 at 3, Pg ID 464; see DE 41-2 at 1, Pg ID 487].1
After
the accident, the vehicle was extracted from the catch basin by
Throughtruck,
a
towing
company.
[DE
49-3].
There
were
no
witnesses to the collision and no police report was filed after
the accident.
On
January
17,
2015,
insurance carrier, GEICO.
Proctor
[DE 41-1].
submitted
a
claim
to
his
The GEICO insurance policy
provides the following measures of liability for insurance claims,
(1) “[T]he actual cash value of the stolen or damaged property at
1
Most of the narrative that is reproduced in Defendant’s Amended
Motion for Summary Judgment [DE 41-1 at 3, Pg Id 464] is not
visible in the “Customer’s Description” dialogue box on the copy
of the Initial Loss Report Form [DE 41-2 at 1, Pg Id 487]. Still,
the Plaintiff does not dispute the accuracy of the narrative in
his Response. [DE 49 at 1, Pg ID 724].
2
the time of the loss,” or (2) “[T]he amount necessary to repair
the damaged property to its pre-loss condition.”
Pg ID 498 (emphasis omitted)].
[DE 41-3 at 10,
The policy also states that
Coverage is not provided to any person who
knowingly conceals or misrepresents any material fact or
circumstance relating to this insurance:
(a) at the time of application; or
(b) at any time during the policy period; or
(c) in connection with the presentation
settlement of a claim.
or
[Id. at 28; Pg ID 516].
After Proctor filed the insurance claim, Chris Cirillo, a
Senior Field investigator, investigated the claim on behalf of
GEICO.
[DE 41-4 at 1, Pg ID 521].
According to Cirillo, a search
of the RV’s title and claims history revealed that the RV was
salvaged in June 2013.
[Id. at 1, Pg ID 522].
Additionally,
Cirillo claims that, prior to Proctor’s purchase of the RV, Shelter
Insurance Company identified the RV as a total loss and that the
RV was listed for sale at a public auction by Copart, Inc.
at 1-2, Pg ID 522-23].
[Id.
Proctor does not deny the accuracy of this
information but asserts that other than Cirillo’s search of the
title and claims history, the other material cited in support of
this factual statement is inadmissible evidence.
[DE 49 at 2, Pg
ID 725].
According to GEICO, photographs of the RV that were used when
it was previously listed for sale by Coparts, Inc., indicate that
3
the damage claimed by Proctor preexisted the accident on January
6, 2015.
[See DE 41-1 at 4, Pg ID 465; DE 41-4 at 5-9, Pg ID 525-
29]. Cirillo claims that he located the photographs using a Google
cache search on January 29, 2015, and that copies were taken from
easyexport.us, an auto auction website. [DE 41-4 at 2, Pg ID 522].
Proctor does not dispute that his RV was previously sold by
Coparts, Inc., but argues that the photographs and documents
allegedly obtained from Coparts are unauthentic and inadmissible.2
[DE 49 at 2-3, Pg ID 725-26].
Proctor has also provided an
affidavit of Jim Bowman who states that he sold the 2003 Keystone
Challenger RV to Proctor and that it had been salvaged because of
water damage.
[DE 49-5 at 1, Pg ID 772].
Bowman also asserted
that he had repaired the RV and that the RV had no exterior damage
when Bowman sold it to Proctor.
[Id.].
On January 30, 2015, Cirillo took photographs of Proctor’s RV
and conducted a recorded interview with Proctor.
[See DE 41-4 at
2, 11-46, Pg ID 522, 531-66]. In the interview, Cirillo identified
himself as a representative of GEICO insurance company.
20, Pg ID 540].
[Id. at
Additionally, Proctor affirmatively indicated
that he was aware that the interview was being recorded.
[Id. at
2
In fact, Proctor has filed a Motion in Limine [DE 48] to exclude
this evidence. This alleged evidence of prior damage is included
here to help explain the initial explanation for GEICO’s denial of
Proctor’s claim, but it is not relied upon by the Court in this
memorandum order and opinion.
4
21, Pg ID 541].
Proctor stated that he had owned the RV since
December 2013 and bought it from a man in Berea, Kentucky.
at 25, 37 Pg ID 545, 557].
narrative of the accident.
[Id.
Furthermore, Proctor gave a lengthy
[Id. at 26-31, Pg ID 546-51].
