Kermeen, et al v. State Farm Insurance Company

Filing 49

MEMORANDUM AND ORDER - The plaintiff's 34 MOTION for Partial Summary Judgment is granted. Summary judgment is granted for the plaintiffs as to their claim for the hail damage that occurred on June 3, 2014, with the amount of damages to be determined at trial.Ordered by Judge John M. Gerrard. (MKR)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
RAMONA KERMEEN and KEVIN
KERMEEN,
8:14-CV-416
Plaintiffs,
vs.

MEMORANDUM AND ORDER

STATE FARM FIRE AND
CASUALTY COMPANY,
Defendant.
This matter is before the Court on the plaintiffs Ramona Kermeen and
Kevin Kermeen's motion for partial summary judgment (filing 34). For the
reasons explained below, this motion will be granted.
I. BACKGROUND
The plaintiffs Ramona Kermeen and Kevin Kermeen are a married
couple who own real property and improvements—including a house—in
Blair, Nebraska. Filing 36 at 2. In 2013, they obtained a homeowner's
insurance policy on the house from the defendant, State Farm Fire and
Casualty Company. Filing 36 at 2. The policy's effective dates of coverage
were December 14, 2013 through December 14, 2014. Filing 36 at 2.
On March 7, 2014, a fire occurred, damaging the plaintiffs' house and
personal property within the house. Filing 36 at 2. The plaintiffs filed a claim
with the defendant for the losses. See filing 36 at 3. The defendant contends
that after it received notice of the fire, it hired Ken Ward, a former fire
department chief, to investigate. Filing 39 at 3. According to the defendant,
Ward concluded the fire was intentionally set. Filing 39 at 3.
The defendant asserts that on April 25, 2014, it sent a letter to the
plaintiffs' legal counsel stating that an inspection revealed the fire had not
been accidental. Filing 39 at 4. On the same date, the defendant contends, it
sent a second letter to the plaintiffs' counsel, expressing its view that there
was some question as to whether the fire was accidental, whether the
plaintiffs intentionally set the fire, and whether the plaintiffs made material
misrepresentations or concealments regarding their fire claim. Filing 39 at 4.
According to the defendant, the letter also stated that the homeowner's policy
would be void if the plaintiffs either intentionally caused the fire or
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committed some material misrepresentation, concealment, or fraud. Filing 39
at 4. And finally, according to the defendant, the letter stated that
any action taken by State Farm Fire & Casualty Company or its
authorized representatives to investigate the cause of loss,
determine the amount of loss or damage, or attempt to adjust any
claim arising out of the alleged loss shall not waive any of the
terms of the conditions of the policy of insurance described above,
nor shall such action waive any of your rights under the policy. If
we do not hear from you to the contrary, we will assume that it is
acceptable for us to continue handling the case on these terms.
Filing 39 at 4; filing 40-2.
Next, on June 3, 2014, a hail storm damaged certain portions of the
plaintiffs' property, including a fence and some outdoor furniture. Filing 36 at
2. The homeowner's policy insured the plaintiffs' house and property against
"accidental direct physical loss" caused by "hail." Filing 36 at 2. The plaintiffs
made a claim to the defendant for the losses caused by the hail. Filing 36 at
3. The defendant never paid the hail claim. Filing 36 at 3.
According to the defendant, it "consistently and repeatedly" informed
the plaintiffs that, if it determined they intentionally caused the fire or
misrepresented or concealed facts relating to the fire, the homeowner's policy
would be void as of the date of the fire and would not cover the hail claim.
Filing 39 at 5. Further, the defendant contends, it informed the plaintiffs that
"by investigating the hail claim, State Farm was not waiving its right to void
the Policy." Filing 39 at 5. According to the defendant, the plaintiffs agreed
that the defendant could investigate the hail claim without waiving its right
to void the policy, though the plaintiffs dispute this. See, filing 39 at 5; filing
43 at 18–19.
The defendant states that between March and November 2014, it
continued to investigate the circumstances of the fire. Filing 39 at 5–6.
Specifically, the defendant claims that it requested documents and
information from the plaintiffs, investigated the scene of the fire, retained a
fire investigator and electrical engineer, and examined the plaintiffs under
oath on October 15, 2014 about the fire claim. Filing 39 at 5–6.
On November 24, 2014, the plaintiffs filed the present lawsuit against
the defendant, alleging, among other things, that the defendant breached the
