Summary
In Wood, the Kentucky Court of Appeals again found the insurance agent had no implied duty to advise even though the insureds, the Woods, had a fifteen-year-affiliation with the agent.
Summary of this case from Bristoe v. State Farm Mut. Auto. Ins. Co.Opinion
NO. 2019-CA-000462-MR NO. 2019-CA-000463-MR
04-17-2020
BRYAN S. WOOD; AND NICK WOOD LOVE, F/K/A AMBER WOOD LOVE, AS ADMINISTRATOR OF THE ESTATE OF RHONA WOOD ZDROJOWY APPELLANTS v. STATE FARM FIRE AND CASUALTY COMPANY; ROBERT W. MILLER; AND CENTRAL KENTUCKY FEDERAL SAVINGS BANK APPELLEES
BRIEFS FOR APPELLANTS: David J. Guarnieri Trevor M. Nichols Lexington, Kentucky BRIEF FOR APPELLEE ROBERT W. MILLER: David T. Klapheke Louisville, Kentucky BRIEF FOR APPELLEE STATE FARM FIRE AND CASUALTY COMPANY: Darrin W. Banks Zachary M. Sosnovich Paintsville, Kentucky
NOT TO BE PUBLISHED APPEALS FROM BOYLE CIRCUIT COURT
HONORABLE DARREN W. PECKLER, JUDGE
ACTION NO. 18-CI-00313 OPINION
AFFIRMING
** ** ** ** **
BEFORE: GOODWINE, JONES, AND KRAMER, JUDGES. GOODWINE, JUDGE: Bryan S. Wood and Nick Wood Love, f/k/a Amber Wood Love, as administrator of the estate of Rhona Wood Zdrojowy (the "Woods") appeal from orders of the Boyle Circuit Court dismissing their claims against State Farm Fire and Casualty Company ("State Farm") and insurance agent, Robert W. Miller ("Miller"). After careful review, finding no error, we affirm.
BACKGROUND
This action stems from a house fire, which destroyed the Woods' home on December 26, 2013. Bryan Wood and his wife, Rhona Wood Zdrojowy, purchased a home in Danville on December 18, 1998, and executed a promissory note and mortgage with Central Kentucky Federal Savings Bank (the "Bank") to purchase the home. The Woods also purchased a homeowner's insurance policy from State Farm through their local agent, Miller, which remained in effect through December 18, 2013.
Bryan and Rhona divorced in 2012, and Bryan executed a quitclaim deed in favor of Rhona. Rhona paid the monthly mortgage payment after the divorce. However, Bryan remained obligated on the promissory note for the residence and retained sole responsibility for any and all tax liens and deficiencies associated with the home.
While the policy was in effect, the Woods made multiple claims for water damage to the home. State Farm contends it sent a letter dated September 24, 2013, to the Woods' correct address and the Bank informing them of its intent not to renew their policy and that the policy expired on December 18, 2013. The stated reason for nonrenewal was overall claim activity. The Bank also sent the Woods a letter dated December 17, 2013, informing them that the Bank did not have evidence that a homeowner's insurance policy was still in effect, that a structure-only policy would be purchased to cover the home, and requesting the Woods purchase full insurance on the property. The Woods claim they did not receive State Farm's September 24, 2013 letter, and because Rhona was out of town until after December 26, 2013, she did not receive the Bank's letter until after the fire.
On December 26, 2013, the Woods' home was destroyed by fire. The Woods received $104,125.28 under the replacement policy purchased by the Bank to cover damage to the structure, but they claim they were under-reimbursed because the policy did not cover their personal property.
On August 17, 2018, the Woods filed a complaint against the Bank, State Farm, and Miller in the Boyle Circuit Court. The Woods alleged claims for breach of contract against State Farm and Miller, breach of contract in violation of KRS 304.20-340 against State Farm, breach of fiduciary duty against Miller, breach of contract against the Bank, and breach of fiduciary duty against the Bank.
Kentucky Revised Statutes.
In response to the complaint, State Farm and Miller filed separate motions to dismiss the claims against them. State Farm argued the one-year contractual limitations clause in the policy barred the Woods' claims against it as the fire occurred in December 2013, and the complaint was filed in August 2018. Miller argued the Woods' breach of contract claim failed as a matter of law because he was not a party to the contract. Miller further argued the breach of fiduciary duty claim failed because no such duty exists between insurance policyholders and insurance agents.
