Arla et al v. Liberty Mutual Group, Inc.

Filing 21

MEMORANDUM OPINION AND ORDER by Judge Greg N. Stivers. The Plaintiffs' Motion Seeking Declaration Regarding Coinsurance and Appraisal Provisions in Insurance Policy (DN 15 ) is DENIED, and Defendant Peerless Insurance Company's Motion for Partial Summary Judgment (DN 16 ) is GRANTED. cc: Counsel (CDR)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
CIVIL ACTION NO. 3:15-CV-00596-GNS-CHL
RAMA ARLA, and
MOHANA ARLA,

PLAINTIFFS

v.
PEERLESS INSURANCE COMPANY

DEFENDANT

MEMORANDUM OPINION AND ORDER
This matter is before the Court on a Motion by Plaintiffs Seeking Declaration Regarding
Coinsurance and Appraisal Provisions in Insurance Policy (Pls.’ Mot. Seeking Decl. Regarding
Coinsurance & Appraisal Provisions in Insurance Policy, DN 15 [hereinafter Pls.’ Mot.]), and
Defendant Peerless Insurance Company’s Motion for Partial Summary Judgment (Def.’s Mot.
for Partial Summ. J., DN 16 [hereinafter Def.’s Mot.]). The parties agreed that their respective
motions would serve as responses to the other’s motion. (Joint Notice Regarding Resps. to Pls.’
Mot. Seeking Decl. & Def.’s Mot. for Partial Summ. J., DN 17). The motions are thus ripe for
adjudication. For the reasons stated below, the Court DENIES Plaintiffs’ motion and GRANTS
Defendant’s motion.
I.

SUMMARY OF FACTS AND CLAIMS

Plaintiffs acquired an insurance policy covering their real property at 8700 Rama Road,
Prospect, Kentucky, (“the house”) from Defendant Peerless Insurance Company (“Peerless”) 1 for

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While the Verified Complaint refers to Liberty Mutual Group, Inc., on July 30, 2015, the
parties entered into an agreed order to substitute Peerless in the place of Liberty Mutual Group,

the period of July 7, 2014, to January 7, 2015. (Verified Compl. 2). On the first day of coverage,
the property “suffered a complete and total casualty loss as a result of a fire that occurred during
the time in which [the house] was substantially completed, but still under construction.”
(Verified Compl. 2). On July 1, 2015, Plaintiffs filed suit against Peerless in Jefferson Circuit
Court alleging breach of contract and violation of Kentucky’s Unfair Claims Settlement Practices
Act (“UCSPA”), including bad faith. (Verified Compl. 3, 4). Plaintiffs acknowledge a payment
by Peerless of $1,961,672.25, but seek the $3 million policy limit. (Pls.’ Mem. in Supp. of Mot.
Seeking Declaration Regarding Coinsurance & Appraisal Provisions in Insurance Policy 2, DN
15-1 [hereinafter Pls.’ Mem. in Supp.]).2
Peerless removed the case to this Court. (Notice of Removal). The Court bifurcated the
claims and stayed Plaintiffs’ UCSPA claim pending the resolution of the breach of contract
claim. (Order, DN 10). The parties filed the pending motions, which have been fully briefed and
are ripe for review.
II.

JURISDICTION

This Court has jurisdiction over “any civil action brought in a State court of which the
district courts of the United States have original jurisdiction” that is “removed by the defendant
or the defendants, to the district court of the United States for the district and division embracing
the place where such action is pending.” 28 U.S.C. § 1441(a).
This Court has original jurisdiction of “all civil actions where the matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and costs, as is between . . . citizens of

Inc. (Agreed Order to Substitute Def., DN 9). The Court therefore treats the Verified Complaint
as against Peerless.
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The Court could find no evidence in the record reflecting this payment, but both parties indicate
this payment was made. (Def.’s Mem. in Supp. of Mot. for Partial Summ. J. 2, DN 16-1
[hereinafter Def.’s Mem. in Supp.]).
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different States . . . .” 28 U.S.C. § 1332(a)(1). Plaintiffs assert in their Verified Complaint that
they are residents of Kentucky. (Verified Compl. 1, DN 1-1). Defendant is a New Hampshire
corporation with its principal place of business in Massachusetts. (Notice of Removal 2, DN 1).
There is, therefore, complete diversity. Plaintiffs seek damages pursuant to Kentucky’s Unfair
Claims Settlement Practices Act, which allows for damages equivalent to “twice the amount of
the gain from the commission of the violation,” as well as punitive damages. (Verified Compl. 4,
6; KRS 304.12-230; KRS 304.99-010). This is sufficient to meet the Court’s jurisdictional
threshold.
III.

STANDARD OF REVIEW

In ruling on a motion for summary judgment, the Court must determine whether there is
any genuine issue of any material fact that would preclude entry of judgment for the moving
party as a matter of law. See 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., 477 U.S. at 322. If the moving
party satisfies its 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
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

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dispute . . . .” Fed. R. Civ. P. 56(c)(1). “The mere existence of a scintilla of evidence in support
of the [non-moving 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.
IV.

