United States District Court, E.D. Kentucky, Northern Division, Ashland
MEMORANDUM OPINION AND ORDER
R. Wilhoit United States District Judge
matter is before the Court upon Defendant Safeco Insurance
Company of America39;s Motion for Summary Judgment [Docket
No. 34]. The motion has been fully briefed by the parties.
For the reasons stated herein, the Court finds that Defendant
is entitled to judgment as a matter of law as to Plaintiffs
Carl and Denice Wellman39;s remaining claims for bad faith
and violation of Kentucky39;s Unfair Claims Settlement
case arises out of a July 30, 2012 fire that occurred at the
residence of Plaintiffs Carl and Denice Wellman, located at
2030 West Hearthstone Lane in Ashland, Kentucky. The
Plaintiffs39; home was a total loss.
time of the fire, Safeco insured Plaintiffs39; residence
and personal property subject to the terms, conditions, and
exclusions of policy number OK5622106.
Court has already ruled, the Policy required Safeco to
"pay the difference between actual cash value and
replacement cost only when the damaged or destroyed property
is repaired or replaced." This is what Safeco did,
paying Plaintiffs a total of $315, 915, 54 as they rebuilt
with the terms of the Policy, Safeco offered Plaintiffs three
options after the fire: purchase another home, rebuild their
old home, or take a lump-sum settlement from Safeco
reflecting the actual cash value of their home.
the fact that Plaintiffs had listed their home for sale
immediately prior to the fire, Plaintiffs elected to rebuild
their home at the same location. In accordance with their
decision to rebuild, Safeco39;s adjuster, Mandy Savage,
provided the Plaintiffs with an estimate reflecting the
Actual Cash Value of the home and Replacement Cost Value of
did not dispute either estimate.
then issued the Plaintiffs checks for $199, 550.67 and $4,
761.96, which represented the Actual Cash Value of the home.
Thereafter, Plaintiffs were paid, pursuant to the terms of
the policy, as they showed that repairs were complete.
Construction began on the Plaintiffs39; new residence.
Citizens National Bank informed the Plaintiffs that it was
accelerating the approximately $190, 000 outstanding on
Plaintiffs39; mortgage loan on their prior home that had
burned. Safeco had no involvement in the bank39;s decision
to accelerate the Plaintiffs39; loan or the bank39;s
decision to take Plaintiffs39; funds. Despite the fact that
the bank had taken most of Safeco39;s Actual Cash Value
payment to the Plaintiffs, Plaintiffs decided not to apply
for another mortgage to completely rebuild their home in
2012. Instead, in order to finance the construction,
Plaintiffs allege that they chose to sell their vehicles,
borrowed money from family members, and put the money from
their personal property settlement that had been paid to them
by Safeco toward rebuilding their home.
Plaintiffs allege that they were unable to pay some of the
contractors they hired to rebuild portions of their home.
During construction, Plaintiffs also decided to make various
"upgrades" to their rebuilt home, including
installing more expensive countertops, heating units,
upgraded lighting, and more expensive flooring, which was not
provided for under the Policy and increased their costs.
end, Plaintiffs finished the rebuilding of their home
themselves. The estimated value of Plaintiffs39; new home
was $336, 400.00, compared to $237, 500.00 of their old home.
filed suit against Safeco in Boyd Circuit Court alleging
breach of the Policy, bad faith, and violation of
Kentucky39;s Unfair Claims Settlement Practices Act, KRS
§ 304.12-230, et seq. ("UCSPA"). The
case was removed to this Court.
breach of contract claims arose from Plaintiffs allegations
that Safeco should provide "advances" on the
replacement cost payments they needed to finish the rebuild
of their home before the repair or replacement work was
complete. However, the express terms of the Policy stated
that Safeco could only provide additional funds to the
Plaintiffs once the Plaintiffs submitted receipts showing
that the repairs were complete.
moved for partial summary judgment on Plaintiffs39; breach
of contract claim. Safeco argued that Plaintiffs39; demand
for advanced replacement cost payments was contrary to the
terms of the Policy, which clearly states that Safeco could
only provide additional funds to the Plaintiffs once the
destroyed property was repaired or replaced.
Court sustained Safeco39;s Motion for Partial Summary
Judgment, finding that Safeco had not breached the Policy.
The Court further found that Safeco reimbursed the Plaintiffs
for the repairs upon receipt of documentation from Plaintiffs
showing the completed repairs in accordance with the terms of
seeking dismissal of what remains of this case, Safeco argues
that because this Court has already determined that Safeco
paid Plaintiffs in accordance with the terms of their
insurance policy, Plaintiffs cannot establish that Safeco
improperly denied any claim by Plaintiffs. According to
Safeco, nor can Plaintiffs possibly show that Safeco acted
with the malice, evil motive, or reckless disregard necessary
to establish a bad faith claim under Kentucky law. Safeco
points out that it has already been determined that Safeco
acted within the terms of its policy.
urge this Court to overrule Safeco39;s Motion for Summary
Judgment on the basis that many genuine issues of material
fact exist with respect to Plaintiffs39; claims.
Specifically, they argue that Safeco continues to
mischaracterize Plaintiffs39; case as one that is only
about the failure of Safeco to pay on their homeowner39;s
policy. However, as both Mr. and Mrs. Wellman testified in
their depositions and as their discovery responses made
clear, Plaintiffs39; claims against Safeco arise under
provisions of the UCSPA that do not require a denial of
payment. In this respect, Plaintiffs contend that summary
judgment should not be granted because a jury could find, and
should be permitted to find, that Safeco violated the UCSPA
and acted in bad faith with respect to adjusting the claim.
According to Plaintiffs, this is an independent violation of
the UCSPA that does not require, as Safeco argues, a denial
payment of the policy proceeds.
STANDARD OF REVIEW
Summary judgment should be granted "if the movant shows
that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). A genuine issue of material fact exists
only when, assuming the truth of the non-moving party39;s
evidence and construing all inferences from that evidence in
the light most favorable to the non-moving party, there is
sufficient evidence for a trier of fact to find for that
party. A non-moving party cannot withstand summary judgment,
however, by introduction of a "mere scintilla" of
evidence in its favor. See Ciminillo v. Streicher,
34 F.3d 461');">434 F.3d 461, 464 (6th Cir. 2006).
tort of bad faith for breach of an insurer39;s obligation
in the area of first-party insurance was first recognized by
a court of last resort in 1973 in Gruenberg v. Aetna
Insurance Co. 32');">510 P.2d 1032 (Cal. 1973). In doing so,
the Supreme Court of California created an entirely new cause
of action against insurers regarding first-party coverages.
Prior to this time, the courts followed the common-law rule
that damages for breach of contract were, with rare
exception, limited to those in the contemplation of the
parties at the time the bargain was struck. As a general
rule, consequential damages were more exclusively within the
realm of tort law than that of contract, and it was no tort
for a party to breach a contract, even when the breach was
intentional. Now, more than forty years later, the law
regarding the obligation of an insurer in first-party
situations is still evolving and expanding. In almost all
jurisdictions, insurers not only are exposed to consequential
damages for economic loss and emotional distress for failing
to deal with their insureds fairly and in good faith, but
they also may be subject to substantial awards of punitive
damages. Moreover, most states have enacted statutory bad
faith, appurtenant to the tort.
foundation of the modern common-law bad faith action was laid
by the Kentucky Supreme Court in Wittmer v. Jones.
864 S.W.2d 885 (Ky. 1993). It was there that the court set
forth the three elements required to sustain a cause of
action for bad faith against an insurer:
(1) the insurer must be obligated to pay the insured's
claim under the ...