WEST KENTUCKY MACHINE SHOP, INC. v. VALIANT INSURANCE COMPANY; and WESTERN RIVERS CORPORATION
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RENDERED: June 17, 2005; 2:00 p.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-000679-MR
WEST KENTUCKY MACHINE SHOP, INC.
APPELLANT
APPEAL FROM MCCRACKEN CIRCUIT COURT
HONORABLE CRAIG Z. CLYMER, JUDGE
ACTION NO. 99-CI-00194
v.
VALIANT INSURANCE COMPANY; and
WESTERN RIVERS CORPORATION
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BARBER AND VANMETER, JUDGES; HUDDLESTON, SENIOR JUDGE.1
VANMETER, JUDGE:
This appeal arises from a judgment entered by
the McCracken Circuit Court dismissing the claim of appellant,
West Kentucky Machine Shop, Inc. (WKMS), against appellees
Western Rivers Corporation and Valiant Insurance Company
(Valiant).
1
WKMS contends that the trial court erred by granting
Senior Judge Joseph R. Huddleston sitting as Special Judge by assignment of
the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution
and KRS 21.580.
partial summary judgment in favor of Valiant as to liability
coverage for a damaged gear, and that the court abused its
discretion by denying WKMS’s motion to file a second amended
complaint.
We affirm.
WKMS was insured by Valiant under a commercial general
liability policy obtained through agent Western Rivers.
In
March 1997 WKMS was installing a 36,000 lb. gear in an Iowa
cement plant owned by Holnam Inc.
The gear fell from a crane
onto the floor of the cement plant, destroying the gear, causing
structural damage to the plant, and interrupting business.
In
the exchange of correspondence following the accident, Holnam
claimed damages from WKMS for business interruption, damage to
the plant, and loss of the gear.
coverage from Valiant.
In turn, WKMS sought liability
On April 3, 1997, Valiant issued its
first reservation of rights letter which denied coverage for
loss of the gear based on exclusions in WKMS’s policy.2
On June
19, 1997, Valiant issued a second reservation of rights letter
advising WKMS that it was covered for its liability to Holnam
2
2. Exclusions. This insurance does not apply to:
. . .
j. Damage to Property
“Property damage” to :
. . .
(4) Personal property in the care, custody or control of the
insured;
(5) That particular part of real property on which you or any
contractors or subcontractors working directly or indirectly on
your behalf are performing operations, if the “property damage”
arises out of those operations; or
(6) That particular part of any property that must be
restored, repaired or replaced because “your work”
was incorrectly performed on it.
-2-
for the business interruption and the structural damage to the
plant itself, but that it was not covered for damages to the
gear.
Valiant thereafter defended the claim under these
parameters.
In December 1998, after Valiant and Holnam were unable
to agree on the amount of the business interruption damages,
Holnam filed a lawsuit in Iowa claiming damages in the amount of
$988,250.
In September 2000 a jury rendered a verdict for
Holnam against WKMS in the amount of $335,768 “for property
damage and repair with interest and costs.”
Based on Holnam’s
damage exhibit, the jury awarded damages of $307,870 for
damaged/scrapped parts (i.e, the gear), and a net $27,898 for
structural property damage, but it awarded no damages for
business interruption.
WKMS paid the entire judgment plus
interest, and Valiant in turn reimbursed WKMS for the undisputed
portion of the verdict, i.e., the structural damage, plus
interest.
Meanwhile, in March 1999 WKMS filed a complaint
against Valiant and Western Rivers in the McCracken Circuit
Court alleging Valiant’s breach of contract, bad faith, and
unfair claim settlement practices, as well as Western Rivers’
negligence as insurance agent.
On October 22, 2003, the trial
court granted Valiant partial summary judgment, ruling that
Valiant did not provide liability coverage for the gear itself.
-3-
In January 2004 WKMS sought leave to file a second amended
complaint to add a claim that Valiant violated KRS 304.12-235.3
On February 4, the court denied the motion and granted summary
judgment in favor of Valiant on WKMS’s bad faith claim.
On
March 1, 2004, the court made its October 22 and February 4
orders final and appealable.
This appeal followed.
