Opinion
NO. 2016-CA-001923-MR
09-07-2018
STEVE PAPASTEFANOU AND MARY PAPASTEFANOU APPELLANTS v. KENTUCKY GROWERS INSURANCE COMPANY; PHH MORTGAGE CORPORATION; AND FIRST SECURITY MORTGAGE OF OWENSBORO, INC. APPELLEES
BRIEFS FOR APPELLANTS: Sharon Bowles Howard Edmonton, Kentucky BRIEF FOR APPELLEE KENTUCKY GROWERS INSURANCE COMPANY: Don A. Pisacano Lexington, Kentucky
NOT TO BE PUBLISHED APPEAL FROM WARREN CIRCUIT COURT
HONORABLE JOHN R. GRISE, JUDGE
ACTION NO. 13-CI-01440 OPINION
AFFIRMING
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BEFORE: CLAYTON, CHIEF JUDGE; SMALLWOOD AND TAYLOR, JUDGES. SMALLWOOD, JUDGE: Steve and Mary Papastefanou appeal from two orders granting summary judgment in favor of Kentucky Growers Insurance Company. Those orders stated that the filing of a foreclosure action by PHH Mortgage Corporation against Appellants voided a homeowner's insurance policy. Finding no error, we affirm.
Appellants purchased a house in 2005. They took out two mortgages, one with PHH and one with First Security Mortgage of Owensboro, Inc. As part of this mortgage transaction, Appellants obtained an insurance policy through Kentucky Growers. In 2011, Appellants became delinquent on their mortgage payments and a foreclosure action was filed against them by PHH. The action was held in abeyance while Appellants and PHH tried to come to terms on a mortgage modification.
The insurance policy was held by multiple companies until it ended up with Kentucky Growers. For our purposes, only the Kentucky Growers policy is relevant.
On November 12, 2012, Appellants' home burned, resulting in a total loss. Appellants filed a claim with Kentucky Growers, but Kentucky Growers denied their claim. Kentucky Growers claimed that the insurance policy was void at the time of the fire due to the following language contained in the policy: "The entire policy shall be void . . . if, with the knowledge of the 'insured', foreclosure proceedings be commenced or notice given of sale of any property insured hereunder by reason of any mortgage[.]"
Kentucky Growers also denied recovery to the mortgagees as they were also named in the policy. This denial was based on the following policy language:
If a mortgagee is named on the Declarations, a loss payable under Coverage A or B will be paid to the mortgagee and "you", as interests appear. If more than one mortgagee is named, the order of payment will be the same as the order of precedence of the mortgages.PHH did not notify Kentucky Growers of the foreclosure action.
If "we" deny "your" claim, that denial does not apply to a valid claim of the mortgagee, if the mortgagee has:
a) notified "us:" upon commencement of foreclosure proceedings, a change in ownership, occupancy or any other substantial change in the risk of which the mortgagee became aware[.]
Appellants then brought the underlying cause of action, naming Kentucky Growers, PHH, and First Security Mortgage as defendants. Appellants asserted both individual personal claims and derivative claims on behalf of the mortgagees against Kentucky Growers. First Security Mortgage answered the complaint and filed a counterclaim against Appellants and cross-claims against Kentucky Growers and PHH. PHH filed answers to Appellants' complaint and First Security Mortgage's cross-claim, but no claim against Kentucky Growers.
After some discovery, First Security Mortgage and Kentucky Growers settled their claims and had entered an agreed order of dismissal. All remaining parties then moved for summary judgment. Ultimately, the trial court entered two orders granting summary judgment in favor of Kentucky Growers. The first order dismissed the Appellants' personal claims and the second order dismissed the derivative claims. This appeal followed.
