United States District Court, W.D. Kentucky, Owensboro Division
ANDY DELAMAR d/b/a JERI'S CAFÉ Plaintiff.
LINDA MOGAN, SUPERVISING ADJUSTER; CUNNINGHAM LINDSEY U.S., INC.; PENN-STAR INSURANCE COMPANY; and GLOBAL INDEMNITY GROUP, INC. Defendants.
MEMORANDUM OPINION AND ORDER
JOSEPH H. McKINLEY, Jr., Chief District Judge.
This matter is before the Court on Defendants Cunningham Lindsey U.S., Inc., Penn-Star Insurance Company, and Global Indemnity Group, Inc.'s Motion for Summary Judgment [DN 23]. Fully briefed, this matter is ripe for review.
This case stems from a fire at Jeri's Cafe on August 12, 2012. Plaintiff Andy Delemar d/b/a Jeri's Cafe owned and operated the restaurant located at 9109 State West Route #132 in Clay, Kentucky (the "Building"). Jeri's Cafe was the named insured on a commercial property and general liability insurance policy issued by Penn-Star Insurance Company ("Penn-Star") under Policy No. PAC6984049 (the "Policy"). The Policy had a coverage limit of $150, 000 for the Building and $40, 000 for Business Personal Property. [Ex. C: Certified Policy, DN 23-17, at 55].
On the day of the fire, Delamar immediately notified Penn-Star of the incident. Eric Kehs of Global Indemnity Group, Inc. ("Global Indemnity") sent a letter to Delamar on the next day confirming that Penn-Star had received Plaintiff's claim. Global Indemnity assigned the claim to insurance adjuster Linda Mogan of Cunningham Lindsey U.S., Inc. ("Cunningham Lindsey"). On August 14, 2012, Mogan issued her first report to Kehs concerning the fire at the Building. Mogan's first report contained the following description of the damage done to the Building:
The roof of the main restaurant building is about 75% burned away and there is extensive fire damage to that portion of the building. There is heavy smoke and water damage to the remainder of that portion of the building. It is an obvious total loss. There is moderate smoke damage to the hallway that connects the main building to the new addition. The new addition does not appear to be damaged, although there may be some light smoke damage to the metal ceiling.
[Ex. D1: 8/14/12 letter, DN 23-19, at 2]. In addition to Mogan's inspection of the Building, Mark Boaz from Donan Engineering investigated the Building to locate the cause of the fire. Based on Delamar's description of how the fire occurred, Boaz inspected the exhaust fan to determine whether the fire could have originated from it. Id. at 1-2. However, he concluded the fire started in a trash can in the northeast corner of the kitchen, but he did not believe the fire was intentionally set. Id. at 2.
On August 15, 2012, Delamar contacted an architect to provide him with an estimate of reconstruction costs. [Aff. of Delamar, DN 26-1, at 3]. However, Delamar was instructed by the second fire investigator, Doug Burns, not to do anything to the Building until he could complete his investigation. Id . Soon after meeting with the second investigator, Delamar received a $40, 000 check from Global Indemnity for a partial payment on the Building. [Ex. 2: Global Check for Partial Payment, DN 26-3, at 1]. Then, on August 27, 2012, Delamar contacted Mogan about obtaining additional money for debris removal. [Aff. of Delamar, DN 26-1, at 4]. According to Delamar, Mogan informed him that
(i) there was no additional coverage for debris removal (even though it appeared to her from the policy that such coverage existed), (ii) I would have to hire someone or remove the debris myself, and (iii) however much it cost me would come out of my policy coverage limit of $40, 000 for business personal property, money which I had not yet received (even though I had sent back the contents/inventory forms she had me fill out) nor did I know if I ever would.
On September 14, 2012, Mogan contacted Delamar in order to settle the claim. According to Delamar, during the conversation, Mogan told him that Global Indemnity was "penalizing" him for being underinsured. [Aff. of Delamar, DN 26-1, at 5]. Delamar assumed that Mogan was mistaken because he had actually increased his Policy limits on the Building in April of 2012. Id. at 2. Plaintiff raised his Policy limits after receiving an appraisal of his property conducted in April of 2011 by Tradewater Wildlife & Land Management LLC. Based on the appraisal, Delamar believed the actual cash value of the Building was $114, 000, and therefore, Delamar increased his coverage limits from $80, 000 for the Building and $20, 000 for Business Personal Property to $150, 000 for the Building and $40, 000 for Business Personal Property. Id. at 2. Despite the increase in coverage, Mogan asked him to accept the underinsurance penalty and settle with Penn-Star for $125, 000. [Aff. of Linda Mogan, DN 23-18, at 3]. Delamar refused Mogan's offer to settle. Id . On the day prior to Mogan's offer for a settlement, Kehs sent a letter to Delamar concerning the status of his claim. The letter stated as follows:
As you are aware, your fire damage claim with Penn - Star Insurance Company remains open. Your file remains open for the following reason:
We are waiting to finalize all damages through our Independent Adjuster. We are also looking into the coinsurance issues regarding the policy. Once we have received the breakdown of damages and co-insurance, we will review the claim for payment. We have currently paid $40, 000 in up front money for repairs to begin.
