Lackey et al v. Property and Casualty Insurance Company of Hartford
Filing
41
MEMORANDUM OPINION AND ORDER by Magistrate Judge Colin H. Lindsay granting in part and denying in part 25 Motion for Summary Judgment. Motion is granted insofar as it relates to Count A, the breach of contract claim, and is denied insofar as it relates to Count D, the negligence claim. Parties to submit joint proposed scheduling order by 11/10/2017. cc: Counsel(JAC)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
CIVIL ACTION NO. 3:15-CV-238-CHL
RICHARD LACKEY, et al.
Plaintiff,
v.
PROPERTY AND CASUALTY INSURANCE COMPANY OF HARTFORD, Defendant.
MEMORANDUM OPINION AND ORDER
This matter is before the court on a motion for summary judgment (DN 25) filed by
Defendant Property and Casualty Insurance Company of Hartford (“Hartford”).
Hartford
contends that the breach of contract and negligence claims asserted by Plaintiffs Richard Lackey
and Darlene Lackey (“Plaintiffs”) are time-barred under the applicable insurance policy.
Plaintiffs filed a response (DN 32), and Hartford filed a reply (DN 36). The motion is ripe for
review. For the following reasons, the Court will grant in part and deny in part Hartford’s
motion for summary judgment.
STATEMENT OF FACTS AND CLAIMS
Plaintiffs, a married couple, own a residence located at 7 Harrods Landing in Prospect,
Kentucky. (DN 1-2 at 5 (Complaint).) Plaintiffs were away from the residence between July
and September 2010, during which time a water pipe or hose in the residence broke, causing
extensive flooding, water damage, and mold. (Id.) At the time of the flooding, Plaintiffs had in
effect an insurance policy issued by Hartford, insuring the residence and its contents. (Id.; DN
25-1 (motion for summary judgment) (“The Policy provided dwelling, personal property, and
loss of use coverage for the Plaintiffs’ residence . . . .”).) The effective dates of the policy were
March 27, 2010 to March 27, 2011. (DN 25-1 at 1.) When Plaintiffs returned to their home,
they discovered the damage and, on September 12, 2010, submitted a claim to Hartford. (DN 12 at 5; DN 25-1 at 2.) Plaintiffs describe Hartford’s response as “an attempted repair and
decontamination of the property,” but they allege that Hartford failed to remove a waterdamaged wet bar containing standing water, and also failed to remove certain contaminated
items from the residence, instead packing the items in cardboard boxes and leaving them inside
the residence, resulting in damage to Plaintiffs’ real and personal property in an amount in excess
of the limits of the policy. (DN 1-2 at 5-6.) Plaintiffs attempted to return to their residence in
approximately June 2012, at which time they discovered failure to repair and decontaminate
and/or cross-contamination caused by Hartford. (Id. at 6.) They allege that they were forced to
vacate again and further deprived of use and enjoyment of their real and personal property. (Id.)
Plaintiffs assert that their residence remains uninhabitable. (Id.)
On March 6, 2015, Plaintiffs filed suit against Hartford in Jefferson (Kentucky) Circuit
Court. (DN 1-2.) They allege the following causes of action: (A) breach of contract based on
Hartford’s negligent performance of or failure to perform its duties under the insurance policy;
(B) breach of the covenant of good faith and fair dealing; (C) violation of KRS 304.12-230,
Kentucky’s Unfair Claims Settlement Practices Act (“UCSPA”), in relation to Hartford’s failure
to attempt in good faith to promptly settle the issues underlying this action; and (D) negligence
by Hartford in its efforts to repair and decontaminate the residence. (Id. at 6-10.) On April 1,
2015, Hartford removed this case to this Court. (DN 1.) In June 2015, the parties consented to
United States Magistrate Judge jurisdiction. (DN 10.) On September 16, 2015, the Court
granted Hartford’s motion to bifurcate this action for purposes of discovery and trial. (DN 19.)
