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Morris v. Zurich American Insurance Co.

United States District Court, W.D. Kentucky, Paducah

June 15, 2018



          Thomas B. Russell, Senior Judge

         This matter comes before the Court upon Motion by Defendants Zurich American Insurance Company[1] and Zurich American Insurance Company of Illinois, [2] (collectively, “Defendants”), for summary judgment against Plaintiff Melissa Morris, (“Morris”). [DN 23.] Morris has responded, [DN 41], and Defendants have replied. [DN 56]. This matter is ripe for adjudication and, for the reasons that follow, IT IS HEREBY ORDERED that Defendants' Motion, [DN 23], is GRANTED in part and DENIED in part.

         A. Background

         “Morris was injured in an automobile accident on September 18, 2008. The person driving the [other] vehicle in the accident was Edgar Heinkel, ” who “was an employee of SMCS Terminix at the time of the accident.” [DN 1-2, at 2.] Heinkel was driving his company truck when the accident occurred. [Id.] “As a result of Heinkel's employment, he was insured under a commercial auto policy that [D]efendant Zurich American Insurance Company issued to” ServiceMaster, a company which oversees the operation of numerous brands, including Terminix. [DN 23-2, at 2.] That policy held the following policy No. BAP 2938657-03. [DN 1-2, at 2.] According to Defendants' instant Motion, Zurich Illinois did not insure ServiceMaster or any of the companies under ServiceMaster's corporate umbrella. [DN 23-2, at 3.]

         As a result of the underlying accident, Morris claims that she suffered “a disk injury to her neck and lower back, ” for which she received medical treatment. [DN 41-1, at 3.] Further, “[w]hile Ms. Morris continued to treat her injuries, her attorney [at that time], Kevin Monsour, sent a settlement demand to Zurich [American] on July 20, 2011 in the amount of $175, 000. Although Zurich [American] confirmed receipt of the settlement demand on August 9, 2011, Zurich [American] did not settle, counter or attempt in any way to respond….” [Id.] As a result, Morris “filed suit in Jefferson County Circuit Court on September 19, 2011.” [Id.] According to Morris's Amended Complaint, filed in state court before removal from Christian County Circuit Court, Zurich American “orally offered to settle [her] claim for $25, 000 in 2015, which was later increased orally to $75, 000, and then [Zurich American] later orally suggested they would be willing to go as high as six figures.” [DN 1-2, at 3.]

         The underlying policy, BAP 2938657-03, “had a $5, 000, 000 liability limit and a $3, 000, 000 liability deductible.” [DN 23-2, at 2; DN 23-5, at 1.] After the underlying litigation commenced, in Morris's responses to Defendants' interrogatories, she indicated that her claim was worth $1, 900, 000. There is no evidence that she ever sought or contended she was entitled to more than that sum. In her state court Amended Complaint, Morris alleged that Defendants engaged in bad faith in the following ways: (1) “fail[ing] to acknowledge and act reasonably promptly upon communications with respect to a claim arising under the [relevant] insurance policies, ” (2) “refus[ing] to pay claims without conducting a reasonable investigation based upon all available information, ” (3) failing to “attempt in good-faith to effectuate prompt, fair, and equitable settlement of [her] claim in which liability had become reasonably clear and damages became reasonably certain, ” (4) “fail[ing] to adopt and implement a reasonable standard for the prompt investigation of claims arising under” the relevant “insurance policies, ” (5) “compel[ing] [Morris] to institute litigation to recover amounts due under the insurance policy by not offering any payment and then offering substantially less than the amount ultimately recovered by [Morris] in the underlying action, ” (6) “attempt[ing] to settle [Morris's] claims for less than the amount to which a reasonable person would have believed she was entitled by reference to written or printed advertising material disseminated by Zurich, ” and (7) “fail[ing] to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts and applicable law for denial of [Morris's] claim or for the offer of a compromised settlement in her claim.” [DN 1-2, at 3-4.]