The circuit court entered orders granting State Farm's and Miller's motions to dismiss on December 19, 2018. As to the claims for breach of contract and breach of contract in violation of KRS 304.20-340 against State Farm, the court found that the one-year contractual limitations clause barred the Woods' claims. The Woods' claims flowed from the contract, so they are governed by the policy's contractual limitations clause. As to the claims for breach of contract and breach of fiduciary duty against Miller, the court found that because Miller was not a party to the contract, there was no privity of contract between the parties to maintain an action for breach of contract. The court further found Miller did not have a fiduciary duty to the Woods as policyholders.
The circuit court did not make these orders final and appealable, presumably because the claims against the Bank were still pending. State Farm and Miller filed motions to amend the orders dismissing to make them final and appealable on January 28, 2019. On February 18, 2019, the circuit court granted the motions and made the December 19, 2018 orders dismissing the Woods' claims against State Farm and Miller final and appealable. The Woods filed separate notices of appeal for the order granting State Farm's motion to dismiss and the order granting Miller's motion to dismiss. On June 14, 2019, this Court granted the Woods' motion to consolidate their two appeals.
The Woods' claims against the Bank are still currently pending.
On appeal, the Woods argue: (1) the one-year contractual limitations clause does not bar their claims against State Farm because their loss occurred outside the policy period; (2) even if the contractual limitations clause applies, the language of the policy is ambiguous; and (3) Miller owed the Woods a fiduciary duty under the circumstances of this case. We note the Woods did not appeal the dismissal of their breach of contract claim against Miller.
STANDARD OF REVIEW
Our standard of review of an order granting a motion to dismiss is as follows:
A motion to dismiss for failure to state a claim upon which relief may be granted admits as true the material facts of the complaint. So a court should not grant such a motion unless it appears the pleading party would not be entitled to relief under any set of facts which could be proved. . . . Accordingly, the pleadings should be liberally construed in the light most favorable to the plaintiff, all allegations being taken as true. This exacting standard of review eliminates any need by the trial court to make findings of fact; rather, the question is purely a matter of law. Stated another way, the court must ask if the facts alleged in the complaint can be proved, would the plaintiff be entitled to relief? Since a motion to dismiss for failure to state a claim upon which
relief may be granted is a pure question of law, a reviewing court owes no deference to a trial court's determination; instead, an appellate court reviews the issue de novo. Of course, in determining de novo whether Fox's complaint stated a claim upon which relief may be given, we must give words [in the Kentucky Constitution] their plain and ordinary meanings.Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010) (internal quotation marks and citations omitted).
ANALYSIS
First, the Woods argue the one-year contractual limitations clause in the policy does not bar their claim for breach of contract and breach of contract in violation of KRS 304.20-340 against State Farm because their loss occurred after their policy expired. State Farm points out that the Woods seek recovery for State Farm's alleged failure to provide notice of nonrenewal as required by the policy and KRS 304.20-340, yet they contend the contractual limitations period in the same policy does not apply.
One-year contractual limitations clauses are valid under Kentucky law. Webb v. Kentucky Farm Bureau Ins. Co., 577 S.W.2d 17, 19 (Ky. App. 1978). KRS 304.14-370 and Kentucky case law support the "validity of contractual terms that provide for shorter limitation periods than the general statute of limitations." Id. Therefore, the contractual limitations clause in the policy at issue is clearly valid and reasonable. The issues we must address are whether the limitations period applies since the Woods' loss occurred after the expiration of their insurance policy and whether the policy at issue contains ambiguous language.
The Woods assert that because their loss occurred after their insurance policy expired, the one-year contractual limitations period does not bar their claim for breach of contract against State Farm. "[T]he elements for a breach of contract [require] proof of the existence of a contract, of a breach of that contract, and that the breach caused damages." EQT Production Company v. Big Sandy Company, L.P., 590 S.W.3d 275, 293 (Ky. App. 2019). The Woods had a valid insurance contract with State Farm until December 18, 2013. Although their loss occurred after the expiration of the contract, under the Woods' theory, State Farm's alleged breach would have occurred when it failed to provide written notice of nonrenewal 75 days prior to the date of cancellation of the policy as required by the policy and KRS 304.20-040(1)(c). In EQT Production Company, this Court reaffirmed that an action for breach of contract accrues when the contract is breached, not when damages are suffered. Id.; Hoskins' Adm'r v. Kentucky Ridge Coal Co., 305 S.W.2d 308, 311 (Ky. 1957) ("Usually an action accrues at the time of infliction of a wrong or breach of a contract."). In this instance, State Farm's alleged breach would have occurred while the parties had a valid contract. The Woods' claim did not ripen until they incurred damages as a result of the fire. Abel v. Austin, 411 S.W.3d 728, 736 (Ky. 2013); Meade County Bank v. Wheatley, 910 S.W.2d 233, 235 (Ky. 1995) ("Without damages, there is no ripened claim.").