Then, Cirillo asked Proctor how much money he paid for the
RV, to which Proctor responded, “I don’t really remember.
a lot of medicine.”
[Id. at 37, Pg ID 557].
I take
Cirillo responded by
saying, “We’re going to need to find out . . . . Or you can tell
me if you remember.”
[Id.].
don’t know what it was.
[Id.].
Proctor replied, “16 something.
I don’t know who I can find out from.”
Cirillo asked, “16 what, thousand?”
replied, “Yeah.”
I
[Id.].
Proctor
[Id.].
Later, Cirillo asked Proctor about the condition of the RV
when Proctor purchased it.
[Id. at 39, Pg ID 559].
Proctor stated
that he had done some work on the RV “[b]ut it was in decent
condition.”
[Id.].
on there before?”
Next, Cirillo asked, “Was any of this damage
[Id.].
Proctor responded, “No.”
[Id.].
Additionally, Cirillo asked Proctor about any repairs that he
had made after he purchased the RV.
[Id. at 41, Pg ID 561].
Proctor responded that he had made minor cosmetic changes with the
electricity, had worked on the slides, and had gotten a new
hydraulic pump.
[Id. at 41-43, Pg ID 561-63].
Subsequently, GEICO denied Proctor’s claim.
Initially, GEICO
sent two letters in February 2015, one to Proctor and another to
5
his previous attorney, making a reservation of rights under the
contract because Proctor “may have breached condition 13 in Part
V” of his contract dealing with fraud and misrepresentation.
41-11 at 1-4, Pg ID 646-49].
[DE
Then, on June 15, 2015, GEICO sent
a letter to Proctor denying his claim because after investigation,
GEICO
determined
that
the
claimed
damages
were
“pre-existing
damages” that “occurred before the RV was listed on the policy.”
[Id. at 5, Pg ID 650].
Proctor filed a lawsuit alleging breach of contract and bad
faith
in
violation
of
the
Kentucky
Unfair
Claims
Settlement
Practice Act (“UCSPA”) in Kentucky state court on June 1, 2017.
[DE 1-1 at 5-9].
In the state court complaint, Proctor asserted
that “The Keystone RV had a market value of approximately $6,000.00
immediately prior to this damage.”
[Id. at 6].
the state court action on June 22, 2017.
The
state
court
record
interrogatories on Proctor.
GEICO answered in
[Id. at 10-15].
indicates
that
GEICO
served
In response to an interrogatory,
Proctor stated that
The approximate value of the RV pre-accident was likely
between $10,000 and $12,000, based upon the purchase
price paid by the Plaintiff ($7,000.00) and the
additional
improvements
made
by
the
Plaintiff
(installation of a hydraulic pump at about $3,500.00,
repair of A/C and furnace at about $750.00, and various
small repairs and upgrades to the interior).
[DE 1-3 at 4].
Additionally, Proctor admitted that he was seeking
to recover damages in excess of $75,000.
6
[Id. at 10].
As a
result, GEICO removed the matter to this Court pursuant to 28
U.S.C. §§ 1441 and 1446.
[DE 1].
On May 30, 2018, a deposition was held where Proctor testified
about the condition of the vehicle at the time of purchase and the
purchase price.3
Initially, it appears that Proctor was confused
about the date he purchased the RV.
741-43].
Proctor
explained
[See DE 49-1 at 1-3, Pg ID
that
he
takes
prescription
medications, specifically Warfarin and Lyrica, that affect his
memory.
[Id. at 3, Pg ID 743].
Still, Proctor indicated that he
could understand and accurately respond to the questions during
the deposition.
[Id. at 3-4, Pg ID 743-44].
During the deposition, Proctor testified that he looked at
the RV twice before purchasing it but did not have it inspected or
appraised. [DE 41-10 at 2-4, Pg ID 635-37]. Proctor also asserted
that he was not aware that the RV was damaged by a fire in 2013
until after the accident in January 2015.
[Id. at 2, Pg ID 635].
Additionally, Proctor testified that he purchased the RV for $7,000
but claimed that the RV had a book value of “23 or 25 [thousand]”
at the time of purchase.
[Id. at 4, Pg ID 637].
Finally, Proctor
testified that he learned about the RV’s salvaged title when
completing the registration paperwork.
[Id.].
3
The parties have only submitted limited excerpts of the
deposition.
7
Proctor was also asked about improvements that he made to the
RV during the deposition.