The arguments raised on appeal concern the Appellants' individual and derivative claims. Appellants do not differentiate between their individual and derivative claims in their brief, but it appears as though they raise the same arguments for both policy provisions at issue. We will discuss the individual and derivative claims separately. --------
The standard of review on appeal of a summary judgment is whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law. Kentucky Rules of Civil Procedure (CR) 56.03. . . . "The record must be viewed in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest, Inc. v. Scansteel Service Center, Inc., Ky., 807 S.W.2d 476, 480 (1991). Summary "judgment is only proper where the movant shows that the adverse party could not prevail under any circumstances." Steelvest, 807 S.W.2d at 480, citing Paintsville Hospital Co. v. Rose, Ky., 683 S.W.2d 255 (1985). Consequently, summary judgment must be granted "[o]nly when it appears impossible for the nonmoving party to produce evidence at trial warranting a judgment in his favor. . . ." Huddleston v. Hughes, Ky. App., 843 S.W.2d 901, 903 (1992)[.]Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996). "It is well established that construction and interpretation of a written instrument are questions of law for the court. We review questions of law de novo and, thus, without deference to the interpretation afforded by the circuit court." Cinelli v. Ward, 997 S.W.2d 474, 476 (Ky. App. 1998) (citations omitted).
We will begin by discussing Appellants' arguments concerning their individual personal claim. This portion of the appeal concerns the policy language which voids the policy if a foreclosure action is filed.
Appellants' first argument is that the exclusionary language is ambiguous and not plainly and clearly written.
The Kentucky Supreme Court stated in St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Ky., 870 S.W.2d 223 (1994), "[a]ny limitation on coverage or an exclusion in a policy must be clearly stated in order to apprise the insured of such limitations. Stated otherwise, not only is the exclusion to be carefully expressed, but, as in this case, the operative terms clearly defined." Id. at 227. In Kentucky Farm Bureau Mut. Ins. Co. v. McKinney, Ky., 831 S.W.2d 164 (1992), the Kentucky Supreme Court stated that "two cardinal principles apply" in the interpretation of insurance contracts by Kentucky courts. Those principles are: "(1) the contract should be liberally construed and all doubts resolved in favor of the insureds; and, (2) exceptions and exclusions should be strictly construed to make insurance effective." Id. at 166, quoting Grimes v. Nationwide Mut. Ins. Co., Ky. App., 705 S.W.2d 926, 931 (1985).Anderson v. Kentucky Growers Ins. Co., 105 S.W.3d 462, 466 (Ky. App. 2003).
Although we have said that "Kentucky has consistently recognized that an ambiguous policy is to be construed against the drafter, and so as to effectuate the policy of indemnity," Bituminous Cas. Corp. v. Kenway Contracting, Inc., 240 S.W.3d 633, 638 (Ky. 2007), we have also said that "[t]he rule of strict construction
against an insurance company certainly does not mean that every doubt must be resolved against it and does not interfere with the rule that the policy must receive a reasonable interpretation consistent with the parties' object and intent or narrowly expressed in the plain meaning and/or language of the contract." St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Inc., 870 S.W.2d 223, 226 (Ky. 1994).Kentucky Employers' Mut. Ins. v. Ellington, 459 S.W.3d 876, 883 (Ky. 2015). Additionally, "[t]erms used within insurance contracts 'should be given their ordinary meaning as persons with the ordinary and usual understanding would construe them.' City of Louisville v. McDonald, Ky. App., 819 S.W.2d 319 (1991)." Sutton v. Shelter Mut. Ins. Co., 971 S.W.2d 807, 808 (Ky. App. 1997).
Appellants claim that the foreclosure provision was hidden deep within the policy and is not easily understood. We disagree. The policy provision at issue is clear and unambiguous as it has no other interpretation and Appellants do not allege how this provision could be misunderstood. In addition, the provision was not hidden. Although the policy is 22 pages long, the exclusionary provision is not hidden in small or fine print.