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Specifically, the Court stayed Plaintiffs’ bad faith claim, Count C, alleging violations of the
UCSPA, for purposes of discovery and trial. (Id.)
Hartford has now moved for summary judgment as to Counts A and D of the complaint.
Hartford asserts that it has paid approximately $124,486 directly to Plaintiffs or to vendors in
effort to “clean, repair and/or replace the damage to their home and personal property.” (DN 251 at 2-3.) It paid an additional $40,000 to cover Plaintiffs’ living expenses during the time that
they did not reside in their residence. (Id. at 2.) Hartford’s position as to the merits of Plaintiffs’
claims is that all of Plaintiffs’ compensable losses have been fully paid. (Id.) In its motion for
summary judgment, Hartford asserts that Plaintiffs’ breach of contract and negligence claims
were not timely filed. It says that those claims, filed in March 2015, approximately four-and-ahalf years after the September 12, 2010 date of loss, are barred as a matter of law for failure to
comply with the policy’s provision establishing a two-year limitations period for filing lawsuits.
(See generally DN 25-1.) The relevant part of the policy provides as follows:
G. Suits Against Us
No action can be brought against us unless there has been full
compliance with all of the terms under Section I of this policy and
the action is started within two years after the date of loss.
(DN 25-2 at 64, ¶ G.) Hartford contends that the two-year limitations period is applicable to this
lawsuit and that it is enforceable under Kentucky law. (DN 25-1.)
Plaintiffs argue in response that any limitation period that begins counting from the date
of loss rather than “the event necessary to create the cause of action is counter to years of
Kentucky law, and is void and unenforceable under KRS 304.10-370.” (DN 32 at 4.) Plaintiffs
contend that for purposes of breach of contract actions, a claim does not accrue until the date
when the contract is breached, which, in this case, occurred at as of July 23, 2014 at the earliest.
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(Id. at 5.) Plaintiffs describe this as the date on which, after several years of “investigations,
requests, studies, and estimates, with Hartford paying various claims along the way,” with a
letter to Plaintiffs’ counsel, Hartford denied Plaintiffs’ proposals for a remediation protocol and
restoration bid. (Id.) In its reply, Hartford argues that relevant case law actually supports its
calculation of the accrual date for the breach of contract claim. (DN 36.) Hartford urges the
Court to grant it summary judgment as to Count A, breach of contract, and Count D, negligence.
JURISDICTION
This Court has subject-matter jurisdiction of this matter based upon diversity jurisdiction.
See 28 U.S.C. § 1332; see also DN 40.
STANDARD OF REVIEW
In ruling on a motion for summary judgment, the Court must determine whether there is
any genuine issue of material fact that would preclude entry of judgment for the moving party as
a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial burden of stating the
basis for the motion and identifying evidence in the record that demonstrates an absence of a
genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the
moving party satisfies the burden, the non-moving party must then produce specific evidence
proving the existence of a genuine issue of fact for trial. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48 (1986).
While the Court must view the evidence in the light most favorable to the non-moving
party, the non-moving party must do more than merely show the existence of some
“metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986) (citation omitted). Rather, the non-moving party must present specific
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facts proving that a genuine factual issue exists by “citing to particular parts of the materials in
the record” or by “showing that the materials cited do not establish the absence . . . of a genuine
dispute.” Fed. R. Civ. P. 56(c)(1). “The mere existence of evidence in support of the [nonmoving party’s] position will be insufficient; there must be evidence on which the jury could
reasonably find for the [non-moving party].” Anderson, 477 U.S. at 252.
Finally, while the substantive law of Kentucky is applicable to his case pursuant to Erie
R.R. v. Tompkins, 304 U.S. 64 (1938), a federal court sitting in diversity applies the standards of
Rule 56 of the Federal Rules of Civil Procedure, not “Kentucky’s summary judgment standard as
expressed in Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476 (Ky. 1991).” Gafford v.
