FARMERS CROP INSURANCE ALLIANCE, INC. VS. GRAY (RONNIE)
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RENDERED: DECEMBER 10, 2010; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-000969-MR
FARMERS CROP INSURANCE
ALLIANCE, INC.
v.
APPELLANT
APPEAL FROM CLINTON CIRCUIT COURT
HONORABLE EDDIE C. LOVELACE, JUDGE
ACTION NO. 06-CI-00113
RONNIE GRAY
APPELLEE
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE: TAYLOR, CHIEF JUDGE; MOORE AND THOMPSON, JUDGES.
MOORE, JUDGE: Farmers Crop Insurance Alliance, Inc., appeals an April 30,
2009 order and judgment from the Clinton Circuit Court in favor of Ronnie Gray,
awarding damages for breach of two insurance contracts and violation of Kentucky
Revised Statute(s) (KRS) 304.12-230, the Unfair Claims Settlement Practices Act.
Farmers also argues the May 14, 2008 order of the trial court denying its motion
for summary judgment and the trial court’s holding, in that denial, that Farmers
had waived any right to assert a contractual claims limitations period as an
affirmative defense in the underlying proceedings was in error.1
The resolution of the issue of whether Farmers waived its right to
assert the limitations period is dispositive to the resolution of all other issues in this
appeal. As such, we include only those facts from the underlying matter necessary
to develop this issue. We find that it was an abuse of discretion for the trial court
to hold that Farmers had waived its right to assert the limitations period, we reverse
that part of the trial court’s May 14, 2008 order, and we remand this matter to the
trial court for further proceedings not inconsistent with this opinion.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
Ronnie Gray obtained two policies of tobacco crop hail insurance
from Farmers Crop Insurance Alliance, Inc. These policies covered Gray’s
tobacco crops in Tennessee and Kentucky for the 2004 season. Both policies
included the following provision:
16. SUIT AGAINST US.
1
We note that Gray does not take issue with the fact that the only order listed in Farmers’ notice
of appeal is the trial court’s order of April 30, 2009, rather than its May 14, 2008 order denying
Farmers leave to amend and denying Farmers’ motion for summary judgment. However,
Farmers included its motion to amend and motion for summary judgment in its prehearing
statement and both parties have addressed the merits of the May 14, 2008 order in their
respective briefs. “Whatever the shortcomings [of a Notice of Appeal], except for tardy appeals
and the naming of indispensible parties, we follow a rule of substantial compliance in regards to
notices of appeal.” Lassiter v. American Exp. Travel Related Services Co., Inc., 308 S.W.3d
714, 718 (Ky. 2010). Because Gray does not argue prejudice, and because we find no prejudice
to Gray demonstrated by the record of appeal before this court, Farmers’ notice of appeal
substantially complies with Kentucky Rule(s) of Civil Procedure (CR) 73.03.
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You cannot bring suit or action against us unless you
have complied with all of the policy provisions.
If you do enter suit against us you must do so within 12
months of the occurrence causing loss or damage.
Gray contacted Farmers in July of 2004 to report a possible hail loss
with respect to both of his crops. In August of 2004, representatives of Farmers
met with Gray at the Kentucky crop location. There, these representatives
informed Gray that his crop damage was not sufficient to warrant payment under
either policy.
On December 27, 2005, Farmers brought suit in Clinton District Court
against Gray to collect approximately $4,000 in unpaid insurance premiums. On
January 17, 2006, Gray answered and counterclaimed for breach of contract, citing
as the basis for this breach Farmers’ failure to provide coverage for his crop losses
in 2004. Farmers answered Gray’s counterclaim with a general denial. This
matter was transferred to Clinton Circuit Court on June 22, 2006.
On January 9, 2008, pursuant to CR 15.01, Gray moved for leave to
amend his counterclaim against Farmers to allege additional claims under
Kentucky’s Consumer Protection Act (KRS 367.170)2 and Unfair Claim
Settlement Practices Act (KRS 304.12-230). On January 22, 2008, the trial court
2
Following the bench trial in this matter, the trial court did not allow Gray to recover on this
claim. Gray does not appeal the trial court’s decision.
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granted him leave to do so within 30 days, and Gray filed his amended complaint
on March 7, 2008.3
On April 1, 2008, Farmers responded to Gray’s amended complaint
with a motion for summary judgment. There, and for the first time, Farmers
asserted the limitations period contained in its insurance contracts with Gray and
claimed that, by virtue of that provision, Gray’s suit was untimely.
