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Ellis v. Arrowood Indemnity Co.

United States District Court, E.D. Kentucky, Southern Division, Pikeville

April 30, 2015

JAMES A. ELLIS, et al., Plaintiffs,
v.
ARROWOOD INDEMNITY COMPANY, Defendant.

MEMORANDUM OPINION & ORDER

AMUL R. THAPAR, District Judge.

In 1998, plaintiffs James Ellis and his architecture firm (collectively, "the Ellis Parties") sued two former law firms, now joined by defendant Arrowood Indemnity Company (collectively, "Arrowood"), for malpractice. After seven contentious years, the parties finally reached a settlement in 2005. But that settlement was set aside when a Kentucky judicial commission concluded in 2006 that the presiding judge had failed to disclose a conflict of interest. After six more years of fruitless negotiations, the Ellis Parties finally reached a new settlement agreement with Arrowood. Five weeks later, on November 5, 2012, the Ellis Parties sued Arrowood for statutory bad faith and deceptive trade practices. At the close of discovery, Arrowood moved for summary judgment. For the reasons discussed below, the Court will grant the motion as to claims that accrued before November 5, 2007, and deny the motion as to claims that accrued after November 5, 2007.

BACKGROUND

Because the Court previously recounted the facts in this case, see Ellis v. Arrowood Indem. Co., No. CIV. 12-140-ART, 2014 WL 2818458, at *1 (E.D. Ky. June 23, 2014), a brief review suffices here. Seventeen years ago, the Ellis Parties sued two of their former law firms for malpractice. Ellis v. Caudill, No. 2006-SC-660, 2007 WL 1790397 (Ky. June 21, 2007). As the result of a trial on damages only, the jury found that, if liable, Arrowood would owe the Ellis Parties more than three million dollars. Arrowood Indem. Co., 2014 WL 2818458, at *1. Soon thereafter, the parties settled their dispute (the "2005 settlement"). Id. As a result of the 2005 settlement, Arrowood paid the Ellis Parties $3.965 million. Id. But, when a business relationship between the presiding judge and the Ellis Parties' trial consultant emerged, the new judge set aside the 2005 settlement. Ellis, 2007 WL 1790397, at *2. Despite court-ordered mediation, the dispute continued for six years after the set-aside. Arrowood Indem. Co., 2014 WL 2818458, at *1. On November 5, 2012, five weeks after the parties finally settled the original dispute, the Ellis Parties filed a different suit against Arrowood-this time for bad faith and deceptive trade practices in violation of the Kentucky Unfair Claims Settlement Practices Act ("UCSPA"), KRS § 304.12-230. R. 1-1 at 7-9.

DISCUSSION

Summary judgment is only appropriate when the pleadings and discovery materials "show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Sullivan v. Oregon Ford, Inc., 559 F.3d 594, 594 (6th Cir. 2009) (quoting former Fed.R.Civ.P. 56(c)). When evaluating a motion for summary judgment, the Court must draw all inferences and view all facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Once the moving party meets its initial burden to identify the parts of the record that "demonstrate[] the absence of a genuine issue of material fact, " Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986), the burden shifts and the non-moving party "must set forth specific facts showing that there is a genuine issue for trial." United States v. Dusenbery, 223 F.3d 422, 424 (6th Cir. 2000) (quoting former Fed.R.Civ.P. 56(e)).

Here, Arrowood filed a motion for summary judgment on three grounds: (1) the applicable statute of limitations bars the Ellis Parties' claims that accrued more than five years before this suit, (2) the Ellis Parties failed to state a claim under the UCSPA, and (3) the Ellis Parties cannot establish damages. Because the Ellis Parties can assert a claim and establish damages under the UCSPA, the Court will grant Arrowood's motion only as to the time-barred claims that accrued before November 5, 2007.

