United States District Court, W.D. Kentucky, Louisville Division
MEMORANDUM OPINION AND ORDER
N. Stivers, Judge United States District Court
matter comes before the Court on Defendant Peerless Insurance
Company's Motion for Summary Judgment (DN 33). For the
following reasons, the motion is GRANTED.
Arla and Mohana Arla (“Plaintiffs”) acquired an
insurance policy from Defendant Peerless Insurance Company
(“Peerless”) covering their home under
construction at 8700 Rama Road, Prospect, Kentucky. (Notice
Removal Ex. A, ¶ 2, DN 1-2 [hereinafter Verified
Compl.]). The property suffered a complete loss as the result
of a fire that occurred when construction of the house was
substantially, but not entirely, completed. (Verified Compl.
¶ 2). On July 1, 2015, Plaintiffs filed suit against
Peerless in Jefferson Circuit Court alleging breach of
contract and violation of Kentucky's Unfair Claims
Settlement Practices Act (“KUCSPA”), KRS
304.12-230, including bad faith. (Verified Compl.
¶¶ 3-4). Plaintiffs acknowledged a payment by
Peerless of $1, 961, 672.25, yet claimed they were owed the
full $3-million policy limit. (Verified Compl. ¶ 15).
Peerless removed the case to this Court. (Notice of Removal,
DN 1). The Court bifurcated the claims and stayed
Plaintiffs' KUCSPA claim pending the resolution of the
underlying breach of contract claim. (Order, DN 10).
Plaintiffs exercised their right to an appraisal proceeding
under the policy and a dispute arose as to which calculation
method was to be used in the appraisal proceedings.
(Def.'s Mot. Summ. J. Ex. A, at 44, DN 32-4 [hereinafter
Policy]). Plaintiffs moved for declaratory judgment in this
Court and Peerless moved for summary judgment. The parties
put forth conflicting methods for determining the amount owed
for Plaintiffs' loss under the policy. Plaintiffs argued
that the “estimated value” of the home should be
measured by the expected value at completion based upon the
market price of the home, less any depreciation. (Pls.'
Mem. Supp. Mot. Dec. J. 5-9, DN 15-1). Peerless, citing the
explicit valuation definition contained in the policy,
insisted that the home should be valued using replacement
cost value determined as the cost to construct the home
without deduction for depreciation. (Def.'s Mem. Supp.
Mot. Partial Summ. J. 7-10, DN 16-1). By Memorandum Opinion
and Order entered April 13, 2016, the Court determined that
the policy dictated that the value to be used in the
coinsurance formula was the replacement cost as advocated by
Peerless, not fair market value. (Mem. Op. & Order 6, DN
parties then resumed appraisal proceedings per the policy,
which required their respective appraisers to select an
independent umpire to determine the amount of the loss and
the replacement cost value of the completed home had the fire
not occurred. (Policy 44). The parties' appraisers
selected retired U.S. Magistrate Judge C. Cleveland Gambill
to act as their umpire. (Def.'s Mot. Summ. J. Ex. D, DN
32-8). Judge Gambill met with the counsel and their
appraisers and set a schedule for an exchange of briefs.
(Def.'s Mot. Summ. J. Ex. C, DN 32-5). With the agreement
of the parties, Judge Gambill then heard from Plaintiffs, the
builder, and the appraisers and discussed the differences in
the appraisers' differing valuations of the property.
appraiser, Glenn Katz (“Katz”), opined that the
amount of the loss was “approximately $6, 500,
000” and also found that the estimated replacement cost
value at completion was $7, 430, 000. (Def.'s Mot. Summ.
J. Ex. C, at 1-2; Def.'s Mot. Summ. J. Ex. B, at 3, DN
32-3). Peerless' independent appraiser, Dan Grecco
(“Grecco”), opined that the amount of the loss
was $7, 304, 470 and the estimated value of the home at the
time of completion would have been $11, 212, 955.68.
(Def.'s Mot. Summ. J. Ex. C, at 5). Both Katz and Grecco
participated with Judge Gambill in the appraisal process.
(Def.'s Mot. Summ. J. Ex. D). On the day of the appraisal
hearing, Plaintiffs claim that Grecco opined that the
replacement cost was actually $13, 150, 000. (Katz Aff.
¶ 2(g), DN 33-1).
estimating the replacement cost at completion, Katz claims
that Grecco did not alter his estimate to reflect changes
Plaintiffs made from the original plans. (Katz Aff. ¶
2(a)-(c)). Plaintiffs had apparently altered the original
plans after becoming frustrated with four years of
construction and omitted many of the amenities planned for
the basement, including a bowling alley, wet bar, a full bath
and a half bath, sauna, steam rooms, recreation room, theater
room, and a dance hall with dance floor and stage, which was
acknowledged by the builder, RTS Builders, LLC
(“RTS”). (Katz Aff. ¶ 2(a)-(b)). Grecco did
not include these changes in his appraisal estimates. (Katz
Aff. ¶ 2(c)). Additionally, Plaintiffs allege that
Grecco overstated the above-grade finished square footage of
the house by approximately 4, 000 square feet, which Peerless
acknowledged at the appraisal hearing. (Katz Aff. ¶
calculation of the amount of loss, Judge Gambill determined
$7, 303, 740 as the amount of loss, adopting Grecco's
figure. (Def.'s Mot. Summ. J. Ex. D). For the calculation
of the replacement cost at the time of completion, Judge
Gambill did not accept either appraisers' estimate, and
found the amount to be $9, 667, 500. (Def.'s Mot. Summ.
J. Ex. D). Under Judge Gambill's verdict, Peerless was
required to pay an additional loss amount of $305, 000, which
was timely paid. (Def.'s Mot. Summ. J. Ex. D; Def.'s
Mot. Summ. J. Ex. E, DN 32-9).
has moved for summary judgment on Plaintiffs' bad faith
claim. In its motion, Peerless asserts that it is entitled to
summary judgment because: (i) there is no bad faith when the
policy was not breached; (ii) Peerless paid Plaintiffs
pursuant to the terms of the policy; (iii) Peerless did not
lack a reasonable basis in law or fact in denying
Plaintiffs' claim because the claim was never denied; and
(iv) there is a lack of evidence of malice or reckless
disregard of Plaintiffs' right to recovery. (Def.'s
Mem. Supp. Mot. Summ. J. 7-14, DN 32-1 [hereinafter
Def.'s Mot. Summ. J.]).
Court has “original jurisdiction of all civil actions
arising under the Constitution, laws, or treaties of the
United States.” 28 U.S.C. § 1331.
STANDARD OF REVIEW
ruling on a motion for summary judgment, the Court must
determine whether there is any genuine issue of material fact
that would preclude entry of judgment for the moving party as
a matter of law. See Fed. R. Civ. P. 56(a). The
moving party bears the initial burden stating the basis for
the motion and identifying evidence in the record that
demonstrates an absence of any material factual dispute.
See Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). If the moving party satisfies its burden, the
non-moving party must then produce ...