[Ex. B2: 9/13/12 Letter, DN 23-6, at 1]. Along with the letter, Delamar also received another check for $40, 000 which was the full extent of his Policy limits for Business Personal Property.
On September 19, Delamar received the following written explanation as to Penn-Star's settlement offer in a letter from Mogan:
As we have discussed previously, your policy has an 80% coinsurance clause in the policy, which has a penalty if you do not carry enough coverage to equal 80% of the actual cash value of the Building....
We have estimated the replacement cost for the main building and the new addition to be $502, 960.59 and after depreciation the actual cash value is $420, 934.28. This amount multiplied by 80% equals insurance required $336, 747.42. You have $150, 000.00 coverage on the building. This amount divided by insurance required $336, 747.42 equals a coinsurance factor of.445.
We estimated the value of the main building alone after depreciation to be $220, 130.28; the value of hallway repairs $3, 486.29; debris removal (at the lower estimate you submitted) $34, 500.00 and value of roof repairs to the new addition $1, 444.50. These amounts total an actual cash value loss of $259, 561.07. This amount multiplied by the coinsurance factor of.445 equals an actual cash value claim of $115, 504.68. Per our telephone conversation with you 09/14/2012, Penn-Star Insurance Company has offered to settle the claim on the Building in the amount of $125, 000.00 in order to expedite an amicable settlement.
[Ex. D2: 9/17/2012 Letter]. Soon after receiving this letter, Delamar retained Jon Fritz as counsel to handle his case. According to Delamar, his attorney left a voicemail with Kehs on September 19, 2012 to inform him that Delamar had retained counsel and to inquire about the coinsurance issue. A month passed before Delamar heard from Defendants again concerning his claim. Instead of getting a response from Kehs, Delamar said that he received a call from Mogan offering him the same settlement amount as provided in her letter. Delamar refused this offer and told Mogan that he would settle for the full Policy limit on the Building and for the cost of debris removal. Delamar also informed Mogan that he had additional claims that he believed were covered under the Policy. As a result, Mogan told Delamar to provide all this information in writing.
On November 8, 2012, Fritz, Delamar's attorney, emailed Kehs with questions concerning various issues of coverage as well as providing a counteroffer of $259, 588.74. [Ex. 8: 11/08/2012 Letter, DN 26-9, at 2]. Kehs responded to Fritz's email on November 14, 2012. [Ex. B3: 11/14/12 Letter, DN 23-7]. Kehs' letter essentially reiterated most of the points of contention that Mogan had discussed with Delamar, including the application of the coinsurance clause to Delamar's damages and issues regarding coverage for the addition to the Building. Id. at 8-9. Also, Kehs requested that Delamar supply him with any additional claims that he wished to make under the Policy. Id. at 8. Finally, Kehs noted in the letter that Penn-Star had issued a check for the sum of $75, 618.29 to bring the total amount paid to Delamar to $115, 618.29 for the Building. Id. at 9. This was the sum that Penn-Star believed it owed Delamar under the Policy.
Following Kehs' November 14, 2012 email, the parties exchanged several more emails concerning the April 29, 2011 appraisal for the Building conducted by Tradewater. By December 27, 2012, Kehs offered Delamar $137, 500 to settle his claim. Due to some personal issues, Fritz did not provide a response to Kehs' offer to settle until March 3, 2013. At that time, he indicated that Delamar wanted to reject Kehs' offer, but Fritz guessed that his client would settle somewhere between $177, 000, which was based on the $40, 000 already paid plus the $137, 500 offered, and Delamar's counteroffer of $340, 000. [Ex. B10: 3/3/13 Letter, DN 23-14, at 1]. In response, Kehs noted that Delamar's Policy did not cover many of the claims that Fritz listed, including mental anguish. [Ex. B11: 3/6/12 Letter, DN 23-15]. Again, Kehs informed Fritz that there was a $150, 000 ...