DISCUSSION

The plain language of the policy provides that in the event of the amount of insurance is
less than the covered property’s full value, Peerless will pay a portion of the loss equal to the
ratio of the policy limit to “the estimated value of the property at completion of construction had
no loss occurred . . . .” (Pls.’ Mot. Ex. A, at 43-44, DN 15-2 [hereinafter Policy]). The key
dispute between the parties is whether the “value of the property” is based upon the fair market
or the replacement cost value of the home. (Def.’s Mem. in Supp. 4; Pls.’ Mem. in Supp. 5).
Plaintiffs contend that the “expected value of the covered property” is the “fair market
value of the property at completion of construction had no loss occurred” instead of the cost of
replacement upon completion. (Pls.’ Mem. in Supp. 6-7). Plaintiffs argue that, while
“replacement cost” is defined in the “VALUATION” section of the policy that appears shortly
before the provision at issue, because Peerless used the term “value” instead of “replacement
cost” in the coinsurance provision, it clearly meant for some standard other than replacement
cost to be used. (Pls.’ Mem. in Supp. 7). Plaintiffs urge that a fair and simple reading of the
coinsurance clause supports a fair market value because it is common understanding that
“estimated value of the property” means “fair market value,” especially when applied to
residences. (Pls.’ Mem. in Supp. 7). Finally, Plaintiffs note that if the Court finds the term
“estimated value of the property” to be ambiguous, any ambiguity should be resolved in favor of
Plaintiffs. (Pls.’ Mem. in Supp. 8).

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Peerless argues in opposition that replacement cost is the correct measure for the
“estimated value of the property.” (Def.’s Mem. in Supp. 7-10). Peerless points to the
“VALUATION” section of the policy, which states that “the value of the covered property will
be based on the replacement cost without any deduction for depreciation.” (Def.’s Mem. in Supp.
7 (quoting Policy 43)). Peerless further notes that the words “fair market value” appear nowhere
in the policy. (Def.’s Mem. in Supp. 7). Finally, Peerless relies upon a previous decision of this
Court in Bachelor Land Holdings, LLC v. Chubb Custom Insurance Co., No. 3:11-CV-152, 2011
WL 5389197 (W.D. Ky. Nov. 4, 2011), which held that the appraisers were required to use the
valuation method specified in the policy and to apply the coinsurance provision. See Bachelor
Land Holdings, 2011 WL 5389197, at *6-9.
The Court finds no ambiguity in the policy on this question. Throughout the policy,
formally defined terms appear in quotations, such as “we,” “your,” and “limit.” (See Policy 43).
While not formally defined in this manner, the phrase “value of the covered property” is
specifically defined in the “VALUATION” section as “the replacement cost without any
deduction for depreciation.” (Policy 43). The coinsurance provision states, inter alia, “[t]he value
of the covered building or structure means the total value of the property at the time the
construction, erection, or fabrication of the property would have been completed had there been
no loss.” (Policy 43 (emphasis added)). Applying the definition of value to the coinsurance
provision—as the Court did previously in Bachelor Land Holdings—the coinsurance section
would properly read that “[t]he value of the covered building or structure means the total
replacement cost without any deduction for depreciation at the time the construction, erection, or
fabrication of the property would have been completed had there been no loss.” In light of the
clear language of the “VALUATION” section and the parallel language in the coinsurance

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section, the Court finds that the coinsurance provision is unambiguous. See Pryor v. Colony Ins.,
414 S.W.3d 424, 430 (Ky. App. 2013) (“To ascertain the construction of an insurance contract,
one begins with the text of the policy itself. So that, ‘the words employed in insurance policies, if
clear and unambiguous, should be given their plain and ordinary meaning.’ And, if no ambiguity
exists, a reasonable interpretation of an insurance contract is to be consistent with the plain
meaning of the language in the contract.” (internal citation omitted) (citation omitted));
Hugenberg v. W. Am. Ins. Co./Ohio Cas. Grp., 249 S.W.3d 174, 185 (Ky. App. 2006) (“Absent
ambiguity, terms in an insurance contract are to be construed according to their “plain and
ordinary meaning.” (internal quotation marks omitted) (citation omitted)).
In sum, the insurance policy at issue here is not ambiguous. The policy dictates that the
value to be used in the coinsurance formula is that of replacement cost, not fair market value.
Accordingly, the Court will deny Plaintiffs’ motion and grant Defendants’ motion.
V.

CONCLUSION

For the foregoing reasons, the Plaintiffs’ Motion Seeking Declaration Regarding
Coinsurance and Appraisal Provisions in Insurance Policy (DN 15) is DENIED, and Defendant
Peerless Insurance Company’s Motion for Partial Summary Judgment (DN 16) is GRANTED.

Greg N. Stivers, Judge
United States District Court
April 13, 2016

cc:

counsel of record

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