homeowner's policy by failing to pay the hail claim. Filing 36 at 3. The
defendant filed an answer on January 26, 2015, alleging that the plaintiffs
intentionally caused the fire and concealed or misrepresented material facts
in connection with their fire claim, and that the policy was therefore void.
Filing 39 at 6. The defendant asserts that, following the filing of the lawsuit,
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it continued to investigate the fire and hail claims, though it does not specify
what actions it took to do so, or when. Filing 39 at 6.
On December 14, 2014, the defendant renewed the homeowner's policy
for an additional 12-month period, effective until December 13 or 14, 2015.
See, filing 36 at 3; filing 39 at 8. The plaintiffs paid monthly premiums on the
policy via automatic withdrawals. Filing 36 at 3.
On July 17, 2015, the defendant formally denied both the fire claim and
the hail claim in separate letters. Filing 36 at 4. The letter denying the fire
claim stated that the defendant believed that the plaintiffs intentionally set
the fire and made material misrepresentations or concealments regarding the
fire. Filing 35-4; filing 39 at 7–8. The letter denying the hail claim stated that
the policy was not in effect on the date of the hail storm because it was "void"
as of March 7, 2014. Filing 35-3. The defendant also asserts that the letter
regarding the hail claim stated:
Nothing herein constitutes a waiver of the rights of State Farm
Fire & Casualty Company under its policy of insurance, nor is it
our purpose by this letter to waive any additional defense which
further investigation . . . may reveal. State Farm continues to
reserve all of its rights and defenses under the policy of insurance
or otherwise. Absolutely no waiver or estoppel of any kind or
nature is intended, nor may any be inferred or implied.
Filing 39 at 8; filing 35-3.
At the time it sent the letters, the defendant did not refund the
premiums the plaintiffs had paid on the homeowner's policy between March
7, 2014 and July 15, 2015. Filing 36 at 5. According to the defendant, it
intended to refund the payments, but did not do so at that time due to an
administrative mistake. Filing 39 at 10. Additionally, the defendant
continued to accept the plaintiffs' monthly premium payments on the
renewed policy. Filing 36 at 4. The last payment—which satisfied the full
amount of the annual premium under the renewed policy—was made in
November 2015. Filing 36 at 4. The defendant contends that it intended to
cancel the renewed policy on July 17, 2015, but that it failed to do so due to
an administrative mistake. Filing 39 at 10.
On September 18, 2015, the defendant sent the plaintiffs a non-renewal
notice, explaining that the homeowner's policy would not be renewed as of
December 14, 2015. Filing 36 at 4.
II. STANDARD OF REVIEW
Summary judgment is proper if the movant shows that there is no
genuine dispute as to any material fact and that the movant is entitled to
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judgment as a matter of law. See Fed. R. Civ. P. 56(a). The movant bears the
initial responsibility of informing the Court of the basis for the motion, and
must identify those portions of the record which the movant believes
demonstrate the absence of a genuine issue of material fact. Torgerson v. City
of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). If the movant
does so, the nonmovant must respond by submitting evidentiary materials
that set out specific facts showing that there is a genuine issue for trial. Id.
On a motion for summary judgment, facts must be viewed in the light
most favorable to the nonmoving party only if there is a genuine dispute as to
those facts. Id. Credibility determinations, the weighing of the evidence, and
the drawing of legitimate inferences from the evidence are jury functions, not
those of a judge. Id. But the nonmovant must do more than simply show that
there is some metaphysical doubt as to the material facts. Id. In order to
show that disputed facts are material, the party opposing summary judgment
must cite to the relevant substantive law in identifying facts that might
affect the outcome of the suit. Quinn v. St. Louis County, 653 F.3d 745, 751
(8th Cir. 2011). The existence of a mere scintilla of evidence in support of the
nonmovant's position will be insufficient; there must be evidence on which
the jury could conceivably find for the nonmovant. Barber v. C1 Truck Driver
Training, LLC, 656 F.3d 782, 791-92 (8th Cir. 2011). Where the record taken
as a whole could not lead a rational trier of fact to find for the nonmoving
party, there is no genuine issue for trial. Torgerson, 643 F.3d at 1042.
III. ANALYSIS
The plaintiffs have brought claims against the defendant for breach of