WKMS makes two arguments on appeal: (1) the doctrines
of equitable estoppel and/or waiver barred Valiant from
asserting that its policy did not cover the gear; and (2) the
trial court abused its discretion in not permitting WKMS to file
its second amended complaint.
3
KRS 304.12-235 provides:
(1) All claims arising under the terms of any
contract of insurance shall be paid to the
named insured person or health care provider
not more than thirty (30) days from the date
upon which notice and proof of claim, in the
substance and form required by the terms of
the policy, are furnished the insurer.
(2) If an insurer fails to make a good faith
attempt to settle a claim within the time
prescribed in subsection (1) of this section,
the value of the final settlement shall bear
interest at the rate of twelve percent (12%)
per annum from and after the expiration of the
thirty (30) day period.
(3) If an insurer fails to settle a claim within
the time prescribed in subsection (1) of this
section and the delay was without reasonable
foundation, the insured person or health care
provider shall be entitled to be reimbursed
for his reasonable attorney's fees incurred.
No part of the fee for representing the
claimant in connection with this claim shall
be charged against benefits otherwise due the
claimant.
-4-
WKMS’s equitable estoppel argument is based on the
fact that Valiant’s initial reservation of rights letter stated
that the “care, custody, and control” exclusion4 of WKMS’s policy
applied to the damage done to Holnam’s gear, but the subsequent
letter did not repeat this language as a specific basis for
exclusion.
WKMS asserts that Valiant presented inconsistent
positions and is thereby estopped from presenting the exclusion
as a defense at trial.
We disagree.
As applied to insurance coverage, the Kentucky Supreme
Court has held:
[E]stoppel “offsets misleading conduct,
acts, or representations which have induced
a person to rely thereon to change his
position to his detriment.” . . . Gray v.
Jackson Purchase Credit Ass'n, Ky.App., 691
S.W.2d 904 (1985), sets forth the elements
of estoppel:
(1) Conduct, including acts, language
and silence, amounting to a
representation or concealment of
material facts; (2) the estopped party
is aware of these facts; (3) these
facts are unknown to the other party;
(4) the estopped party must act with
the intention or expectation his
conduct will be acted upon; and (5) the
other party in fact relied upon this
conduct to his detriment.5
The record indicates that both reservation of rights letters
sent to WKMS by Valiant stated:
Please be advised that nothing contained
within this document or any act of this
4
Exclusion 2j(4) of Valiant’s policy with WKMS. See n. 1, supra.
5
Howard v. Motorists Mut. Ins. Co., 955 S.W.2d 525, 527 (Ky. 1997).
-5-
Company or its representatives is to be
construed as a waiver of any known or
unknown defense we may have under the
policy. Nor does this letter waive or
change any provisions or conditions of the
policy.
In the second reservation of rights letter, this paragraph was
followed by a statement that “[a]dditionally, the foregoing in
no way restricts or limits this company from relying upon and
asserting other facts and grounds that are, or may become,
available.”
This letter also contained language that “[a]s
stated previously, your policy will not cover the gear
expenses.”
Thus, following the initial correspondence from
Valiant, WKMS knew at all times throughout this controversy that
Valiant was asserting that damage to the gear was not covered.
As WKMS failed to demonstrate how it detrimentally acted in
reliance on Valiant’s statement in the second reservation of
rights letter, it follows that Valiant was not estopped from
asserting the policy exclusion.
In a related argument, WKMS asserts that Valiant
waived the policy exclusion relating to the gear.
While the
concepts of waiver and estoppel are often used interchangeably,
they are separate and distinct concepts.
Waiver is the
“voluntary and intentional relinquishment of a known, existing
-6-
right or power under the terms of an insurance contract."6
As
previously noted, Valiant’s reservation of rights letters both
stated that nothing in the documents or in the actions of the
company or its representatives would be “construed as a waiver
of any known or unknown defense” under the policy, and that the
letters did not “waive or change any provisions or conditions of
the policy.”
Clearly, Valiant did not waive its policy
exclusion relating to the “care, custody and control” of the
gear.