         B. Legal Standard

         Rule 56 of the Federal Rules of Civil Procedure instructs that “[t][he court shall grant summary judgment 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. The court should state on the record the reasons for granting or denying the motion.” Fed.R.Civ.P. 56(a). “In deciding a motion for summary judgment, the court must view the evidence and draw all reasonable inferences in favor of the nonmoving party.” Nat'l Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900, 907 (6th Cir. 2001) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). Additionally, “[t]he judge is not to ‘weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.'” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).

         “The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists.” Am. Guarantee and Liability Ins. Co. v. Norfolk S. Rwy. Co., 278 F.Supp.3d 1025, 1037 (E.D. Tenn. 2017) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). The movant “may discharge this burden either by producing evidence that demonstrates the absence of a genuine issue of material fact or simply ‘by showing-that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party's case.'” Id. (quoting Celotex, 477 U.S. at 325). Should the movant carry his or her burden here, “[t]he non-moving party…may not rest upon its mere allegations or denials of the adverse party's pleadings, but rather must set forth specific facts showing that there is a genuine issue for trial.” Moldowan v. City of Warren, 578 F.3d 351, 374 (6th Cir. 2009) (citing Matsushita, 47 U.S. at 586). Finally, “[t]he mere existence of a scintilla of evidence in support of the non-moving party's position will be insufficient to defeat a motion for summary judgment; there must be evidence on which the jury could reasonably find for the non-moving party.” Id. (internal citations and brackets omitted). This means that “[i]f the [non-moving] party fails to make a sufficient showing on an[y] essential element of its case with respect to which it has the burden of proof, the moving party is entitled to summary judgment.” Am. Guarantee and Liability Ins. Co., 278 F.Supp.3d at 1037 (citing Celotex, 477 U.S. 323).

         C. Discussion

         1. Background Law

         “Kentucky law recognizes four categories of bad faith claims against insurance companies, ” which are as follows:

(1) common law third-party bad faith, which may occur when a liability insurer fails to settle a tort claim against its insured; (2) common law first-party bad faith, which occurs when an insurer refuses to pay the claim of its own insured under a first-party policy provision; (3) first-party bad faith under the Kentucky Consumer Protection Act (‘KCPA'); and (4) first-party and third-party bad faith under the Kentucky Unfair Claims Settlement Practices Act (‘KUCSPA'), which imposes what is generally known as the duty of good faith and fair dealing owed by an insurer to an insured and sets forth a list of particular duties and practices which constitute unfair claims settlement.

         Foster v. Am. Fire and Casualty Co., 219 F.Supp.3d 590, 594 (E.D. Ky. 2016) (citing Knotts v. Zurich Ins. Co., 197 S.W.3d 512, 515 (Ky. 2006); Rawe v. Liberty Mutual Fire Ins. Co., 462 F.3d 521, 526-27 (6th Cir. 2006)).

         Here, Morris has made claims for (1) common law third-party bad faith, and (2) third-party bad faith under the KUCSPA. [See generally DN 1-2.] In Davidson v. Am. Freightways, Inc., 25 S.W.3d 94, 100 (Ky. 2000), the Kentucky Supreme Court restated the rule first explained in Wittmer v. Jones, 864 S.W.2d 885 (Ky. 1993), namely, that irrespective of whether a bad faith claim is brought by a first-party claimant or a third-party claimant, or “whether premised upon common law theory or a statutory violation, ” “all of the bad faith liability theories [have been gathered] under one roof” and there is one test applicable to all four above theories. That test is as follows:

(1) [t]he insurer must be obligated to pay the claim under the terms of the policy; (2) the insurer must lack a reasonable basis in law or fact for denying the claim; and (3) it must be shown that the insurer either knew there was no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed.

Id. (quotation marks and citations omitted).