contract, defamation, and bad faith. Filing 1 at 7–15. They have moved for
partial summary judgment as to one issue only: the defendant's liability for
the damage resulting from the hail storm. Filing 36 at 1.
The defendant does not dispute that the plaintiffs' property was
damaged by hail, filing 39 at 4, that hail damage was covered by the
homeowner's policy, filing 36 at 2; filing 39 at 2, or that it has not paid the
plaintiffs' claim for the hail damage, filing 39 at 5. Rather, the defendant's
sole defense to liability for the hail claim is its contention that the policy was
not in effect when the hail losses occurred. See filing 39 at 11. According to
the defendant, the policy was void by its terms as of the fire on March 7,
2014, because the plaintiffs intentionally set the fire and made material
misrepresentations or concealments about it. Filing 39 at 12.
The plaintiffs contend that, even assuming they did set the fire and
make material misrepresentations or concealments (all of which they deny
doing), the defendant has nonetheless waived its right to assert voidness as a
defense. Filing 36 at 11. Specifically, the plaintiffs argue that the defendant
"treated the Homeowner's Policy as valid and in full force and effect despite
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[its] claims of an alleged breach" both by failing to return the premiums the
plaintiffs paid after March 7, 2014, and by continuing to accept premiums
after sending the letters on July 17, 2015 declaring the policy void. Filing 36
at 15.
Under Nebraska law, a waiver is "a voluntary and intentional
relinquishment of a known right, privilege, or claim, and may be
demonstrated by or inferred from a person's conduct." D & S Realty, Inc. v.
Markel Ins. Co., 789 N.W.2d 1, 17 (Neb. 2010). Nebraska courts "have long
held that an insurer may waive any provision of a policy that is for the
insurer's benefit." Id. at 17. Ordinarily, to establish waiver, "there must be a
clear, unequivocal, and decisive act of a party showing such a purpose, or acts
amounting to an estoppel." Id. Waiver can be proven by either "(1) a party's
express declarations manifesting the intent not to claim an advantage or (2) a
party's neglecting and failing to act so as to induce the belief that it intended
to waive." Id. at 18.
In the insurance context, "[a]n insurer is precluded from asserting a
forfeiture when, after acquiring knowledge of the facts constituting a breach
of condition, it has retained the unearned portion of the premium or has
failed to return or tender it back with reasonable promptness." Id. This is
because "[t]he insurer's acceptance of premiums is inconsistent with treating
the breach as voiding the policy." Id. at 18–19. And the rule applies both
when the breach is "of such character as to render the policy void from its
inception," and when the breach renders the policy void at some point after it
takes effect. See id. at 18.
To illustrate, in Dairyland Insurance Company v. Kammerer, an
insured driver allegedly injured another individual in a March 27, 1980 car
accident. 327 N.W.2d 618, 620 (Neb. 1982). After the accident, the insurer
discovered that the principal insured had made misrepresentations when
applying for the policy, rendering the policy void from inception. Id. at 620,
621. The insurer sent a letter to the insured purporting to cancel the policy
effective April 22, 1980. Id. at 620. It retained the premiums paid between
March 27 and April 22. Id. In the lawsuit that followed, the insurer argued
that because the policy was void from inception, the insurer had no obligation
to provide coverage for the injuries resulting from the March 27 accident. Id.
But the Nebraska Supreme Court held that the insurer had waived its right
to assert a voidness defense, explaining that
[w]hen learning of the alleged fraud, [the insurer] had two
choices. Either it could determine that, because of the alleged
fraudulent statements made to it, it wished to cancel the policy
from its inception and return to [the insured] the entire premium,
on the theory that the policy never came into existence, or it
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could waive the alleged fraud, keep the premium earned to date
of cancellation, and accept responsibility under the policy . . . .
[The insurer] could not, on the one hand, recognize the existence
of the policy and retain a portion of the premium and, on the
other hand, deny the coverage afforded by the policy because of
alleged fraudulent misrepresentations.
Id.
Under Nebraska law, the question whether waiver has occurred is a
question of fact. Siouxland Ethanol, LLC v. Sebade Bros., LLC, 859 N.W.2d
586, 591 (Neb. 2015). However, if a jury could reach only one reasonable