Proctor was asked,
Now, in your answers to interrogatories, you said
you – and I asked you this earlier – I said, [d]id you
ever install a hydraulic pump? And you said, No.
Now,
I’m
looking
at
your
answers
to
interrogatories, and you say you installed a hydraulic
pump at about $3,500?
[Id. at 5, Pg ID 638].
it.
Proctor responded, “That was the cost of
I still have the hydraulic pump.
And, no, I will not be
installing it. I – I hope to sell that, one of these days, anyway.”
[Id.]
Proctor
hydraulic pump?”
was
then
[Id.].
asked,
you
never
installed
the
To which, Proctor replied, “No, I bought
it . . . . I did not install it.”
Furthermore,
“So
Proctor
was
improvements made to the RV.
[Id.].
asked
about
other
repairs
or
In his deposition, Proctor testified
that he had spent $150 on labor to repair the A/C and furnace in
the RV.
[Id. at 6, Pg ID 639].
Finally, Proctor testified that
he had made no additional improvements or repairs other than small
repairs and upgrades to the interior.
[See id.].
Copies of the RV’s transfer of title and certificate of title
are contained in the record.
The “Transfer of Title by Owner”
appears to be signed by Proctor and indicated that the purchase
price of the RV was $4,682.00.
[DE 41-7].
Additionally, the
“Certificate of Title” indicated that the RV was a rebuilt vehicle.
[DE 41-8].
Furthermore, a sales receipt from Branham Auto Sales,
8
provided by Proctor, indicates that the base price of the RV was
$4,682 and the total price paid was $5,000 after tax and fees.
[DE 49-2 at 1, Pg ID 758].
Lastly, the sales documents appear to
indicate that the list price for the 2003 Challenger RV was $7,995
and that the average retail price for similar RVs was $14,525.4
[DE 49-2 at 4, Pg ID 761].
Additionally, Proctor has submitted a damage report with his
response
in
opposition.
The
inspections by Steve Elswick.
report
was
[DE 49-6].
pictures and diagrams of Proctor’s RV.
compiled
after
two
The report contains
[See id.].
Additionally,
the report indicates that Proctor’s RV was not fit for human
habitation at the time of the report and that a comparable NADA
value for a 2003 Keystone Challenger RV was $24,390.
[Id. at 11-
12, Pg ID 783-84].
GEICO initially filed this motion for summary judgment on
October 29, 2018.
[DE 37].
GEICO sought leave to amend the motion
for summary judgment to provide numbered paragraphs in the fact
section, but otherwise no substantive changes were made to the
initial motion.
[See DE 40; DE 41].
The Court granted GEICO leave
to amend the initial motion for summary judgment and also granted
a short extension for Proctor to respond to the amended motion.
4
It is unclear what condition is associated with the average
retail price listed on the sales documents or why the 2003 Keystone
Challenger purchased by Proctor was listed for a price that was
considerably below the average retail price of similar RVs.
9
[DE 42].
Proctor has responded [DE 49] and GEICO has replied [DE
56], making this matter ripe for review.
II.
Standard of Review and Applicable Law
Summary judgment is appropriate only when no genuine dispute
exists as to any material fact and the movant is entitled to
judgment as a matter of law.
Fed. R. Civ. P. 56(a).
A material
fact is one “that might affect the outcome of the suit under
governing law.”
248 (1986).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
The moving party has the burden to show that “there
is an absence of evidence to support the nonmoving party’s case.”
Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
“A dispute
about a material fact is genuine if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.”
Smith v. Perkins Bd. of Educ., 708 F.3d 821, 825 (6th Cir. 2013)
(internal quotations omitted).
The Court construes the facts in
the light most favorable to the nonmoving party and draws all
reasonable
inferences
in
the
non-moving
party’s
favor.
See
Anderson, 477 U.S. at 248; Hamilton Cty. Educ. Ass'n v. Hamilton
Cty. Bd. of Educ., 822 F.3d 831, 835 (6th Cir. 2016).
In a diversity action, the Court must apply the substantive
law of the forum state and federal procedural law.
Gasperini v.
Ctr. for Humanities, Inc., 518 U.S. 415, 427-28 (1996); Hanna v.
Plumer, 380 U.S. 460, 465-66 (1965); Erie R.R. Co. v. Tompkins,
304 U.S. 64, 78-80 (1938); Hoven v. Walgreen Co., 751 F.3d 778, 783
10
(6th Cir. 2014).