Gen. Elec. Co., 997 F.2d 150, 165 (6th Cir. 1993), abrogated on other grounds by Hertz Corp. v.
Friend, 559 U.S 77 (2010).
DISCUSSION
Hartford moves for summary judgment on the basis that Plaintiffs’ breach of contract and
negligence claims, Counts A and D of the complaint, respectively, are barred by the insurance
policy’s contractual limitation period. (See generally DN 25-1.) Again, the policy issued by
Hartford to Plaintiffs provides that legal action may be initiated against Hartford only if “the
action is started within two years after the date of loss.” (DN 25-2 at 64, ¶ G.) It is undisputed
that Plaintiffs filed suit on March 6, 2015. That date was approximately four-and-a-half years
after the September 12, 2010 date of loss, that is, the date on which Plaintiffs discovered the
water damage after being away from the residence between July 2010 and September 12, 2010.
Hartford contends that Kentucky law, as applied by both Kentucky courts and federal courts in
the Sixth Circuit, supports its position.
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Plaintiffs, on the other hand, argue that their cause of action for breach of contract did not
accrue until the actual breach of contract occurred. They insist that the breach itself did not take
place until Hartford refused, by letter to Plaintiffs’ counsel dated July 23, 2014, “to make the
necessary remediation and repairs required by the contract.” (DN 32 at 8.) In reply, Hartford
argues that the case law upon which Plaintiffs rely is factually distinguishable; that the July 23,
2014 letter from Hartford to Plaintiffs’ counsel was a response to a settlement demand made by
Plaintiffs, not a denial of their claim under the insurance contract; and that the two-year
contractual limitations period is valid under Kentucky law. (See DN 36.)
Kentucky law allows for contractual provisions which limit the time in which an insured
may file suit. Howard v. Allstate Ins. Co., 2014 U.S. Dist. LEXIS 156895, *9 (E.D. Ky. Nov. 5,
2014) (citing Edmondson v. Pa. Nat’l Mut. Cas. Ins. Co., 781 S.W.2d 753, 756 (Ky. 1989)); see
also Webb v. Ky. Farm Bureau Ins. Co., 577 S.W.2d 17 (Ky. Ct. App. 1978) (holding that a
policy provision limiting time to file suit against insurer to one year after inception of insured’s
loss was enforceable and not against public policy). In Webb, the Kentucky Court of Appeals
rejected the insured’s argument that the one-year limitation period was in conflict with
Kentucky’s fifteen-year statutory limitations period for contract-based claims. Id. at 17-19. “In
reaching this conclusion, the Kentucky court cited a litany of Kentucky decisions enforcing the
reasonable shortening of the statutory period as consistent with the public interest.” Brantley v.
Safeco Ins. Co. of Am., 2012 U.S. Dist. LEXIS 148411, *9 (W.D. Ky. Oct. 16, 2012) (citing
Webb, 577 S.W.2d at 19 (and cases cited)). “Since Webb, both Kentucky courts and the federal
courts of the Sixth Circuit that have had the opportunity to apply Kentucky law have consistently
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upheld the enforceability of insurance policy provisions that limit the time for bringing suit
against the insurer to one year after the inception of the loss.” Id. at *9-10 (and cases cited).
A Kentucky statute, KRS 304.14-370, “specifically allows foreign insurers to limit the
time in which an action can be brought against them.” Howard, 2014 U.S. Dist. LEXIS 156895
at *9-10; id. at *10 n.4 (citing KRS 304.1-070) (“A ‘foreign’ insurer is an insurer formed under
the laws of a state other than Kentucky.”) Specifically, the statute provides as follows:
No conditions, stipulations, or agreements in a contract of
insurance shall deprive the courts of this state of jurisdiction of
actions against foreign insurers, or limit the time for commencing
actions against such insurers to a period of less than one (1) year
from the time when the cause of action accrues.
KRS 304.14-370 (emphasis added).