I. The Ellis Parties' UCSPA claims that accrued before November 5, 2007 are barred by a Kentucky statute of limitations.

For statutes like the UCSPA, which create liability but do not fix a statute of limitations, Kentucky law bars claims filed more than "five years after the cause of action accrued." KRS § 413.120(2). The Ellis Parties filed this suit on November 5, 2012. R. 1-1 at 2. So the Ellis Parties' claims for bad faith and deceptive practices that accrued before November 5, 2007 are time-barred. Though the Ellis Parties also allege instances of bad faith within the five years before they filed this suit, R. 86-16 at 2-3, Arrowood only seeks summary judgment on those that accrued before November 5, 2007. R. 121-1 at 28-30.

Claims accrue "when the cause or the foundation of the right [of action] [come] into existence." Caudill v. Arnett, 481 S.W.2d 668, 669 (Ky. 1972) (citing Jordan v. Howard, 54 S.W.2d 613, 615 (Ky. 1932)). A cause of action does not come into existence until "the last event necessary to create the cause of action occurs." See Combs v. Int'l Ins. Co., 354 F.3d 568, 591 (6th Cir. 2004). In Kentucky, that last event occurs at the "juncture of wrong and damage." See Dodd v. Pittsburg, C., C. & St. L.R. Co., 106 S.W. 787, 794 (Ky. 1908).

The Ellis Parties admit they suffered wrongs and damages before November 5, 2007. In its "Concise Statement of Material and Indisputable Facts Supporting Summary Judgment, " Arrowood states that "[t]he Ellis Parties' asserted bad faith and deceptive practice claims against Arrowood are purely statutory claims pursuant to the UCSPA" and "began to accrue as early as September 2004." R. 121-1 at 19, ¶¶ 19, 20. The Ellis Parties respond in the same way to both assertions: "Agree." R. 122 at 12, ¶¶ 19, 20. Arrowood also states the Ellis Parties allege "instances' [of bad faith] that begin in September 2004, additional instances' prior to their acceptance and retention of the original $3, 965, 000 payment on June 5, 2005, and then more instances' after this payment." R. 121-1 at 19, ¶ 22. Again, the Ellis Parties, "[a]gree[d]." R. 122 at 12, ¶ 22.

Even without these blanket admissions, the Ellis Parties' specific allegations compel the same conclusion-that the Ellis Parties suffered "wrong and damage" before November 5, 2007. During discovery, Arrowood sent the Ellis Parties the following interrogatory: "Identify the period of time during which you allege Defendants acted in bad faith and identify with specificity the actions taken or not taken by Defendants which you allege were in bad faith." R. 121-9 at 1. In response, the Ellis Parties' listed Arrowood's "[s]pecific instances of bad faith" that occurred "between September 8, 2004 and... the present [day]":

(1) The Arrowood Adjuster's "refusal to appear in person at the first September 8, 2004 Mediation."
(2) Arrowood's "refusal to attend the Court-ordered January 14, 2005 Mediation."
(3) Arrowood's "refusal to settle the litigation for the amount of the November 17, 2004 Jury Award."
(4) Arrowood's "refusal to settle after the January 28, 2005 settlement amount that was within policy limits and later executed by a Settlement and Release on May 26, 2005, or at any of the multiple mediations held throughout the course of litigation despite liability being clear."
(5) Arrowood's "refusal to re-settle at the May 4, 2006 Mediation despite liability being clear."

R. 121-9 at 1-2. The Ellis Parties' reiterated these instances of bad faith in their response to Arrowood's motion for summary judgement: Until May 6, 2005, they argue, Arrowood repeatedly refused to settle despite "multiple demands by the insureds for the case to settle within policy limits" in order "to not risk an excess liability verdict." R. 122 at 13; see also R. 122-2 (explaining that the insured law firms had both demanded that Arrowood settle with the Ellis Parties within the policy limit). The Ellis parties also claim that after the set-aside of the 2005 settlement, and throughout 2006 and 2007, Arrowood "repeatedly refused to simply resettle the case on the terms it had always considered not only fair, but ...


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