         2. Admissibility of Laura Stengl's Affidavit

         Although Morris's claims are for bad faith, the first issue the Court must decide is the admissibility of Laura Stengl's affidavit, (the “Stengl Affidavit”), which was attached to the instant Motion. Stengl, a claims specialist with Zurich American, completed an affidavit in which, among other things, she avers that Morris's settlement demands always fell under the $3, 000, 000 deductible, and that Morris's underlying claims were “genuinely disputed throughout.” [DN 58.] Morris argues in her Response to the instant Motion that the Court should not consider the Stengl Affidavit in reaching its decision on whether to grant summary judgment in favor of Defendants for three broad reasons: first, Morris argues that the Stengl Affidavit does not comply with Federal Rule of Civil Procedure 56(c)(4) or Kentucky statutory requirements; second, Morris argues that Stengl is not competent to make averments concerning issues that transpired before her term of employment started with Zurich American; third, Morris argues that Stengl improperly and irrelevantly relies on litigation materials to reach a conclusion concerning the underlying settlement. [See DN 41-1, at 5-7.] Defendants do not mention Stengl or her affidavit in their Reply, nor do they respond to Morris's arguments concerning the document. [See generally DN 56.]

         With respect to her first argument, Morris claims that the Stengl Affidavit does not comport with Rule 56(c)(4) because it was “not made upon personal knowledge and makes statements that are not supported by the record. Nor does she cite to the record to support her statements.” [DN 41-1, at 5.] Of course, an affiant need not cite to the actual Record of a case in order for their averments to be legitimate, or for the Court to consider them in reaching a decision. Morris also contends that the Stengl Affidavit “does not comply with the Kentucky statutory requirements” because it “fails to certify [that Stengl] appeared before the notary personally and execute the instrument.” [Id.] However, the document provides the following signed declaration by Jacqueline Thomas, the notary public in question: “Subscribed and sworn to before me this 1st day of February, 2018 by Laura J. Stengl.” [DN 58 (emphasis added).] The Court finds that this standard declaration satisfies any concerns Morris may have concerning the document's authenticity and compliance with relevant statutory authority.

         Next, the Court finds Morris's argument that Stengl lacks personal knowledge of the facts about which she makes averments, or that she is somehow incompetent to discuss these matters, to lack merit. Stengl is clear that she was not assigned as a claims representative on Morris's underlying claim until April 2012. [Id.] And although Stengl makes averments about “pre-litigation” issues, the Court is satisfied that, as the claims representative assigned to Morris's case, she would have been made aware of the case history as well as its pertinent facts. Moreover, even if the Court were to disregard the sections of the Stengl Affidavit which relate to incidents occurring before her term of employment with Zurich American commenced, the Court would still have that information through other sources. Specifically, Morris does not contend that she ever made settlement demands that equaled or exceeded the $3, 000, 000 deductible.

         The final section of the Stengl Affidavit with which Morris takes issue is Stengl's averment that her “tort case against Mr. Heinkel and his employer was genuinely disputed throughout.” [Id.] In support of this averment, Stengl states that, in her answers to Defendants' interrogatories, “Morris claimed total damages of $1, 900, 000, ” and that “Morris's lawsuit against Mr. Heinkel and his employer was settled for less than 10% of the amount claimed by Ms. Morris in those interrogatory answers, ” thereby demonstrating, in Stengl's view, a genuine dispute. [Id.] Morris argues that Stengl's averment that her claim was “genuinely disputed…is not true and not supported by admissible evidence….” [DN 41-1, at 5.] Additionally, Morris argues that this statement “is simply an unsupported self-serving conclusory statement. This statement is inconsistent with the other evidence produced by defendants. Ms. Stengl does not state any facts to support or provide a reasonable inference why the claims were genuinely disputed in good faith.” [Id. at 5-6.] Again, it is uncontested that Morris, at one time, claimed her case was worth $1, 900, 000, and that she ultimately settled for a much smaller figure, $116, 432. And Morris may argue that this Court cannot consider her answers to interrogatories, but the case law in the Sixth Circuit bears out the rule that, “under Federal Rule of Civil Procedure 56(c), a district court may consider answers to interrogatories when reviewing a motion for summary judgment so long as the content of those interrogatories would be admissible at trial, and this includes a party's own responses to interrogatories.” Bokhari v. Metro. Gov't of Nashville and Davidson Cnty., No. 3:11-00088, 2012 WL 6018710, at *6 n.3 (M.D. Tenn. Dec. 3, 2012) (internal quotation marks and citations omitted). In her response to an interrogatory, she set out $1, 900, 000 as the value of her claim. The Court finds that it may ...

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