As the Eastern District of Kentucky has stated, “[c]ontractual limitations periods
generally set the date of loss as the beginning of the limitations period provided under the
contract.” Howard, 2014 U.S. Dist. LEXIS 156895 at *10. Moreover, district courts in the Sixth
Circuit applying Kentucky law have concluded that “the date of loss is not synonymous with the
date of accrual.” Id. (quoting Price v. AgriLogic Ins. Servs., LLC, 2014 U.S. Dist. LEXIS
109448, *5 (E.D. Ky. Aug. 7, 2014)). “A claim cannot accrue prior to the last event necessary to
create the cause of action occurring.” Id. (citing Combs v. Int’l Ins. Co., 354 F.3d 568, 591 (6th
Cir. 2004) (“Legal rights and obligations vest when the last event necessary to create the cause of
action occurs.”)). Thus, to be valid under KRS 304.14-370, “a limitations period under KRS
304.14-370 must provide a party one year to bring suit from the accrual date of the action, which
may vary between claims brought in a single suit.” Id. at *11 (emphasis added).
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In this case, Hartford argues that the date of loss and the accrual date for Plaintiffs’
breach of contract claim are one and the same. Plaintiffs argue that the accrual date for the
breach of contract claim was not until July 23, 2014, when Hartford communicated to Plaintiffs’
counsel that it would not agree to the “remediation protocol and restoration bid” submitted by
Plaintiffs. (DN 32 at 5.) The Court will review two cases that illuminate the proper resolution of
those two positions.
In Brantley, a 2012 decision from this district, the plaintiff-insured submitted a claim
under a “landlord protection policy” after a severe thunderstorm allegedly caused damage to a
rental property that he owned. Brantley, 2012 U.S. Dist. LEXIS 148411 at *2. The storm
occurred on June 11, 2009. Id. On July 1, 2009, defendant notified plaintiff in writing that his
claim was denied on the basis that it was not a covered loss, describing its investigation of the
premises and referencing the “relevant policy provisions it relied upon to conclude that the
damage was not the result of a covered peril.” Id. at *2-3. On June 22, 2010, plaintiff, through
counsel, requested that defendant reevaluate his claim, submitting photographs that he claimed
showed additional damage caused by the storm. Id. at *3. Defendant commissioned a civil
engineer, who inspected the property and, on August 30, 2010, submitted a report cosigned by
another civil engineer. Id. On September 16, 2010, plaintiff filed a complaint in state court
alleging breach of the insurance contract, bad faith, and violations of the UCSPA. Id. The case
was removed to this Court on diversity grounds; as in this case, the Court later granted
defendant’s motion to bifurcate the matter into two separate proceedings, one as to the breach of
contract claim and one as to the bad faith claims. Id. After the parties engaged in some written
discovery and took certain depositions, defendant moved for summary judgment. Id. at *4-5.
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After laying out the development of the law on contractual limitations periods as is set
forth above and rejecting an argument by plaintiff that a Kentucky administrative regulation
precluded the enforcement of the one-year limitation provision, the Brantley court granted
summary judgment to defendant on the issue of whether the breach of contract claim was timebarred. Brantley, 2012 U.S. Dist. LEXIS 148411 at *8-12. The Court noted that the date of loss
was in June 2009, but plaintiff did not commence suit until over one year later in September
2010. Id. at *12-13. Accordingly, “the Court [found] that under established Kentucky law the
one-year contractual limitation provision in the policy is both reasonable and enforceable, and
[d]efendant [was] entitled to summary judgment because [p]laintiff’s claim [was] time-barred by
the applicable one-year policy limitation.”
Id. at *13.
This was so despite the fact that
defendant’s reevaluation of plaintiff’s insurance claim was completed approximately one year
and two months after the date of loss.
In a 2014 case from the Eastern District of Kentucky, Collins v. State Farm Fire & Cas.
