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Bailey v. State Farm Fire and Casualty Co.

United States District Court, E.D. Kentucky, Northern Division, Ashland

March 25, 2015

JEFFREY BAILEY and SUSAN HICKS, individually and on behalf of others similarly situated, Plaintiffs,
v.
STATE FARM FIRE AND CASUALTY COMPANY, Defendant.

MEMORANDUM OPINION AND ORDER

HENRY R. WILHOIT, Jr., District Judge.

This matter is before the Court upon Defendant State Farm Fire and Casualty Company's Motion to Dismiss Plaintiffs' First Amended Complaint [Docket No. 35]. The motion has been fully briefed by the parties [Docket Nos. 35-1, 36 and 37] and for the reasons set forth herein, the Court finds that the Plaintiffs' First Amended Complaint states a claim for breach of contract Therefore, the motion will be overruled in part and sustained in part.

I. FACTUAL BACKGROUND

Plaintiffs Jeffrey Bailey and Susan Hicks filed this lawsuit as a proposed class action challenging Defendant State Farm Fire and Casualty Company's ("State Farm") calculation of "actual cash value" ("ACV") when paying structural damage insurance claims. Plaintiffs contend that State Farm wrongfully depreciates the labor component of replacement cost.

The First Amended Complaint alleges distinct facts on behalf of Bailey and Hicks.

A. Dr. Bailey's claim.

Bailey owns a dental practice in West Liberty. Kentucky. On March 2, 2012, his office, located on Main Street, was severely damaged by a tornado [First Amended Complaint, Docket No. 30, ¶ 19]. At the time of the tornado, his office was insured under a business insurance policy issued by State Farm, No. 97-27-9945-0 ("the Bailey Policy"). Id., ¶ 18. The policy provides, in pertinent part:

e. Loss Payment
In the event of loss covered by this policy:
(1) At our option, we will either:
(a) Pay the value of lost or damaged property;
(b) Pay the cost of repairing or replacing the lost or damaged property;
(c) Take all or any part of the property at an agreed or appraised value; or
(d) Repair, rebuild or replace the property with other property of like kind and quality

[Docket No. 35-2, p. 18].

If State Farm elects to pay the "value of lost or damaged property", the Bailey Policy provides the manner in which the "value" is determined:

(4)... [W]e will determine the value of Covered Property as follows:
(a) At replacement cost without deduction for depreciation, as of the time of loss, subject to the following:
I. We will pay the cost to repair or replace, after application of the deductible and without deduction for depreciation, but not more than the least of the following amounts:
1) The Limit Of Insurance under SECTION 1 - PROPERTY that applies to the lost or damaged property;
2) The cost to replace, on the described premises, the lost or damaged property with other property of comparable material, quality and used for the same purpose; or
3) The amount that you actually spend that is necessary to repair or replace the lost or damaged property.
...
iii. We will not pay on a replacement cost basis for any loss:
1) Until the lost or damaged property is actually repaired or replaced;

Id.

In the wake of the tornado, a State Farm adjuster inspected the damage to Dr. Bailey's office [Docket No. 30, ¶ 21]. The adjuster determined that replacement cost value ("RCV") of Dr. Bailey's loss to be $94, 842.40. Id. In calculating its payment obligations to Dr. Bailey, State Farm Fire subtracted from the adjuster's replacement cost estimate the deductible provided for in the policy plus an additional $8, 644.58 for depreciation. Id. A copy of the correspondence pertaining to this estimate is attached to the First Amended Complaint. [Docket 30-1.]

According to the First Amended Complaint, this estimate included the cost, materials and labor required to complete the repairs. Id. at ¶ 21. In Paragraph 23, Plaintiffs allege:

The estimate upon which Dr. Bailey's payment was based indicates that State Farm Fire depreciated both material costs and labor costs associated with repairs to his office. For example, State Farm Fire estimated the cost of removing and replacing part of his office's brick veneer at $4, 099.60. State Farm Fire then depreciated from the total replacement cost estimate to remove and replace the brick veneer, which constitutes labor and materials, by $520.86 to arrive at what it designates as an "ACV, " i.e. actual cash value, of $3, 578.74. Similarly, State Farm Fire estimated the total cost of gluing ...

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