Next, WKMS contends that the trial court abused its
discretion by denying WKMS’s motion to file a second amended
complaint to add a claim that KRS 304.12-235 was violated,
thereby cutting short WKMS’s ability to litigate pending issues.
We disagree.
CR 15.01 provides that a plaintiff may file one
amended complaint prior to the filing of a responsive pleading,
but that “[o]therwise a party may amend his pleading only by
leave of court or by written consent of the adverse
Party. . . .”
In 1972 Kentucky’s highest court addressed a
situation similar to the one at hand.
In Laneve v. Standard Oil
Co.,7 the plaintiff filed suit for injuries caused by an
6
Howard v. Motorists Mut. Ins. Co., 955 S.W.2d 525, 526 (Ky. 1997) (citing
Edmondson v. Pennsylvania Nat'l Mut. Cas. Ins. Co., 781 S.W.2d 753, 755 (Ky.
1989)).
7
479 S.W.2d 6 (Ky. 1972).
-7-
allegedly defective tire.
After seven years of litigation, and
on the eve of summary judgment, the plaintiff sought to amend
his complaint in order to add a new claim of failure to warn.
The trial court’s denial of the motion was affirmed on appeal
as,
[i]n view of the extensive passage of
time before the plaintiff undertook to
completely alter the basic issue in this
case, we conclude that the trial judge acted
well within his discretion when he denied
leave to file the amended pleadings. Cf.
Bensinger v. West, Ky., 255 S.W.2d 29
(1953).
“Though CR 15.01 provides that leave to
amend ‘shall be freely given when justice so
requires,’ it is still discretionary with
the trial court, whose ruling will not be
disturbed unless it is clearly an abuse.”
Graves v. Winer, Ky., 351 S.W.2d 193 (1961).8
In the instant case, by comparison, WKMS filed its
initial complaint in 1999 and an amended complaint in 2001.
It
did not seek to file its second amended complaint until after
the trial court granted Valiant partial summary judgment in 2003
on the issue of liability coverage for the gear.
The trial
court found that the second amended complaint, filed some five
years after the commencement of the suit and some seven years
after the incident, would raise a new claim that could have been
brought either in the initial filing or in the first amended
complaint, and it “would require extending this litigation to
8
Id. at 8.
-8-
take discovery that could have been taken in concert with the
other claims.”
Given these circumstances, including the
extensive passage of time, the trial court did not abuse its
discretion in denying the motion to file a second amended
complaint.
Finally, there is no merit to any claim on appeal that
the trial court erred by granting summary judgment dismissing
WKMS’s common law and statutory bad faith claims.
As stated in
Wittmer v. Jones,9 three elements must be proven to establish a
cause of action for bad faith: (1) the insurer was obligated to
pay the claim under the terms of the policy; (2) the insurer
lacked a reasonable basis in law or fact for denying the claim;
and (3) the insurer either knew that no reasonable basis existed
for denying the claim or acted with reckless disregard for
whether any such basis existed.
As previously noted, Valiant did not provide coverage
for Holnam’s gear, and it neither waived nor was estopped from
asserting the policy’s exclusion of coverage for items under its
insured’s “care, custody and control.”
The record demonstrates
that the main issue of contention necessitating Holnam’s Iowa
lawsuit was its claim for business interruption.
The eventual
damage award assessed by the Iowa jury was for property damage
to Holnam’s plant and for damage to the gear.
9
864 S.W.2d 885, 890 (Ky. 1993).
-9-
The jury awarded
no damages for business interruption.
Once liability was
assessed with respect to the plant damage, Valiant promptly
reimbursed WKMS.
As noted by the court in Wittmer, as an
insurer, Valiant was “entitled to challenge” the amount claimed
as damages and to “litigate it if the claim is debatable on the
law or the facts.”10
The trial court correctly granted summary
judgment to Valiant on WKMS’s bad faith claim.
For the foregoing reasons the trial court’s judgment
is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
Leslie Judson Shekell
Paducah, Kentucky
BRIEF FOR APPELLEE VALIANT
INSURANCE COMPANY:
Robert E. Stopher
Robert D. Bobrow
Louisville, Kentucky
Charles D. Walter
Paducah, Kentucky
10
Id.
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