Co., 2014 U.S. Dist. LEXIS 173065 (E.D. Ky. Dec. 15, 2014), a fire damaged plaintiff’s
residence on May 20, 2012. Plaintiff’s residence was covered by an insurance policy covering
fire loss. Id. at *1. By letter dated March 12, 2013, defendant denied coverage, declaring the
policy void and denying the claim “due to [plaintiff’s] violation of the intentional acts and
concealment or fraud provisions of the residential policy.” Id. The parties did not dispute that
the fire was intentionally set, but at the time of the court’s memorandum opinion and order on
summary judgment, the identity of the perpetrator had not been established. Id. at *1-2. On
September 27, 2013, approximately one-and-a-half years after the fire, plaintiff filed suit in
Kentucky state court; the case was later removed to the Eastern District of Kentucky. Id. at 2.
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Defendant moved for summary judgment on the basis that the breach of contract claim was timebarred under the insurance contract’s one-year limitations period, which was calculated from the
date of loss or damage. Id. at *3.
The court noted that under KRS 304.14-370, foreign insurers may limit the time for
commencing a suit by contract, so long as the period is not less than one year from the time when
the cause of action accrues. Collins, 2014 U.S. Dist. LEXIS 173065 at *3 (quoting KRS 304.14370).
The court further noted that “[t]here is an obvious tension between the contract’s
provision, which uses the date of loss or damage as the beginning of the limitations period, and
KRS 304.14-370, which uses the date that the action accrued.” Id. “Nonetheless,” the court
went on, “the Sixth Circuit has held that a one year limitations period following the date of ‘loss
or damage’ is reasonable and consistent with KRS 304.14-370, where the underlying claim arose
from a fire loss.” Id. at *3-4 (citing Smith v. Allstate Ins. Co., 403 F.3d 401, 405 (6th Cir. 2005)
(“Under Kentucky law, it appears, a cause of action for breach of an insurance contract may
‘accrue,’ in some sense, before the claimant is entitled to sue.”)) (additional citations omitted).
In Collins, plaintiff argued that the one-year limitations period was unreasonable because by the
time defendant formally denied her claim, only 68 days remained in the one-year contractual
period between the date of loss and her deadline to file a lawsuit. Id. at *4. She further argued
that she did nothing to delay the investigation of her claim and that she had no way of knowing it
would be denied until she received the denial letter. Id. Defendant -- and, ultimately, the court -disagreed, noting that within approximately two weeks of the fire, plaintiff signed a form
acknowledging the existence of a question regarding whether the fire was accidental in nature
and that defendant may have no obligation to defend or indemnify her. Id. at *5. The court
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concluded that due to the nature of the loss, plaintiff was able to ascertain her rights under the
policy on the date of the loss or soon thereafter, and that she failed to establish that the time
period in issue was unreasonable. Id. at *5-6 (and cases cited).
The Court finds both Brantley and Collins instructive in this case. In both cases, the
courts rejected arguments by plaintiffs that one-year contractual limitations periods were
unreasonable due to the particular sequence of events surrounding the denials of their insurance
claims.1 In this case, it is undisputed that four-and-a-half years elapsed between the date of loss
and the filing of the original complaint in state court. This is more than twice the two-year
contractual limitation provision in the policy. Kentucky statute, Kentucky courts, and federal
courts applying Kentucky law have approved one-year limitations periods, whereas the insurance
contract at issue in this case offered Plaintiffs twice that length of time to file suit. Guided by
relevant case law, including Brantley and Collins, the Court is not persuaded that the breach of
contract claim accrued at a date later than the date of loss, such as the June 2014 date cited by
Plaintiffs. Based upon the series of events set forth in the complaint and Plaintiffs’ response to
the summary judgment motion, the Court is inclined to view the June 2014 letter more similarly
to Hartford’s description of it, that is, as a letter regarding informal settlement negotiations,
rather than a formal denial of claim, as it is described by Plaintiffs. The June 2014 letter does
not constitute a belated, full denial of Plaintiffs’ claim, as Plaintiffs seem to suggest. After all,
Hartford did pay out a significant sum of money directly to Plaintiffs and to third-parties
1
The Court acknowledges that the Collins court’s reasoning was based, at least in part, on the fire-related
nature of the loss in that case. Collins, 2014 U.S. Dist. LEXIS 173065 at *3. It is plausible that a fire could cause
damage more immediately noticeable than damage caused by flooding such as that involved in this case.