Thus, “where a federal court is exercising
jurisdiction solely because of the diversity of citizenship of the
parties, the outcome of the litigation in the federal court should
be substantially the same . . . as it would be if tried in a State
court.”
Guaranty Trust Co. v. York, 326 U.S. 99, 109 (1945).
Ultimately,
to
determine
whether
summary
judgment
should
be
granted here, the Court must look to Kentucky state law and court
decisions, as well as other relevant materials.
Meridian Mut.
Ins. Co. v. Kellman, 197 F.3d 1178, 1181 (6th Cir. 1999).
III.
Analysis
The only question currently before the Court is whether
Proctor misrepresented a material fact that relieved GEICO from
its obligation to cover the loss and entitles GEICO to judgment as
a matter of law.
Here, GEICO is entitled to summary judgment as
a matter of law because Proctor misrepresented a material fact
pertaining to the original purchase price of the RV during the
claim process that permitted GEICO to deny coverage per the plain
language of the insurance policy.
A.
Breach of Contract
In a similar case, the United States District Court for the
Western
District
of
Kentucky
acknowledged
that
contractual
provisions concerning fraud, misrepresentation, or concealment are
“common to most fire insurance policies and . . . uniformly held
valid.”
Wright v. Grange Mut. Cas. Co., No. 3:13-CV-747-CRS, 2015
11
WL 1298574, at *2 (W.D. Ky. Mar. 23, 2015) (quoting Home Ins. Co.
v. Hardin, 528 S.W.2d 723, 725 (Ky. 1975) (internal citations
omitted)).
Additionally, 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 Mut. Ins. Co. v. Fireman's Fund Am. Ins. Co.,
550 S.W.2d 554, 557 (Ky. 1977); see Masler v. State Farm Mut. Auto.
Ins.
Co.,
894
S.W.2d
633,
635–36
(Ky.
1995).
Contract
interpretation is generally a question of law to be decided by the
Court.
691,
Kentucky Shakespeare Festival, Inc. v. Dunaway, 490 S.W.3d
695
(Ky.
2016);
Kemper
Nat'l
Ins.
Cos.
v.
Distilleries, Inc., 82 S.W.3d 869, 871 (Ky. 2002).
Heaven
Hill
A contract
containing clear and unambiguous terms is enforced as written.
Ky. Shakespeare Festival, Inc., 490 S.W.3d at 695; Kemper Nat’l
Ins. Cos., 82 S.W.3d at 873.
Here,
Proctor
does
not
dispute
the
validity
or
enforceability of any of the provisions contained in the GEICO
policy, including the fraud and misrepresentation provisions at
issue here. [See DE 41-3 at 28, Pg ID 516]. Proctor does, however,
assert that there are genuine disputes of material fact concerning
whether
he
made
material
pursuing his insurance claim.
misrepresentations
[See DE 49].
12
to
GEICO
while
The GEICO policy does not define the term “material.”5
The
insurance policy simply states that the misrepresentation of a
material fact must be made knowingly.
[Id. at 28; Pg ID 516].
Additionally, this Court is unable to find a Kentucky Supreme Court
case that explicitly addresses the standard for a material fact in
the context of a misrepresentation made during the process of
making an insurance claim.
The parties have also not cited any
binding authority under Kentucky law outlining the proper standard
of materiality in the context of an insurance claim.
There
is
ample
authority
in
Kentucky
regarding
material
misrepresentations made in an application for insurance coverage.
The law in Kentucky is clear that “a material misrepresentation in
an application for an insurance policy, though innocently made,
will avoid” the policy.
See, e.g., Metro. Life Ins. Co. v.
Tannenbaum, 240 S.W.2d 566, 569 (Ky. 1951); Prudential Ins. Co. of
Am. v. Lampley, 180 S.W.2d 399, 401 (Ky. 1944); Baker v. Ky. Farm
Bureau Mut. Ins. Co., No. 2017-CA-118, 2018 WL 3814763, at *3 (Ky.
5
Still, the parties do not argue that the term material as used
in the policy is ambiguous. This is not a case about ambiguity of
a term, as opposed to Frigaliment Importing Co., Ltd. v. B.N.S.