conclusion on the issue, the Court may decide waiver as a matter of law.
Torgerson, 643 F.3d at 1042; see also Siouxland, 859 N.W.2d at 592.
Here, it is undisputed that as of the time the plaintiffs filed their
motion for partial summary judgment, the defendant had not refunded any of
the premiums the plaintiffs paid after March 7, 2014. Filing 36 at 4; filing 39
at 12. Additionally, it is undisputed that the defendant continued to accept
premiums from the plaintiffs even after sending the letters on July 17, 2015
declaring the policy void. Filing 36 at 4; filing 39 at 12. Finally, it is
undisputed that the defendant notified the plaintiffs in September 2015 that
the policy would not be renewed in December 2015. Filing 36 at 4; filing 39 at
12. Based on these undisputed facts, the plaintiffs argue, the defendant is
precluded as matter of law from asserting a voidness defense. Filing 36 at 15.
The defendant, on the other hand, argues that it did not waive its
voidness defense for two main reasons. To begin with, in response to the
present motion, on February 25, 2016, the defendant refunded the premiums
the plaintiffs paid after March 7, 2014. Filing 39 at 16. The defendant
contends that doing so creates a genuine issue of material fact as to whether
waiver has occurred. Filing 39 at 16. Additionally, the defendant argues that
aside from its failure to refund the premiums until after the present motion
was filed, its other actions demonstrate that it had no intention of waiving a
voidness defense. Filing 39 at 13.
(a) Effect of returning premiums
First, the defendant argues that because it refunded the premiums to
the plaintiffs after receiving the current motion for summary judgment, there
is a question of fact as to whether the refund was made with reasonable
promptness. Filing 39 at 19. Accordingly, the defendant contends, there is a
question of fact as to whether it has waived its voidness defense. Filing 39 at
16.
As explained above, an insurer has waived a voidness defense "when,
after acquiring knowledge of the facts constituting a breach of condition, it
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has retained the unearned portion of the premium or has failed to return or
tender it back with reasonable promptness." D & S Realty, Inc., 789 N.W.2d
at 18. Thus, whether the defendant has waived its voidness defense in this
case depends on (1) when it acquired knowledge of the facts constituting a
breach of condition, and (2) whether it refunded the premiums with
reasonable promptness after acquiring that knowledge.
To begin with, the defendant was certainly aware of the facts allegedly
constituting a breach of condition by January 26, 2015, when it filed its
answer to the plaintiffs' complaint. See filing 5. The answer alleged, among
other things, that "the fire was caused by intentional acts of the Plaintiffs . . .
for the purpose of obtaining insurance benefits under State Farm's insurance
policies"; that "the fire was not 'accidental,' as required by State Farm's
insurance policies"; that "the Plaintiffs have concealed and/or misrepresented
material facts and have made false statements in connection with the fire
and their alleged losses"; and that "State Farm's policies are void and there is
no coverage under the policies for any damage relating to the Plaintiffs'
claims." Filing 5 at 8–9. Furthermore, by the time it filed its answer, the
defendant had already completed substantial investigation into the
circumstances of the fire: between March and November 2014, it requested
documents and information from the plaintiffs, investigated the scene of the
fire, retained a fire investigator and electrical engineer, and examined the
plaintiffs under oath. Filing 39 at 5–6.1 Thus, the Court concludes that no
reasonable jury could find the defendant was unaware of the facts
constituting a breach of condition as of January 26, 2015 at the latest. See
Dairyland, 327 N.W.2d at 621 ("Obviously, Auto-Owners had knowledge of
the alleged 'fraudulent misrepresentation' at least by the time it filed its
answer in this case.").
Next, it is undisputed that the premiums were not refunded until
February 25, 2016, about 13 months after the defendant filed its answer, and
nearly 2 years after the fire itself. See filing 39 at 10–11. The defendant's only
explanation for this delay is that it intended to return the premiums on July
17, 2015, but failed to do so by mistake. Filing 39 at 10. No reasonable jury
could conclude that this kind of administrative negligence is a reasonable
justification for the delay in returning the premiums. As the Nebraska
Supreme Court has explained, "it is [the insurer's] responsibility to
coordinate its own functions." Lowry v. State Farm Mut. Auto. Ins. Co., 421
N.W.2d 775, 780 (Neb. 1988).