To determine whether the contractual limitations period applies, we must borrow from United States Supreme Court precedent regarding collective bargaining agreements. In Litton Financial Printing Div., a Div. of Litton Business Systems, Inc. v. N.L.R.B., 501 U.S. 190, 205-06, 111 S. Ct. 2215, 2225, 115 L. Ed. 2d 177 (1991), the Supreme Court opined:
A postexpiration grievance can be said to arise under the contract only where it involves facts and occurrences that arose before expiration, where an action taken after expiration infringes a right that accrued or vested under the agreement, or where, under normal principles of contract interpretation, the disputed contractual right survives expiration of the remainder of the agreement.Although an insurance contract clearly differs from a collective bargaining agreement, general contract principles apply. Here, the alleged breach of the insurance policy occurred before its expiration, so the Woods' right accrued or vested under the policy at the time of the alleged breach. As such, because the Woods' claim for breach of contract accrued while they had an existing insurance policy with State Farm, their claims are governed by all terms in that policy, including the contractual limitations period. As such, we affirm the circuit court's dismissal of the Woods' claim for breach of contract and breach of contract in violation of KRS 304.20-340 because they are barred by the one-year contractual limitations period.
Alternatively, the Woods argue the insurance policy contains an ambiguity, so the contractual limitations period is unenforceable. Below, they argued, in their response to State Farm's motion to dismiss, that the contractual limitations clause contained an ambiguity. The contractual limitations clause provides: "Suits Against Us. No action shall be brought unless there has been compliance with the policy provisions. The action must be started within one year after the date of the loss or damage." R. at 30 (emphasis added). The Woods argued the word "started" rendered the clause ambiguous because starting an action is not synonymous with filing an action, and the policy did not provide a definition of what constituted starting an action. Thus, they argued the clause was susceptible to two reasonable interpretations. The circuit court considered and rejected this theory of ambiguity.
Now, the Woods assert, for the first time, a new theory of ambiguity. They argue the contractual limitations clause quoted above is inconsistent with the policy period clause, which provides: "This policy applies only to loss under Section I or bodily injury or property damage under Section II which occurs during the period this policy is in effect." "[A]ppellants will not be permitted to feed one can of worms to the trial judge and another to the appellate court. In other words, an appellant preserves for appellate preview only those issues fairly brought to the attention of the trial court." Royal Consumer Products, LLC v. Saia Motor Freight Line, Inc., 520 S.W.3d 753, 758 (Ky. App. 2016) (quoting Elery v. Commonwealth, 368 S.W.3d 78, 97 (Ky. 2012)). Although the Woods argued below that the policy contained ambiguous language, they did not raise their current theory of ambiguity before the circuit court. They failed to properly preserve their argument and failed to include a statement of preservation in their brief as required by CR 76.12(4)(c)(v). As such, we decline to address this unpreserved argument further.
Kentucky Rules of Civil Procedure.
Finally, the Woods argue local State Farm agent, Miller, breached his fiduciary duty to them by failing to notify them of the nonrenewal. It is well-settled that an insurance company owes a fiduciary duty "to its insured based upon the insurance contract." Farmland Mut. Ins. Co. v. Johnson, 36 S.W.3d 368, 380 (Ky. 2000) (citations omitted). However, it is equally clear under Kentucky law that an insurance agent does not owe a fiduciary duty to the insured. In Associated Ins. Service, Inc. v. Garcia, 307 S.W.3d 58, 63 (Ky. 2010), our Supreme Court compared the nature of the duty owed to a client by an attorney and insurance agent.
While insurance brokers and agents owe a standard duty of reasonable care to their clients, attorneys are
fiduciaries owing the utmost duty of undivided loyalty. Further, the attorney's duty flows solely to the client, while the insurance agent operates under a co-existing duty of fidelity to his principal, the insurance company.Id. (citation omitted). The Court further opined that the attorney-client relationship is of a "uniquely personal nature[,]" while the agent-insured relationship "arises simply from a commercial transaction for the sale of insurance." Id. (citation omitted).
The Woods concede that, under Kentucky law, an insurance agent generally owes no fiduciary duty to an insured, but they argue they had a fiduciary relationship with Miller under the given circumstances. They rely on Mullins v. Commonwealth Life Ins. Co., 839 S.W.2d 245 (Ky. 1992), in support of their contention. In Mullins, the plaintiffs brought a negligence action against their insurance agent for breach of fiduciary duty. Id. at 247. The appellants asserted their insurance agent breached his fiduciary duty to them when he failed "to advise the Mullins about the availability of" underinsured motorist ("UIM") coverage. Id. Our Supreme Court affirmed the circuit court's summary judgment in favor of the insurance agent. Id.