Int'l Sales Corp., a case familiar to most law students, where the
court considered whether the word “chicken” in a contract referred
to broilers or fowl. See 190 F. Supp. 116, 117 (S.D.N.Y. 1960).
This case concerns what constitutes a misrepresentation of a
material fact in the context of an insurance claim under Kentucky
law.
13
Ct. App. Aug. 10, 2018).6
In the context of an insurance contract,
“a false answer is material if the insurer, acting reasonably and
naturally in accordance with the usual practice of life insurance
companies under similar circumstances, would not have accepted the
application if the substantial truth had been stated.” Tannenbaum,
240 S.W.2d at 569.
Additionally, K.R.S. § 304.14-110, cited by Proctor, provides
that
All statements and descriptions in any application
for an insurance policy or annuity contract, by or on
behalf of the insured or annuitant, shall be deemed to
be
representations
and
not
warranties.
Misrepresentations, omissions, and incorrect statements
shall not prevent a recovery under the policy or contract
unless either:
(1) Fraudulent; or
(2) Material either to the acceptance of the risk,
or to the hazard assumed by the insurer; or
(3) 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
6
The Court acknowledges Kentucky Supreme Court Rule 76.28(4)(c),
which states that unpublished opinions are not to be cited or used
as precedent in the courts of Kentucky. Still, the United States
Court of Appeals for the Sixth Circuit “permits citation of any
unpublished
opinion,
order,
judgment,
or
other
written
disposition.” 6 Cir. R. 32.1(a). Additionally, there is ample
published support for the proposition in text.
The recent
unpublished disposition of the Kentucky Court of Appeals simply
indicates that this legal principle is still commonly relied upon
by the courts of Kentucky.
14
application for the policy or contract or otherwise.
This subsection shall not apply to applications taken
for workers' compensation insurance coverage.
Additionally,
materiality.
the
parties
cite
Davies,
when
defining
See Davies v. Centennial Life Ins. Co., 128 F.3d 934
(6th Cir. 1997), implicit overruling on other grounds recognized
by Johnson v. Conn. Gen. Life Ins. Co., 324 F. App’x 459, 463-64
(6th Cir. 2009).
In Davies, the Sixth Circuit considered the
effect of a misrepresentation or omission in a health insurance
application governed by ERISA.
The Sixth Circuit held that, under
federal common law, “the insured’s good faith is irrelevant, and
that a misrepresentation is ‘material’ if it ‘materially affects
the insurer’s risk or the hazard assumed by the insurer.’” Davies,
128 F.3d at 943 (quoting Tingle v. Pacific Mut. Ins. Co., 837 F.
Supp. 191, 193 (W.D. La. 1993)).
proposition
that
Davies also stands for the
misrepresentations
or
omissions
need
not
be
connected with or related to the illness or injury for which the
insured seeks payment of benefits to be material.
Id. at 943-44.
Of course, the case before the Court differs slightly from
the cases and authorities cited above because the alleged material
misrepresentations
here
were
made
during
the
insurance
claim
process, not during or in relation to the application process for
insurance coverage.
Proctor
Furthermore, there is no allegation that
misrepresented
material
insurance coverage with GEICO.
15
facts
when
he
applied
for
In this case, the relevant question should not be whether the
false statement of fact materially affected the risk or hazard
assumed by the insurer because there is already an insurance policy
where the insurer has agreed to accept risk in exchange for a
premium paid.
Here, the relevant inquiry is whether the false
statement of fact had a substantial, important, or significant
impact on the claim itself.
Still, there does not appear to be a decision of the Kentucky
Supreme Court that expressly addresses when a fact is material in
the context of the insurance claim process.
When a federal court
sits in diversity, and there is no decision of the forum state’s
highest court that is directly on point regarding the issue before
the court, the federal court must make an “Erie guess” to determine
how the forum state’s highest court would resolve the issue.
Conlin v. Mortg. Elec. Registration Sys., Inc., 714 F.3d 355 (6th
Cir. 2013).
Ultimately,
the
legal
principles
that
apply
to
false
statements of fact made during the insurance application process
should apply with equal weight in the context of misrepresentations
made during insurance claims.
Here, where the parties have not
contractually defined the meaning of materiality regarding a false
statement of fact during an insurance claim, it seems clear that
Kentucky courts would apply the same standard for materiality that
is
applied
for
material
misrepresentations
16
made
in
insurance
contracts.