Although the defendant alleges that it continued to investigate even after November,
2014, it fails to identify what particular actions it took, when it took them, or what further
information was needed to reach a conclusion. Filing 39 at 6.
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Given a 13-month delay without valid justification, no reasonable jury
could find that the insurer refunded the premiums with reasonable
promptness after acquiring knowledge of the facts allegedly constituting
breach.
(b) Effect of other conduct
Second, the defendant contends that—setting aside its belated refund
of the premiums—its other actions demonstrate that it had no intention of
waiving its right to void the policy. Filing 39 at 13.
According to the defendant, a waiver can occur only where there is
"clear, intentional, and unmistakable action." Filing 39 at 13. The defendant
argues, therefore, that because "none of [its] actions after the fire suggest
that [it] ever intentionally waived its right to void the Policy and deny the
hail claim," there has been no waiver. Filing 39 at 15. In support of this
argument, the defendant points to: the letter it sent to the plaintiffs stating
that the policy would be void if it determined the plaintiffs intentionally set
the fire or made material misrepresentations or concealments about the fire;
the oral representations it alleges it made to the plaintiffs indicating that the
hail claim would be denied if the policy was void; its continued investigation
of the fire; and its assertion of a voidness defense in its answer. Filing 39 at
15–16.
But under Nebraska law, a party can waive a contractual right without
any subjective intention of doing so. As explained above, waiver can be shown
either by "(1) a party's express declarations manifesting the intent not to
claim an advantage or (2) a party's neglecting and failing to act so as to
induce the belief that it intended to waive." D & S Realty, Inc., 789 N.W.2d at
18 (emphasis added). Put differently, a party can unintentionally waive a
contractual right if its conduct "warrants an inference of the relinquishment
of such right." Davenport Ltd. P'ship v. 75th & Dodge I, L.P., 780 N.W.2d 416,
425 (Neb. 2010).
The reasonable promptness rule itself is an application of this principle:
an insurer waives a voidness defense when it fails to return premiums with
reasonable promptness because "[t]he insurer's acceptance of premiums is
inconsistent with treating the breach as voiding the policy." D & S Realty,
Inc., 789 N.W.2d at 18–19. In other words, failing to return premiums with
reasonable promptness warrants an inference that the insurer intended to
waive its voidness defense.
Moreover, the reasonable promptness rule, as articulated by Nebraska
courts, does not contemplate weighing the failure to return premiums with
reasonable promptness against other all other actions the insurer might have
taken. Rather, the rule is phrased in absolute terms: "[a]n insurer is
precluded from asserting a forfeiture when, after acquiring knowledge of the
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facts constituting a breach of condition, it has retained the unearned portion
of the premium or has failed to return or tender it back with reasonable
promptness." Id. at 18. Thus, by the clear statements of Nebraska courts, the
failure to return premiums with reasonable promptness is, by itself,
dispositive of the waiver issue.
This reading comports with the reasoning that animates the rule. If an
insurer could accept premiums while also retaining its right to void the
policy, the insured would unwittingly be left without effective protection, and
the insurer would be permitted to collect payments at no risk to itself. See, 1
Insurance Claims and Disputes § 2:30; Am. Gen. Life Ins. Co. v. Salamon, 483
F. App'x 609, 610 (2d Cir. 2012); Sun Life Assur. Co. of Canada v. Berck, 719
F. Supp. 2d 410, 418 (D. Del. 2010); see also Glens Falls Indem. Co. v. D.A.
Swanstrom Co., 279 N.W. 845, 847 (Minn. 1938). As one court has explained,
the insurer is "not privileged 'to run with the hare and hold with the hounds'
until such time as it should become plain on which side its advantage [lies]."
Glen Falls Indem. Co., 279 N.W. at 847.
Accordingly, the Court finds that, as a matter of law, the defendant did
not return the premiums paid after March 7, 2014 with reasonable
promptness, and therefore it has waived its right to assert a voidness
defense. Thus, the Court will grant summary judgment for the plaintiffs as to
liability for the losses caused by the hail storm.
IT IS ORDERED:
1.

The plaintiff's motion for partial summary judgment (filing
34) is granted.

2.

Summary judgment is granted for the plaintiffs as to their
claim for the hail damage that occurred on June 3, 2014,
with the amount of damages to be determined at trial.

Dated this 19th day of April, 2016.
BY THE COURT:

John M. Gerrard
United States District Judge

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