State Automobile Property & Casualty Insurance Company v. There Is Hope Community Church
Filing
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MEMORANDUM OPINION & ORDER granting 65 Motion for Judgment on the Pleadings; Signed by Chief Judge Joseph H. McKinley, Jr on 7/23/14. cc: Counsel(DJT)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
OWENSBORO DIVISION
CIVIL ACTION NO. 4:11CV-149-JHM
STATE AUTOMOBILE PROPERTY &
CASUALTY COMPANY
PLAINTIFF
VS.
THERE IS HOPE COMMUNITY CHURCH
By and Through its Pastor, Darrell Blacklock
DEFENDANT
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Plaintiff State Automobile Property & Casualty
Company’s (“State Auto”) Motion for Summary Judgment on the Counterclaim of Defendant
[DN 65]. Fully briefed, this matter is ripe for decision.
I. BACKGROUND
This case arises out of a fire on June 15, 2010 that substantially damaged a church
building (“Building”) located at 892 Bethel Church Road in Beaver Dam, Kentucky. Mr. Darrell
Blacklock (“Defendant”) held an insurance policy (“Policy”) with State Auto covering the
Building. State Auto filed a declaratory judgment action seeking a determination as to the
amount, if any, still owed to Defendant under the Policy. On May 15, 2014, the Court entered a
Memorandum Opinion and Order [DN 62] that granted summary judgment in favor of State
Auto as to the “actual cash value” (“ACV”) and replacement cost value (“RCV”) of the Building.
[Mem. Op. and Order, DN 62, at 10]. Additionally, the Court concluded that State Auto fully
compensated Defendant for all other types of losses owed under the Policy. [Mem. Op. and
Order, DN 62, 8-9].
Counterclaim.
The Plaintiff now seeks summary judgment on the Defendant’s
II. STANDARD OF REVIEW
Before the Court may grant a motion for summary judgment, it must find that there is no
genuine dispute as to any material fact and that the moving party is entitled to judgment as a
matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial burden of specifying the
basis for its motion and identifying that portion of the record that demonstrates the absence of a
genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the
moving party satisfies this burden, the non-moving party thereafter must produce specific facts
demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
247–48 (1986).
Although the Court must review the evidence in the light most favorable to the nonmoving party, the non-moving party must do more than merely show that there is some
“metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986). Instead, the Federal Rules of Civil Procedure require the nonmoving party to present specific facts showing that a genuine factual issue exists by “citing to
particular parts of 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 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. It is against this standard the Court reviews the following facts.
III. ANALYSIS
A. Count One: Breach of Contract
Plaintiff contends that the Court’s prior Opinion necessarily forecloses the existence of a
breach of contract claim because the Court found that it did not owe additional coverage.
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Defendant alleges in his Counterclaim that “Plaintiff breached its contractual obligations by
virtue of its failure or refusal to timely tender payment to, or on behalf of the Defendant, in
accordance with the policy(ies) of insurance.” [Answer and Counterclaim, DN 3, at 4].
Defendant does not respond to Plaintiff’s contention that the breach of contract claim should be
dismissed. To establish a breach of contract claim in Kentucky, Defendant must demonstrate
three things: 1) existence of a contract; 2) breach of that contract; and 3) damages flowing from
the breach of contract. Metro Louisville/Jefferson County Government v. Abma, 326 S.W.3d 1,
8 (Ky. Ct. App. 2009) (citation omitted). Taking into account the Court’s previous ruling that
State Auto already paid sums owed to Defendant under the Policy, the Court must conclude that
Defendant cannot establish the second element of a breach of contract claim, the breach itself.
Therefore, this claim is dismissed.
B. Count Two: Waiver/Detrimental Reliance
Plaintiff argues that Defendant cannot establish a waiver/detrimental reliance claim
because the Court previously determined that State Auto does not owe additional coverage.
Defendant alleges in his Counterclaim that after the loss of the Church, “the Defendant continued
his detrimental reliance on the representations, experience and expertise when the Plaintiff
promised to pay sums of money for loss covered under the policy at issue.” [Counterclaim, DN
3, at 5].