Thus,
a
fact
that
is
knowingly7
concealed
or
misrepresented during the insurance claim process is material if
the insurer, acting reasonably and naturally in accordance with
the
usual
practice
circumstances,
of
would
insurance
not
approve
companies
the
under
claim
or
similar
would
have
significantly altered the recovery amount or claim investigation
process if the substantial truth had been stated.
This standard is nearly identical to the materiality standard
employed by Kentucky courts when determining whether a false
statement
made
in
the
context
of
an
constitutes a material misrepresentation.
S.W.2d at 569.
insurance
application
See Tannenbaum, 240
This also comports with Pacific Mut. Life Ins. v.
Arnold, which explained that “[t]he word ‘material’ . . . means
‘substantial,’
‘important,’
or
‘of
consequence,’
contradistinguished from ‘trivial’ or ‘minor.’”
as
90 S.W.2d 44, 48
(Ky. 1935).
Additionally, the standard recited by the Court above is
consistent in principle with the materiality standards used in
Davies and K.R.S. 304.14-110.
The insurance claim process is
inextricably connected with the insurance underwriting and risk
7
Under Kentucky law, a material misrepresentation of fact, even
if made innocently, may void the insurance policy. Tannenbaum,
240 S.W.2d at 569.
Here, however, the policy states that the
concealment of misrepresentation of material fact must be
knowingly made before coverage may be denied. [See DE 41-3 at 28,
Pg ID 516].
17
allocation process.
Concealment or misrepresentation of material
facts that result in claim payments that are higher than the
replacement value of the insured property result in a windfall for
the claimant and reduce the principle amount of money available to
other insured parties in the risk pool, potentially resulting in
higher insurance premiums for other insured persons and economic
loss for insurance companies.
Additionally, the investigation of
fraudulent insurance claims or material misrepresentations during
the insurance claim process imposes costs for insurance companies
that are likely passed on to other consumers.
Thus, from an
economic standpoint, every concealment or misrepresentation of a
material fact during the insurance claim process impacts risk
allocation and management in the aggregate.
In sum, the honest disclosure and representation of facts is
just as important during the insurance claim process as it is
during the insurance application process.
Under Kentucky law, an
insurance company is entitled to deny a claim when a material fact
is concealed or misrepresented during the insurance claim process.
As
discussed
above,
a
fact
that
is
knowingly
concealed
or
misrepresented during the insurance claim process is material if
the insurer, acting reasonably and naturally in accordance with
the
usually
circumstances,
practice
would
of
not
insurance
approve
18
companies
the
claim
under
or
similar
would
have
significantly altered the recovery amount if the substantial truth
had been stated.
(1)
Purchase Price
First, it is undisputed that Proctor misrepresented the price
he paid for the RV.
Even so, Proctor argues that the purchase
price is not material to the claim and that, in any event, the
misrepresentation was made innocently.
During a recorded interview in January 2015, Proctor stated
that the purchase price of the RV in December 2013 was $16,000.
[De 41-4 at 37, Pg ID 557].
Subsequently, in a response to an
interrogatory and during a deposition, Proctor asserted that the
purchase price for the RV was $7,000.
[DE 1-3 at 4; DE 41-10 at
4, Pg ID 637].
Now,
Proctor
acknowledges
that
“[t]he
statement
Plaintiff paid $16,000.00 for the RV is certainly not true.”
49 at 11, Pg ID 734].
that
[DE
In fact, Proctor paid $4,682 as a base price
for the RV, which came to a total price of $5,000 after inclusion
of tax and fees.
[DE 49-2 at 1, Pg ID 758].
Thus, there is no
dispute that Proctor initially made a false statement about the
purchase price of the RV.
Second, the purchase price of property covered by an insurance
policy, particularly a purchase price that is close in time to the
insurance claim, is material to determining the pre-loss value of
property during the claim process.
19
Kentucky
courts
have
held
that
purchase
price
of
real
property was relevant to determining the value of property in the
context of eminent domain.
For instance, the court held that the
purchase price of real property that was purchased in 1956 “was
pertinent to the market value of that property on October 3, 1961.”
Commonwealth Dept. of Highways v. Whitledge, 406 S.W.2d 833, 836
(Ky. 1966); see also Commonwealth Dept. of Highways v. Tackett,
498 S.W.2d 630, 632-33 (Ky. 1973); Kirk v. Commonwealth Dept. of
Highways, 495 S.W.2d 179, 179 (Ky. 1973).