Nonetheless, the Court finds the court’s analysis of the sequence of events, particularly the delay in claim denial
arguably caused by the insurer-defendant, useful and instructive in its analysis of this case. Additionally, the Court
notes that the Collins court considered cases involving non-fire-related causes of loss. See id. at *6 (discussing
Price v. AgriLogic Ins. Servs., LLC, 2014 U.S. Dist. LEXIS 109448, *7-8 (E.D. Ky. Aug. 7, 2014), a case involving
wind and hail damage to crops).
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engaged to repair Plaintiffs’ residence. Moreover, the Court is struck by the fact that Plaintiffs’
discovery in “approximately June 2012” of Hartford’s purported failure to remediate the damage
occurred after Plaintiffs had been away from the residence since September 2010. (DN 1-2 at 56, ¶¶ 8-10.) Perhaps Plaintiffs’ awareness of the alleged extent of the damage to the residence
and their subsequent, related interactions with Hartford, would have followed a speedier timeline
had Plaintiffs been present at the residence during that period.
In any event, the Court concludes that under established Kentucky law, the two-year
contractual limitation period in the policy is both reasonable and enforceable, and Hartford is
therefore entitled to summary judgment as to Count A, the breach of contract claim. Plaintiffs’
breach of contract claim is time-barred under the applicable two-year policy limitation.2
Finally, while the Court grants summary judgment to Hartford on Count A, the breach of
contract claim, the Court will not do so based on Count D, the negligence claim. In its motion,
Hartford states that it seeks summary judgment as to the negligence claim, but it does not
develop this argument in either the memorandum of law supporting the motion or in its reply
brief. (See generally DN 25-1, 36.) Without some argument specifically as to the negligence
claim -- or even, as the Court presumes Hartford wishes the Court to find -- an argument that the
breach of contract and negligence claims are essentially identical and should be considered
together for purposes of the summary judgment motion, the Court will not do away with the
negligence claim. In short, Hartford has not shown that “the pleadings, the discovery and
disclosure materials on file, and any affidavits show ‘that there is no genuine dispute as to any
2
As the parties are aware, this case has been bifurcated, and no discovery or dispositive motion briefing has
taken place on Count C of the complaint. As our courts have recognized, the fact that a breach of contract claim is
time-barred does not necessarily mean that a similar fate awaits a bad faith claim stemming from the same loss. See,
e.g., Howard, 2014 U.S. Dist. LEXIS 156895 at *11-12 (discussing same).
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material fact and the movant is entitled to judgment as a matter of law’” with respect to Count D.
Brantley, 2012 U.S. Dist. LEXIS 148411 at *6 (quoting Fed. R. Civ. P. 56(a)). Accordingly,
summary judgment is not appropriate as to Count D, Plaintiffs’ negligence claim.
ORDER
Accordingly, IT IS HEREBY ORDERED that Hartford’s motion for summary judgment
(DN 25) is GRANTED IN PART and DENIED IN PART. The motion is granted insofar as it
relates to Count A, the breach of contract claim, and it is denied insofar as it relates to Count D,
the negligence claim.
IT IS FURTHER ORDERED that no later than November 10, 2017, the parties shall
submit a JOINT PROPOSED SCHEDULING ORDER for this case moving forward. The
parties SHALL also state whether they wish to schedule (a) a telephonic status conference;
and/or (b) a settlement conference.
October 17, 2017
Colin Lindsay, MagistrateJudge
United States District Court
cc: Counsel of record
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