On May 1, 2008, Gray stated the following in response to Farmers’
motion for summary judgment:
Pursuant to Rule 8.03 the matter of limitations of
action must be affirmatively pled to become an issue in
the case. Also, see Thompson vs. Ward, 409 S.W.2d 807
(Ky. 1966).
The Plaintiff, in its reply to the counterclaim filed
by the Defendant, did not raise said defense. Therefore,
said defense has been waived. Furthermore, an agreed
order was entered and signed by the Plaintiff’s attorney
transferring this case to Clinton Circuit Court. The only
reason for transfer was the Defendant’s counterclaim.
Said motion to transfer was filed May 10, 2006 and was
not opposed.
A motion to amend the complaint, following
discovery which revealed additional damages, was filed
January 9, 2008. No objections were received and the
Court permitted the complaint to be amended.
Thus, based upon the above, the Plaintiff has
obviously set [sic] on his hands regarding the defense of
limitation. Said defense has long ago been waived. The
Defendant and his attorney has [sic] spent a considerable
time and expense to complete discovery and proceed
with the case thus far. The Plaintiff cannot now state that
said discovery was in vain by raising a limitations
defense.
3
There is no record of any dispute arising from Gray’s filing his amended counterclaim 44 days
after this order, rather than 30.
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Gray included nothing with this response demonstrating the amount of time or
expense he had put forth to complete discovery or proceed with this case.
Nevertheless, the trial court agreed. In an order of May 14, 2008, the
trial court held that
Gray is correct in asserting that Farmers waived
the matter of limitations of action when they did not
affirmatively plead such defense following the filing of
Gray’s counterclaim, pursuant to CR 8.03. This defense
has now been advanced, following the amendment of
Gray’s counterclaim. However, since it could have been
raised following the filing of the original response and
counterclaim, due to it relating to the issue of limitations,
this Court believes it is now untimely. This case was
transferred, by agreed order, to Clinton Circuit Court for
the sole reason that the damages asserted in Gray’s
counterclaim exceeded the jurisdictional threshold of the
Clinton District Court. It would not only be improper but
also unfair to allow this defense to be currently
interjected, after considerable time, effort, and money has
been expended by Gray in procuring discovery.
Therefore, this Court concludes that summary judgment
will not be granted on this basis.
In short, the trial court did not analyze the issue of the contractual
limitations period from the standpoint of whether any genuine issue of fact existed
regarding its applicability, per CR 56. Instead, the trial court exercised its
discretion and determined that it would not allow Farmers to assert this defense at
all. It held that allowing Farmers to do so would work an injustice against Gray,
and thus approached this issue from the standpoint of CR 15.01, which governs the
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procedure for whether and when a court should allow a party to amend its
pleadings to assert a new defense or cause of action.4, 5
On May 21, 2008, Gray moved the court to set a date for trial. On
March 19, 20096—nearly one year after Farmers filed its motion for summary
judgment—a bench trial was held in this matter. This appeal followed.
4
The parties do not present an argument regarding whether it was proper for the trial court to
treat Farmers’ motion as both for summary judgment and to amend its pleadings. Certainly,
affirmative defenses may be waived if they are not properly pled in an answer or timely
amendment to an answer as required by the Civil Rules.
However, as dicta, we note that the trial court’s decision in this regard does not seem
improper. Motions for summary judgment may be utilized to perform the function of the general
demurrer under former Kentucky practice. Watts v. Carrs Fork Coal Co., 275 S.W.2d 431, 432
(Ky. 1955). Nothing on the face of CR 15.01, which governs the procedure for amending
pleadings, specifies what form a motion to amend a pleading must take. Additionally, this
treatment promoted judicial economy; had the trial court denied summary judgment solely on the
basis that Farmers had not separately moved to amend its answer to include this defense, Farmers
likely would have moved to amend its answer in a separate motion and the trial court likely
would have reviewed that separate motion and arrived at the same conclusion (i.e., that Farmers
had waived the limitations period) at that later date.
Furthermore, while we are unaware of any Kentucky authority addressing the practice of
treating a motion for summary judgment as a motion to amend pleadings, a number of Federal
courts, including the Sixth Circuit, have allowed this practice. For examples, see Smith v.
Sushka, 117 F.3d 965, 969 (6th Cir. 1997) (treating a motion for summary judgment as a motion
to amend and holding that the purpose of Federal Rule(s) of Civil Procedure (FRCP) 8(c), which
is comparable to our CR 8.03, is to give the opposing party notice of the affirmative defenses and
a chance to respond); see also, Block v. First Blood Associates, 988 F.2d 344, 350 (2nd Cir.