Additionally, a purchase price that is significantly below
fair market value of an asset may notify the insurance company of
prior damage that may necessitate additional investigation during
the claim process.
For instance, in this case, a damage report
submitted by Proctor indicated that the NADA value of a 2003
Keystone Challenger 34 TLB RV was $24,390.
784].
[DE 49-6 at 12, Pg ID
Here, if Proctor had accurately reported that he paid only
$5,000 for the RV, which apparently in good condition would have
a fair market value of over $20,000, it likely would have notified
the claim investigator that the vehicle may have been in poor
condition at the time of purchase.
This conclusion that purchase price is a material fact in the
insurance claim process is also bolstered by Proctor’s response to
an interrogatory.
Previously, Proctor stated, “The approximate
value of the RV pre-accident was likely between $10,000 and
20
$12,000, based upon the purchase price paid by the Plaintiff
($7,000) and the additional improvements made by the Plaintiff .
. .”
[DE 1-3 at 4 (emphasis added)].
Thus, Proctor relied on the
purchase price in when estimating the pre-accident value of the
RV, indicating that purchase price is material to determining the
pre-loss value during the claim process.
Ultimately, the RV here was purchased just over one-year
before the accident and insurance claim.
price
is
certainly
substantially
replacement value of the RV.
related
As such, the purchase
to
the
pre-accident
As a result, the purchase price here
was a material fact because had the substantial truth been stated
regarding the purchase price, GEICO, acting reasonably and in
accordance with the usual practice of insurance companies under
similar circumstances would have been on notice of the pre-loss
condition of the RV and would have altered the pre-loss value of
the RV, which would have substantially affected the amount of
recovery under the insurance policy.
Third, Proctor claims that his misrepresentation was made
innocently, due to a mistake of fact.
ultimately
that
he
did
not
Thus, Proctor’s argument is
knowingly
make
any
material
misrepresentation of fact.
Proctor claims that he suffers from memory loss that resulted
in his making the misrepresentation regarding the purchase price.
But here, Proctor’s allegations pertaining to memory loss are not
21
supported by any objective evidence in the record.
Initially,
when asked about the purchase price by Cirillo, Proctor stated
that he “take[s] a lot of medicine.”
Additionally,
during
his
[DE 41-4 at 37, Pg ID 557].
deposition,
Proctor
stated
that
prescription medications Warfarin and Lyrica cause his memory
loss.
[DE 49-1 at 3, Pg ID 743].
Still, the only evidence of Proctor’s memory loss are the
unsupported allegations made by Proctor.
Proctor has submitted no
medical records or statements from a medical professional that he
has ever suffered from or has been treated for memory loss or
neurological issues.
There is no evidence or indication that
memory loss has ever affected Proctor’s personal or professional
life in a significant way. There are no statements or attestations
from
a
third-party
that
attest
to
Proctor’s
memory
problem.
Finally, there is no evidence that Proctor was actually prescribed
prescription medications that are known to cause memory-loss or
confusion as a side effect.
Simply put, there is insufficient
evidence in the record through which a reasonable jury could
conclude that Proctor had a memory problem that was so severe that
it demonstrates his misrepresentations regarding the purchase
price of the RV were made innocently.
Of course, mistakes do occur; but the gravity of the initial
error indicates that Proctor attempted to knowingly misstate and
conceal the actual purchase price of the RV.
22
Proctor stated that
he paid $16,000 for the RV.
But he actually paid $5,000 in cash
just approximately one year before the false statement.
This is
not a case where the initial misrepresentation was trivial or
slightly inaccurate.
Here, Proctor initially reported a purchase
price that was $11,000 over the actual price.
It is inconceivable
that Proctor could have made such a significant error and not have
known or suspected that the amount was incorrect.
Furthermore, Proctor claims that he only made the initial
misrepresentation after being pressured by Cirillo to provide a
purchase price.
It is true that Proctor initially stated that he
was not sure about the purchase price.
[DE 41-4 at 37, Pg ID 557].
It is also true that Cirillo did say, “We’re going to need to find
out [the purchase price] . . . . Or you can tell me if you
remember.”
[Id.].
But this statement does not amount to undue
pressure or inducement. Proctor could have indicated that he truly
did not know or that he would verify the price and follow-up with
Cirillo.
Instead, Proctor stated that he purchased the RV for “16
something.”