It is axiomatic that "the terms of an insurance contract must control unless [they] contraven[e] public policy or a statute." Cheek v. Commonwealth Life Ins. Co., 277 Ky. 677, 126 S.W.2d 1084, 1089 (1939). "[C]ourts cannot make a new contract for the parties under the guise of interpretation or construction but must determine the rights of the parties according to the terms agreed upon by them." Id.Meyers v. Kentucky Med. Ins. Co., 982 S.W.2d 203, 209-10 (Ky. App. 1997). We "must define an insurer's liability according to the terms and conditions of the policy." Moore v. Commonwealth Life Ins. Co., 759 S.W.2d 598, 599 (Ky. App. 1988). The terms and conditions of the policy are clear, and we do not believe the court erred as to this issue.
Appellants' second argument on appeal is that Kentucky Growers should be estopped from enforcing the exclusion provision because they claim they never received a copy of the insurance contract.
In order to prevail on a theory of estoppel, there must be proof not only of an intent to induce action or inaction on the party to be estopped, but also of reasonable reliance by the party claiming the estoppel. Gailor v. Alsabi, 990 S.W.2d 597, 604 (Ky. 1999) (internal citations omitted). Indeed in Weiand . . . the Kentucky Supreme Court set out the essential elements of equitable estoppel as:
(1) conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) the intention, or at least the expectation, that such conduct shall be acted upon by, or influence, the other party or other persons; and (3) knowledge, actual or constructive, of the real facts. And, broadly speaking, as related to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of knowledge of the truth as to the facts in question; (2) reliance, in good faith, upon
the conduct or statements of the party to be estopped; and (3) action or inaction based thereon of such a character as to change the position or status of the party claiming the estoppel, to his injury, detriment, or prejudice.
Kindred Nursing Centers Ltd. P'ship v. Brown, 411 S.W.3d 242, 247 (Ky. App. 2011).
Weiand v. Board of Trustees of Kentucky Retirement Systems, 25 S.W.3d 88, 91 (Ky. 2000) (internal citations omitted).
We do not believe Appellants' claim of estoppel is valid. There was no proof or allegation that Kentucky Growers made a false representation that induced Appellants to enter into the policy. In addition, Appellants either had a copy of the insurance policy or could have easily requested a copy; therefore, they neither had a lack of knowledge of the policy provision or lacked the ability to obtain the knowledge.
Appellants also indirectly claim as part of their estoppel argument that the issue of whether they received a copy of the insurance policy is a genuine issue of material fact that should have precluded summary judgment. Again, we disagree with Appellants' argument. Whether or not they received a copy of the policy is irrelevant in this case. If they did, then they were aware of the policy exclusions. If they did not, then they could have requested a copy. Appellants cite to no case law that indicates an insurance company bears the burden of proving that an insured received the policy.
Furthermore, Appellants freely entered into this contract with Kentucky Growers and "insured persons are charged with knowledge of their policy's contents[.]" Bidwell v. Shelter Mut. Ins. Co., 367 S.W.3d 585, 592 (Ky. 2012) (citation omitted). "Since the policy is a written contract, its terms are binding on both parties, and after acceptance, the mere lack of knowledge of its contents by the insured could not furnish a sound legal basis for reforming it or voiding its provisions." Howard v. Reliance Ins. Co. of Philadelphia, 347 S.W.2d 508, 509 (Ky. 1961) (emphasis in original) (citation omitted).
Appellants' third argument is that the policy provision violates the statutory scheme set out in Kentucky Revised Statutes (KRS) 304.20-300 et seq. KRS 304.20-300(1) states that "[t]he purpose of KRS 304.20-320 to 304.20-350 is to regulate declinations, cancellations, and refusals to renew certain policies of property or casualty insurance . . . and to require specific reasons for such action." KRS 304.20-320(2) states that when an insurance policy is cancelled, the insurance company must send written notice of the cancellation to the insured. The notice must include reasons for the cancellation and must be sent prior to the effective date. Here, Appellants' did not receive any written notice of the cancellation of their policy.