1993); Thomas v. St. Luke's Health Systems, Inc., 869 F.Supp. 1413 (8th Cir. 1994). The reason
appears to be that if a trial court chooses not to interpret a motion for summary judgment also as
a motion for leave to amend a pleading, the trial court “exalts form over substance-technicality
over reality.” Id. at 1429.
5
As a tangential matter, Farmers filed a motion for leave to amend its answer on May 28, 2008,
in order to assert “additional defenses.” This motion does not specify what these defenses were,
but states that “Farmers seeks to Amend its original Answer to assert additional defenses.
Kentucky case law is with examples allowing a party to amend its original answer to assert
additional defenses, including the statute of limitations.”
On June 11, 2008, the trial court denied Farmers’ motion, ordered that “Farmers Crop
waived its affirmative defense of the statute of limitations defense [sic] as its [sic] relates to the
claims and damages asserted in Defendant’s Counterclaim,” but stated that “Farmers Crop has
not waived the affirmative defense of statute of limitations defense [sic] as its [sic] relates to the
new claims and damages asserted in Defendant’s Amended Counterclaim.”
The record does not indicate that Farmers amended its answer following this order.
However, the issue in this case is whether Farmers waived a period of claims limitation specified
by contract, not by statute. As such, we do not read the trial court’s order to modify its previous
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ANALYSIS
On appeal, Farmers argues the trial court erred in holding that it had
waived its defense of the contractual period of limitation. Under the circumstances
of this case, we agree.
Kentucky Rule of Civil Procedure 8.03 requires a party to “set forth
affirmatively. . . statute of limitations . . . and any other matter constituting an
avoidance or affirmative defense.” By extension, a contractual provision limiting
the statute of limitation would also be an affirmative defense. As such, either must
be raised in the initial answer or in a motion to dismiss in lieu of an answer. CR
12.02. If they are not pled, this failure constitutes a waiver. Commonwealth Dept.
of Highways v. Chinn, 350 S.W.2d 622, 623 (Ky. 1961).
However, as a practical matter there are numerous exceptions to this
broad rule of waiver, the most significant being the rule allowing amendments to
the answer under CR 15.01. If the trial court had permitted Farmers to amend its
answer to assert the limitations period, that amendment would have related back to
the date of its original answer and any waiver, by virtue of Farmers’ failure to
include the defense in its initial answer, would have been rescinded. CR 15.03(1).
holding with respect to the contractual limitations period.
6
Following the bench trial, Gray and Farmers stated in their proposed findings of fact and
conclusions of law that the trial date was “March 29, 2009.” Also, the court’s order following
the bench trial states that the date of trial was “March 29, 2009.”
However, all pleadings prior to the trial stated that trial would be held on “March 19,
2009.” In light of the fact that March 29, 2009 was a Sunday, it appears to this Court that March
19, 2009 was the actual date of trial.
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In relevant part, CR 15.01 provides that leave to amend “shall be
freely given when justice so requires.” Federal courts have found that the thrust of
the federal equivalent to this rule, Federal Rule(s) of Civil Procedure (FRCP) 15, is
“that cases should be tried on their merits rather than the technicalities of
pleadings.” Tefft v. Seward, 689 F.2d 637, 639 (6th Cir. 1982); see also General
Electric Co. v. Sargent & Lundy, 916 F.2d 1119, 1128 (6th Cir. 1990). Likewise,
Kentucky courts have interpreted CR 15.01 to mean that, where “justice so
requires,” it is mandatory for the trial court to grant leave to amend. Stout v. City
of Martin, 395 S.W.2d 591, 593 (Ky. 1965). The question becomes, then, when
does justice require leave to amend a pleading? In this regard, the significant
factors to be considered in determining whether to grant leave to amend are
timeliness, excuse for delay, and prejudice to the opposite party. Lawrence v.
Marks, 355 S.W.2d 162, 164 (Ky. 1961); see also Ashland Oil & Refining Co. v.
Phillips, 404 S.W.2d 449, 450-1 (Ky. 1966).7
This case involves the trial court’s refusal to permit Farmers to amend
its pleadings to assert the limitations period; as such, the question is not whether a
failure to plead an affirmative defense resulted in a waiver. Rather, the question is
whether the trial court properly refused to allow Farmers to set that waiver aside.