Although it is not at all clear, it appears that Defendant’s claim in this regard is that
since State Auto paid some of his supplemental claims under the Policy’s additional coverages, it
waived its right to rely on the settlement for the ACV as a defense to Defendant’s later claims
that more was owed to him for the ACV.
This claim cannot proceed because it is totally inconsistent with the Court’s previous
determination that the settlement agreement was valid and no additional sums were owed under
the building coverage.
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C. Count Three: Bad Faith and Unfair Claims Settlement Practices
In order to state a claim for bad faith under Kentucky law, the insured must prove three
elements: “(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.” Fed. Kemper Ins. Co. v. Hornback,
711 S.W.2d 844, 847 (Ky. 1986) (Leibson, J., dissenting) (adopted by incorporation in Curry v.
Fireman's Fund Ins. Co., 784 S.W.2d 176, 178 (Ky. 1989)). Thus, “[a]n insurer is entitled to
challenge a claim and litigate it if the claim is debatable on the law or the facts.” Wittmer v.
Jones, 864 S.W.2d 885, 890 (Ky. 1993) (quotation and internal markings omitted); see also
Empire Fire & Marine Ins. Co. v. Simpsonville Wrecker Svc., Inc., 880 S.W.2d 886, 890 (Ky.
Ct. App. 1994) (“[A] tort claim for a bad faith refusal to pay must first be tested to determine
whether the insurer's refusal to pay involved a claim which was fairly debatable as to either the
law or the facts.”).
Count Three of Defendant’s Counterclaim alleges bad faith in respect to failing to timely
pay Defendant’s claim and a general allegation of bad faith. Presumably, Defendant means to
allege two separate incidents of bad faith, one related to the initial payment and the other for
denial of payment on the second proof of loss. While State Auto argues that Defendant only
identifies a claim based on the second proof of loss, the Court believes that Defendant asserts a
bad faith claim for both the claim paid by State Auto and the second claim which was denied.
Specifically, Defendant alleges that “Plaintiff was obligated to pay the claims of the Defendant
in accordance with Kentucky law and Plaintiff lacked a reasonable basis when they failed to
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timely pay Defendant’s claims arising from the aforesaid accident.” [Counterclaim, DN 3, at 5].
The Court is satisfied that Defendant adequately identified a claim based on a delay in payment.
Starting with the first proof of loss and the payment of the claim, Defendant alleges that
State Auto failed to timely pay for the loss of the Building. With regard to the promptness of
settlements, “mere delay in payment does not amount to outrageous conduct absent some
affirmative act of harassment or deception.” Motorists Mut. Ins. Co. v. Glass, 996 S.W.2d 437,
452 (Ky. 1997). “[T]here must be proof or evidence supporting a reasonable inference that the
purpose of the delay was to extort a more favorable settlement or to deceive the insured with
respect to the applicable coverage.” Id. at 452-53. “Evidence of mere negligence or failure to
pay a claim in timely fashion will not suffice to support a claim for bad faith. Inadvertence,
sloppiness, or tardiness will not suffice; instead, the element of malice or flagrant malfeasance
must be shown.” United Services Auto. Ass'n v. Bult, 183 S.W.3d 181, 186 (Ky. Ct. App. 2003).
State Auto contends that Defendant fails to provide sufficient facts to support a claim for
bad faith. In response, Defendant primarily argues that he has not had the opportunity to obtain
discovery on this claim and that he should be provided the chance to develop these facts.
Additionally, he notes that there was a significant amount of time between the submission of his
proof of loss and State Auto’s payment of the claim. However, a lack of timeliness in payment
of claim will clearly not support a bad faith claim against an insurer nor does the fact that State
Auto chose to conduct an investigation into the origins of the fire. See Baymon v. State Farm
Ins. Co., 257 F. App'x 858, 863 (6th Cir. 2007) (“It certainly is not bad faith for an insurance
company to undertake a full investigation, even if it believes it knows the facts.”).
