Sentry Select Insurance Company v. Kentucky Farm Bureau Mutual Insurance Company
MEMORANDUM OPINION & ORDER denying 14 Motion for Summary Judgment; granting 19 Motion for Summary Judgment. Signed by Judge John G. Heyburn, II on 1/6/2012. cc:counsel (KJA)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
CRIMINAL ACTION NO. 3:10-CV-694-H
SENTRY SELECT INSURANCE COMPANY
KENTUCKY FARM BUREAU
MUTUAL INSURANCE COMPANY
MEMORANDUM OPINION AND ORDER
This case involves the loss of farming equipment which was co-owned by two
individuals, each of whom separately insured the property with different insurance providers.
Plaintiff, Sentry Select Insurance Company (“Sentry”), demands that Defendant, Kentucky Farm
Bureau Mutual Insurance Company (“KFB”), reimburse Sentry $80,000.00, the amount Sentry
paid its insured, Brenda Hunt.
Discovery has concluded and KFB now moves for summary judgment, arguing that its
insured, Bruce Dillard, owned only a fifty-percent interest in the property and KFB was therefore
liable only up to Dillard’s ownership interest, which it paid. Sentry has filed a cross-motion for
summary judgment, arguing that KFB is the primary insurer of the property and is therefore
responsible to the full extent of KFB’s policy limitations. For the reasons that follow, the Court
will deny KFB’s motion for summary judgment and sustain Sentry’s cross-motion for summary
judgment. Therefore, KFB must reimburse Sentry in the amount of $80,000.
Brenda Hunt and Bruce Dillard purchased a John Deere Sprayer (the “Sprayer”) with
each owning an undivided fifty-percent interest. By agreement, the parties purchased and
financed the Sprayer in Hunt’s name only, and it was insured by Sentry through Hunt’s financing
agreement with John Deere Credit. Sentry’s coverage limit was approximately $160,000.00.
Apparently the Sprayer was kept at Dillard’s farm. Unaware of the Sentry policy, Dillard
separately purchased a KFB insurance policy specifically listing the Sprayer. KFB’s coverage
limit was also $160,000.00.
While the Sprayer was being stored on Dillard’s farm, a fire occurred which rendered the
Sprayer a total loss. Both Sentry and KFB paid for half of the loss, amounting to $80,000.00
each. Sentry then filed this action against KFB to recover the amount Sentry paid, alleging that
KFB was responsible for the full value of the loss.
Summary judgment is appropriate where “there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The
moving party bears the burden of establishing that an “essential element of the nonmoving
party’s case is lacking.” Paris Packaging, Inc. v. Flint Group N. Am. Corp., No. 3:10-CV-460H, 2011 WL 5122639, at *1 (W.D. Ky. Oct. 28, 2011) (citation and internal quotation marks
omitted). The burden then shifts, and the non-moving party must demonstrate that a “genuine
dispute exists as to that element.” Id. Upon consideration of a motion for summary judgment,
“‘the inferences to be drawn from the underlying facts . . . must be viewed in the light most
favorable to the party opposing the motion.’” Spencer v. CSL Plasma, Inc., No. 3:10-CV-00262,
2011 WL 4054715, at *2 (W.D. Ky. Sep. 12, 2011) (quoting United States v. Diebold, Inc., 369
U.S. 654, 655 (1962). “These same rules apply when addressing cross-motions for summary
judgment.” Id. at *2 (citation omitted).
The Court begins by determining if either Kentucky law or KFB’s insurance policy limits
Dillard’s insurable interest to his precise ownership share of the Sprayer. Under Kentucky
statutory law, no property insurance policy “shall be enforceable . . . except for the benefit of
persons having an insurable interest in the things insured at the time of the loss.” KY. REV.
STAT. ANN. § 304.14-060(1) (West 1970). An “insurable interest” is statutorily defined as “an
actual, lawful, and substantial economic interest in the safety or preservation of the subject of the
insurance free from loss, destruction, or pecuniary damage or impairment.” Id. at § 304.14060(2).
On its face, Kentucky’s statute governing this issue does not limit Dillard’s insurable
interest to his ownership interest. The statute does not mention ownership interests, instead
considering only “actual, lawful, and substantial economic” interests. The Court concludes that
an owner of real property may possess such an insurable interest where he or she holds, leases,
or possesses another’s personal property. After all, a landowner housing valuable personal
property or equipment inherently bears a risk of loss or damage to such items and has a
legitimate interest in protecting himself against such dangers. Kentucky law does not prohibit
Dillard from insuring that risk.