The Court opined that, in order to maintain a claim for breach of fiduciary duty, a plaintiff must prove: "1) a duty on the part of the defendant; (2) a breach of that duty; and (3) consequent injury." Id. (citing Illinois Central R.R. v. Vincent, 412 S.W.2d 874, 876 (Ky. 1967)). The agent owed no affirmative duty to the plaintiffs as UIM coverage is optional under KRS 304.39-320. Id. at 248. Our Supreme Court also considered whether the agent owed the appellants a common law duty of ordinary care to prevent foreseeable harm to his customers. Id. As stated above, "[a]n insurance agent ordinarily only assumes those duties found in an agency relationship." Id. (citation omitted). However, "[a]n implied assumption of duty may" arise under the following circumstances:
(1) the insured pays the insurance agent consideration beyond a mere payment of the premium; (2) there is a course of dealing over an extended period of time which would put an objectively reasonable insurance agent on notice that his advice is being sought and relied on; or (3) the insured clearly makes a request for advice.Id. (citations omitted). There, the Court held the "appellants in the case at bar neither paid the insurance agent an amount beyond the premium for such advice, nor had a long-term course of dealing with the insurance agent, nor expressly asked for advice. Thus, it appears no implied assumption of duty to advise is implicated." Id. at 248-249.
Here, the Woods do not allege they paid Miller any consideration beyond the amount of their premium, nor do they allege they requested advice from Miller regarding cancellation or any other matter. The Woods allege, under the second prong, that they had an extended course of dealing with Miller over fifteen years. They assert Miller sold them their annual policy, and that he advised them regarding their insurance policy and held himself out as an advisor. However, the Woods did not set forth any allegation in their complaint, aside from being customers of Miller's for fifteen years, that would have put him on notice that they would expect him to provide them any advice or notice, not required by their policy, if State Farm ever opted not to renew their policy.
In Mullins, the Kentucky Supreme Court noted "that while appellants fail to produce facts evidencing an express assumption of duty to advise, such a duty may be present if the company, or agent, represents directly, or by advertising, that it will assume responsibility to advise the customer as to what [optional coverage] is needed." Id. at 249 (citation omitted). The Court declined to impose a duty to advise because doing so "would alter the expressed public policy of the Commonwealth established by the General Assembly on the dates the policy was issued, and when the injury occurred. If such a duty to advise should be imposed, it should be imposed as a statutory one, and not expanded by the judiciary." Id. (citation omitted).
Here, the Kentucky General Assembly has a clear policy in place, which requires an insurance company to notify its insured of its "intention not to renew the policy upon expiration of the current policy period with a written explanation of the specific reason or reasons for the nonrenewal" at least 75 days before the end of the policy under KRS 304.20-320(3)(a). We decline to impose upon insurance agents a duty to inform insureds of the insurance company's intention not to renew an insurance policy as such an affirmative duty has not been adopted by the General Assembly or the Kentucky Supreme Court. See Johnson v. United Parcel Service, Inc., 326 S.W.3d 812, 817 (Ky. App. 2010).
Furthermore, the Woods have not set forth any allegation in their complaint that one of the three circumstances arose that would impose an implied assumption of duty on the agent. Mullins specifically provides that circumstances could give rise to an express assumption of a duty to advise regarding what types of optional coverage would be beneficial to insureds. Neither this Court nor the Kentucky Supreme Court has addressed whether an insurance agent has a fiduciary duty to notify an insured of the insurance company's intention not to renew an insurance policy. Mullins does not contemplate a duty to notify. To require an insurance agent to provide such notice is not provided for by the insurance policy, and since our precedent does not recognize a fiduciary relationship between insurance agents and insureds, we decline to create a duty outside of the General Assembly's current public policy.
CONCLUSION
For the foregoing reasons, we affirm the Boyle Circuit Court's orders dismissing the Woods' claims against State Farm and Miller.
ALL CONCUR. BRIEFS FOR APPELLANTS: David J. Guarnieri
Trevor M. Nichols
Lexington, Kentucky BRIEF FOR APPELLEE
ROBERT W. MILLER: David T. Klapheke
Louisville, Kentucky BRIEF FOR APPELLEE
STATE FARM FIRE AND
CASUALTY COMPANY: Darrin W. Banks
Zachary M. Sosnovich
Paintsville, Kentucky