As
demonstrated by the undisputed facts in the underlying action, State Auto actually paid the
Defendant more than he asked for on his first proof of claim. This fact alone negates any
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possible inference that State Auto was attempting to settle Defendant’s claim for less. Similarly,
Defendant cannot possibly show that State Auto intended to deceive him concerning coverage
when they in fact paid his claim for the fire. As such, even with discovery, Defendant would not
be able to successfully advance either one of the acceptable theories described in Glass for a bad
faith claim based on an insurer’s delay in payment. Heritage Mut. Ins. Co. v. Reck, 127 F. App'x
194, 200 (6th Cir. 2005) (finding that the district court did not err in denying discovery on
insured’s bad faith claim where the court had become familiar with the facts in the underlying
liability claim). Thus, the Court must dismiss Defendant’s bad faith claim based on the first
proof of loss.
As for a claim based on the second proof of loss, the Court’s prior Opinion means that the
Defendant cannot establish the first or second element for a bad faith claim under Curry. As
previously determined, State Auto actually paid Defendant under the terms of the Policy after
submission of the first proof of loss and Defendant explicitly accepted those amounts. As a
result, State Auto had no obligation to pay any amount requested in the second proof of loss,
thus, Plaintiff’s denial of Defendant’s second amended proof of loss was necessarily reasonable
as a matter of law. Davidson v. American Freightways, Inc., 25 S.W.3d 94, 100 (Ky. 2000)
(“Absent a contractual obligation, there simply is no bad faith cause of action, either at common
law or by statute.”). Therefore, summary judgment is granted based on Defendant’s bad faith
claim based on the second proof of loss.
D. County Five/Seven: Consumer Protection Act
State Auto asserts that Defendant fails to meet the threshold requirement for a claim
under the Kentucky Consumer Protection Act (“KCPA”). The KCPA prohibits “[u]nfair, false,
misleading, or deceptive acts or practices in the conduct of any trade or commerce . . . .” KRS
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367.170(1). In addition to providing for enforcement by the Attorney General, the KCPA
authorizes a private right of action brought by “[a]ny person who purchases or leases goods or
services primarily for personal, family or household purposes and thereby suffers any
ascertainable loss of money or property, real or personal, as a result of the use or employment by
another person of a method, act or practice declared unlawful by KRS 367.170.” KRS 367.220
(emphasis added).
The mere fact that the “service” in question in this case is the purchase of an insurance
policy does not necessarily preclude a cause of action. In fact, the Kentucky Supreme Court in
Stevens v. Motorist Mutual Insurance Co. found that the purchase of a homeowners’ insurance
policy fell within the KCPA where the plaintiffs alleged that the insurance company
misrepresented information to them. Stevens v. Motorists Mut. Ins. Co., 759 S.W.2d 819, 821
(Ky. 1988). Defendant relies on Stevens for the proposition that he may maintain an action
under the KCPA. However, Stevens only applies to the purchase of homeowners’ insurance.
Stevens, 759 S.at 821-22 (“It is the holding of this Court that the Kentucky Consumer Protection
Act provides a homeowner with a remedy against the conduct of their own insurance company
pursuant to KRS 367.220(1) and KRS 367.170.”).
In the present case, Defendant seeks
monetary damages under the KCPA based on an insurance policy that covered his business
property, not his home. Defendant does not refute that the Policy only covered his business.
Individuals under the KCPA cannot recover damages for services or goods that are used for
commercial purposes even if the claim is filed by an individual instead of the actual business.
See Keeton v. Lexington Truck Sales, Inc., 275 S.W.3d 723, 726 (Ky. App. 2008) (finding that
an individual who purchased a truck for commercial purposes could not maintain a cause of
action under the KCPA). For these reasons, Defendant’s claim under the KCPA is dismissed.
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E. Count Eight: Declaration of Rights
State Auto seeks summary judgment on Count Eight of Defendant’s Counterclaim.
Defendant fails to respond. Therefore, this claim is dismissed.
IV. CONCLUSION
For the foregoing reasons, Plaintiff State Automobile Property & Casualty Company’s
Motion for Summary Judgment on the Counterclaim of Defendant [DN 65] is GRANTED.
July 23, 2014
cc: counsel of record
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