The Court must next determine whether the insurance policy itself proscribes any such
limitations. KFB argues that Dillard’s insurable interest extends only to fifty percent of the
Sprayer. As support, KFB directs the Court’s attention to two provisions of the insurance policy.
The first states that KFB “will not pay more than the insurable interest an [insured person] has in
the covered property at the time of loss.” The second states that KFB covers “those owned or
leased items specifically listed . . . while on the [insured premises].” According to KFB, these
provisions provide Dillard with an insurable interest only to the extent of his ownership interest
in the Sprayer.
These provisions, even when read liberally, fail to communicate the limitation proposed
by Defendant. In fact, the language KFB pinpoints explicitly contemplates coverage of “leased
items,” discounting the argument that only items fully owned are insurable. Furthermore, a
thorough reading of the KFB policy reveals that items not owned by insured parties are covered
pursuant to Section III, “Farm Personal Property Scheduled or Unscheduled.” Within a
subsection titled “Borrowed Farm Machinery, Vehicles and Equipment,” the policy reads:
When shown in the Declaration and by Endorsement, [we] cover
Scheduled Farm Machinery, vehicles and equipment used in the
[farming] operation and in [your] care, custody and control and in
which [you] have no owner or lienholder interest.
(Emphasis added). To argue that the policy excludes items not owned by insured parties flies in
the face of this simple, unambiguous language.1
Therefore, the Court concludes that the policy does not limit Dillard’s insurable interest
to his ownership in the Sprayer. Quite the opposite, the policy contemplates and affirmatively
provides coverage for any unowned item that is within Dillard’s possession and shown in the
Declaration and by Endorsement. The Court has reviewed Dillard’s policy and finds that the
Sprayer was clearly covered under the “Scheduled Farm Personal Property Endorsement” of
Section III in the amount of $160,000.00. Accordingly, KFB’s coverage extended to this full
Neither of the parties have submitted briefs pertaining particularly to KFB’s policy and it was submitted
well after the allotted time for discovery ended. If the policy had contained an applicable limitation, surely KFB
would have made such an argument. It did not and could not.
amount irrespective of Dillard’s ownership interest.
The final issue for consideration is Sentry’s cross-motion for summary judgment on the
basis that its policy is one of secondary coverage only. Sentry argues that because KFB was the
primary insurer of the Sprayer, it was responsible to the extent of its policy limitations before
any recovery could be sought from Sentry. Therefore, Sentry is entitled to recover the amount it
paid to Hunt since KFB insured the full value of the Sprayer.
The resolution to this issue rests entirely on the Kentucky Court of Appeals decision in
Standard Fire Ins. Co. v. Empire Fire and Marine Ins. Co., 234 S.W.3d 377 (Ky. Ct. App.
2007). There, the Court of Appeals articulated the standard applicable to contests between
insurers: “Kentucky law is well settled that when a policy containing a pro rata ‘other insurance’
clause conflicts with a policy having an excess ‘other insurance’ clause, the policy with the pro
rata provision should be applied first and the policy with the excess clause would become
effective only when the first policy is exhausted.” Id. at 380 (quoting Hartford Ins. Co. v.
Kentucky Farm Bureau Ins. Co., 766 S.W.2d 75 (Ky. Ct. App. 1989) (emphasis added). A “pro
rata” clause is one that limits recovery to the proportion that a policy’s limitation constitutes of
the sum of limits between all policies. Id. An “excess other insurance” clause is one which
denies recovery altogether unless a policy’s limitation exceeds that of another policy. Id.
Sentry’s insurance policy states, in relevant part: “we will pay only the amount of the
‘loss’ in excess of the other collectible insurance.” KFB’s policy states: “W[e] will pay only the
proportion of the loss that the limit of liability applying under this policy bears to the total
amount of insurance covering the loss.” Thus, in the case at hand, Sentry’s policy includes an
“excess other insurance” clause, and KFB’s policy includes a “pro rata other insurance” clause.
Accordingly, KFB’s policy provides the primary liability insurance and Sentry’s policy provides
only excess coverage, making KFB responsible for the full limitations of its policy, irrespective
of any coverage provided by Sentry. Because Sentry paid its insured prior to KFB fulfilling its
obligations as primary insurer of the Sprayer, Sentry is entitled to reimbursement.
The Court being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Defendant’s motion for summary judgment is DENIED.
IT IS FURTHER ORDERED that Plaintiff’s cross-motion for summary judgment is
SUSTAINED and Defendant shall reimburse Plaintiff in the amount of payments tendered to its
insured in the amount of $80,000, plus interest.
This is a final order.
January 6, 2012
Counsel of Record
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