[Id.].
Then, after Cirillo confirmed that Proctor
meant $16,000, Proctor affirmatively indicated that was what he
meant.
[Id.].
Additionally, Proctor also misrepresented the purchase price
in his answers to interrogatories and during his deposition.
As
discussed previously, in answers to interrogatories and during his
deposition, Proctor stated that he purchased the RV for $7,000.
23
[DE 1-3 at 4; DE 41-10 at 4, Pg ID 637].
Obviously, $7,000 is
closer to the actual purchase price but it is still not accurate.
Of course, these misrepresentations were made after the claim was
denied by GEICO.
Still, they both confirm that Proctor made an
initial misrepresentation of fact pertaining to the purchase price
and that he failed to correct that mistake, even when he filed
this lawsuit approximately two years after his claim was denied.
Also,
the
first
time
that
Proctor
ever
corrected
his
misrepresentation about the actual purchase price of the RV was in
his response to the pending motion for summary judgment.
On
November 26, 2018, Proctor attached sales receipts to his response
in opposition to the motion for summary judgment.
[DE 49-2].
These documents indicate that Proctor paid a base price of $4,682,
which came to a total purchase price of $5,000 after taxes and
fees.
Thus, it took Proctor approximately three years and ten
months to accurately report the purchase price of the RV.
More importantly, Proctor’s submission of the sales receipts
indicate that he had the ability to verify the purchase price and
correct his misrepresentation.
Clearly, at some point, Proctor
knew that he only paid $5,000 for the RV and he failed to notify
GEICO or his error in an effort to correct the mistake.
In sum, Proctor committed a material misrepresentation of
fact when he stated that he purchased the RV for $16,000, when he
actually
purchased
the
RV
for
24
$5,000
one
year
before
his
misstatement.
Even when viewing the facts in the light most
favorable to Proctor, there is no genuine issue of material fact
about
whether
Proctor
knowingly
committed
a
material
misrepresentation of fact pertaining to the purchase price.
No
reasonable jury could conclude, based on Proctor’s unsupported
allegations alone, that Proctor suffered from a memory problem so
severe that it indicates that he did not know that he made a
significant misrepresentation regarding the purchase price of the
RV.
As a result, GEICO was permitted to deny the claim under the
insurance policy and is entitled to judgment as a matter of law.
(2)
Repairs After Purchase and Preexisting Damage
GEICO also alleges that Proctor made misrepresentations of
material fact pertaining to repairs made to the RV after purchase
and whether the damages claimed preexisted the accident.
having
found
that
Proctor
knowingly
made
a
Still,
material
misrepresentation regarding the purchase price of the RV, the Court
need
not
determine
whether
Proctor
made
additional
misrepresentations of material fact.
B.
Bad Faith
Proctor has also brought an extracontractual bad faith claim
alleging
violation
of
Practices Act (UCSPA).
the
Kentucky
Unfair
Claims
See K.R.S. § 304.12-230.
Settlement
But here, since
GEICO was permitted to deny the claim after Proctor’s material
misrepresentation of fact in January 2015, GEICO is entitled to
25
summary judgment on the extracontractual claims as a matter of
law.
The elements for a bad faith claim under the UCSPA are:
(1) the insurer must be obligated to pay the claim under
the terms of the policy;
(2) the insurer must lack a reasonable basis in law or
fact for denying the claim; and
(3) it must be shown that the insurer either knew there
was no reasonable basis for denying the claim or acted
with reckless disregard for whether such a basis
existed.
Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993).
In this case, GEICO was permitted to deny coverage under the
insurance
policy
because
of
Proctor’s
misrepresentation
material fact pertaining to the purchase price of the RV.
of
As a
result, GEICO did not lack a reasonable basis in law or fact for
denying the claim.
IV.
Ultimately,
Proctor’s
Conclusion
material
misrepresentation
of
fact
about the purchase price of the covered RV permitted GEICO to deny
coverage under the insurance policy and entitled GEICO to judgment
as a matter of law.
Additionally, Proctor has not demonstrated
that GEICO denied his claim in bad faith.
Accordingly, IT IS
ORDERED as follows:
(1)
Defendant’s amended motion for summary judgment [DE 41]
is GRANTED; and
26
(2)
Judgment in favor of the Defendant will be entered
contemporaneously herewith.
This the 2nd day of January, 2019.
27
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?