7
Other factors include a party’s repeated failure to cure deficiencies by amendment and futility
of the amendment. First Nat. Bank of Cincinnati v. Hartmann, 747 S.W.2d 614 (Ky. App.
1988). Neither factor is germane to the resolution of this case because 1) Farmers had not
attempted to amend its answer prior to filing its motion and 2) if the contractual limitations
period applied, an amendment allowing for its assertion would not be futile. Rather, it would bar
Gray’s claims.
-8-
We review a trial court’s decision to deny a party leave to amend under CR 15.01
for abuse of discretion. Graves v. Winer, 351 S.W.2d 193, 197 (Ky. 1961). And,
“[t]he test for abuse of discretion is whether the trial judge's decision was arbitrary,
unreasonable, unfair, or unsupported by sound legal principles.” Commonwealth v.
English, 993 S.W.2d 941, 945 (Ky. 1999).8 We analyze the facts of this case in
view of the factors of timeliness, excuse for delay, and prejudice to the opposite
party, below. Lawrence, 355 S.W.2d at 164.
Regarding the first factor, we note from the onset that “delay alone is
insufficient reason to deny a motion to amend.” Estes v. Kentucky Utilities Co.,
636 F.2d 1131, 1134 (6th Cir. 1980) (reviewing the standard for granting leave to
amend pleadings under FRCP 15(a)); see also Security Ins. Co. of Hartford v.
Kevin Tucker & Associates, Inc., 64 F.3d 1001, 1009 (6th Cir. 1995) (citing Moore
v. City of Paducah, 790 F.2d 557, 561 (6th Cir.1986)). Furthermore, Farmers did
not file its motion in response to Gray’s counterclaim because it was filed on
January 17, 2006; it filed its motion to respond to Gray’s counterclaim as amended
on March 7, 2008. The time between Gray’s amended complaint and Farmers’
motion in response was a total of 25 days.
8
Gray cites to Johnson v. Staples, 408 S.W.2d 206, 207 (Ky. 1966), for the proposition that
“[a]fter a motion for summary judgment has been made, a motion to amend a pleading rests in
the sound discretion of the trial court, and its ruling will not be disturbed unless an abuse of
discretion is clearly shown.” Assuming that Johnson would change the standard of review set
forth herein, it has no applicability because the facts of that case are distinguishable. Johnson
involved a trial court’s refusal to allow a party to amend a complaint in response to a motion for
summary judgment. Here, Farmers was not responding to a motion for summary judgment. It
was asserting this defense as one basis for its own motion for summary judgment.
-9-
In any event, this motion was filed fully one year prior to the bench
trial in this matter and at a time when a trial date had not been set. Gray had ample
time to investigate this defense and to prepare a response and there is no indication
from the record that he would have been precluded from asking for additional time
to do so. Hence, any delay resulting solely from Farmers’ failure to assert this
defense earlier cannot be said to have caused Gray any undue surprise or hardship.
Regarding the second factor, the trial court did not consider whether
Farmers had a valid excuse for failing to assert the limitations period at an earlier
date. However, Farmers’ motion was a response to Gray’s amended complaint,
which asserted two new theories of recovery. That amendment resulted in a new
complaint which, in turn, entitled Farmers to respond as a matter of right. See
Curry v. Cincinnati Equitable Ins. Co., 834 S.W.2d 701, 704 (Ky. App. 1992)
(interpreting CR 15.01 to entitle an opposing party to respond to an amended
complaint with an amended answer or motion to dismiss, and specifying that either
response may include an affirmative defense not previously raised); see also
Hawes v. Cumberland Contracting Co., 422 S.W.2d 713, 714-15 (Ky. 1968)
(holding that where a party filed only a motion to dismiss in response to an initial
complaint, it was obligated to file a renewed motion in response to an amended
complaint under penalty of default.) Thus, after Gray served Farmers with its
amended complaint via mail, Farmers had a right to respond to it with its own
amended answer within thirteen days, i.e., until March 20, 2008, without leave of
court. See CR 15.01 and 6.05.
-10-
If Farmers had simply filed an amended answer on April 1, 2008,
rather than what the trial court construed as a motion for leave to amend its answer,
the amended answer could have been considered untimely only by a margin of
twelve days. And, the record provides some indication that Farmers’ neglect in
filing its motion on April 1, 2008, rather than March 20, 2008, was due to mistake
rather than bad faith. On March 31, 2008, Farmers filed a motion for an
enlargement of time to respond to Gray’s amended complaint. Therein, it confused
CR 12.01 (which provides a 20-day limit for responding to cross claims) with CR
15.01 (which provides a 10-day limit for responding to amended complaints), and
explained that it had until March 30, 2008, to respond, but needed an extension of
time to April 2, 2008, so it could respond with a dispositive motion.