Kentucky Growers argues that it was not required to send notice in this instance because Appellants' policy was voided, not cancelled. Kentucky Growers cites to Anderson v. Kentucky Growers Ins. Co., supra, for support of its proposition. We agree with Kentucky Growers and find that Anderson is determinative of this issue.
In Anderson, Todd Anderson became delinquent in his mortgage payments and a foreclosure action was instituted against him by the mortgagee banks. Mr. Anderson had also taken out a fire and casualty insurance policy on his property with Kentucky Growers. Mr. Anderson's house was subsequently destroyed by a fire and Kentucky Growers denied the claim based on similar language as at issue in the case sub judice. The same argument concerning KRS 304.20-300 et seq. was raised in Anderson.
The Court in Anderson, citing Hartford Fire Ins. Co. v. Bryan, 244 Ky. 61, 50 S.W.2d 74 (1932), and Rhode Island Ins. Co. v. Wurtman, 265 Ky. 835, 98 S.W.2d 29 (1936), stated that "policy provisions declaring a policy void if a foreclosure action is filed [are] held to be generally valid and enforceable as against the insured." Anderson, 105 S.W.3d at 465. The Court found that because the policy provision did not concern the cancellation or non-renewal of the policy, the notice requirement did not apply. We agree and decline to overrule Anderson as requested by Appellants.
Appellants further argue that by allowing the voiding language to stand without adhering to the notice requirement set forth in KRS 304.20-320(2), insureds can unknowingly be without insurance for long periods of time. They believe this would violate public policy. We disagree with this argument. By entering into the insurance agreement with Kentucky Growers, Appellants were charged with knowing the contents of their policy; therefore, they knew or should have known about the voiding provision. This knowledge would have allowed Appellants the opportunity to purchase additional insurance once the foreclosure action was commenced or inform Kentucky Growers of the foreclosure and request continued coverage. The notice statutes set forth above do just that, provide notice to an insured of the cancellation or non-renewal of their policy. Here, Appellants were put on notice of the voiding of their policy via the policy itself. No public policy was violated in this case.
We therefore affirm the summary judgment against Appellants' individual claim.
Appellants also appealed the order dismissing the derivative claims they brought on behalf of the mortgagee, PHH. They argue this summary judgment was also in error. We disagree. Anderson, supra, and the insurance policy at issue allow for a mortgagee to recover even if the insured is denied coverage. Anderson, however, also made it clear that an insurance company could deny the mortgagee a recovery if the insurance policy requires the mortgagee to notify the insurance company of any foreclosure proceedings. The insurance policy at issue here specifically states that a mortgagee can still recover under the contract if an insured is denied coverage so long as the mortgagee notifies Kentucky Growers of any "foreclosure proceeding."
Appellants, on behalf of PHH, raise the exact same arguments regarding this policy language as previously discussed above: that the policy is ambiguous, that the language at issue was not conspicuous, that it never received a copy of the insurance contract, and that it violates public policy. We find these arguments without merit for the same reasons set forth above, but with one caveat. As to PHH not receiving a copy of the insurance policy, evidence in the record shows otherwise. An underwriter for Kentucky Growers submitted an affidavit setting forth the process in which Kentucky Growers submits insurance policies to lenders. The affidavit also included transmittal records confirming that PHH received the insurance information. Appellants offer no evidence supporting their claim that PHH did not receive the policy.
We therefore also affirm the summary judgment against Appellants' derivative claim.
Based on the foregoing, we affirm the judgment of the Warren Circuit Court.
CLAYTON, CHIEF JUDGE, CONCURS.
TAYLOR, JUDGE, DISSENTS WITHOUT OPINION. BRIEFS FOR APPELLANTS: Sharon Bowles Howard
Edmonton, Kentucky BRIEF FOR APPELLEE
KENTUCKY GROWERS
INSURANCE COMPANY: Don A. Pisacano
Lexington, Kentucky