Irrespective of the first two factors, however, it is the third factor of
prejudice that demonstrates the trial court abused its discretion in this instance.
Gray did not file his counterclaim in reliance upon Farmers’ conduct. And, if
Farmers’ affirmative defense had been timely asserted and it was found to apply in
this matter, Gray would have no cause to complain that he had no cause of action
by virtue of the contractual limitations period. As such, the prejudice that resulted
must be due in some way to the fact that Farmers’ assertion of this defense was
late. And in this regard, Gray responded to Farmers’ motion arguing that he was
prejudiced because he had spent “considerable time and expense to complete
discovery,” and the trial court cited Gray’s time and expense as its basis for
holding that Farmers had waived the contractual limitations period.
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It has been held that a tardy motion to assert a statute of limitations
defense would not be allowed where extensive trial preparation had already taken
place. Estes, 636 F.2d at 1134. However, prejudice sufficient to warrant denying a
motion to amend must be “significant.” 6 Kentucky Practice, Rule 15.01 (6th ed.
2006). Furthermore, “[a]buse of discretion occurs when a court fails to state the
basis for its denial. . . .” Id. In this regard, nothing in Gray’s response, or in the
court record up to the date of Farmers’ motion, described the extent of the time or
expense Gray exerted in this case until the time Farmers filed its motion.
Additionally, the state of the record as it appeared on the date the trial
court deemed this defense waived tends to contradict the proposition that Gray
could have been significantly prejudiced as a result of Farmers’ delay. Between
the date Gray filed his initial counterclaim and the date of Farmers’ motion, the
discovery in this case, as contained in the record, was limited to the following: 1)
one set of interrogatories from Farmers, which Gray answered on May 17, 2006; 2)
one set of interrogatories from Gray, which Farmers answered prior to August 20,
2006; and 3) five depositions, which Gray conducted on November 17, 2007, at 10
a.m., 10:30 a.m., 11 a.m., 11:30 a.m., and 1 p.m., respectively. Two motions to
compel discovery, filed by Gray on June 27 and August 9, 2007, and a bill of costs,
filed into the record fully one year after the trial court held Farmers had waived the
contractual limitations period, are the only indications of Gray’s discovery
expenses. In the motions to compel discovery, Gray asked for attorney fees in the
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amount of $250. In the bill of costs, Gray sought reimbursement for a court
reporter fee, relating to the depositions, in the amount of $488.
In sum, Farmers filed its motion asserting the limitations period only
twelve days after it could have done so as a matter of right and one year prior to
the date of trial; further, the record itself gives no indication that this case had been
vigorously litigated to the date of Farmers’ motion, or that the time and expense
Gray spent in conducting discovery rose to the level of significant prejudice. We
believe the trial court abused its discretion when it held, under these circumstances,
that Farmers had altogether waived its affirmative defense of the contractual
limitations period.
Without doubt, “[t]he scope of the [trial] court’s discretion is broad,
and in a proper case conditions may be imposed on the party seeking [an]
amendment; for example, costs of preparing litigation could be imposed on the
party who asserts a valid, but untimely, dispositive affirmative defense.” Estes,
636 F.2d at 1134 (citing 6 Wright and Miller, FEDERAL PRACTICE & PROCEDURE, §
1486 at 423 et seq. (1971)). However, “the purpose of pleading is to facilitate a
proper decision on the merits,” not “a game of skill in which one misstep by
counsel may be decisive to the outcome.” Conley v. Gibson, 355 U.S. 41, 48, 78
S.Ct. 99, 2 L.Ed.2d 80 (1957).
CONCLUSION
We REVERSE the trial court, in part, with regard to its conclusion
that Farmers had waived the contractual limitations period as an affirmative
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defense. But, in the absence of a ruling from the trial court as to the validity or
applicability of that limitations period under the circumstances of this case, this
Court is unable to conclude whether that limitations period has been met. Because
the contractual limitations period appears to encompass all of the conduct,
transactions, and occurrences set forth in Gray’s counterclaim and amended
counterclaim, it would be inappropriate to review this case further without such a
ruling. Thus, we remand this matter to the trial court for a determination of
whether Gray’s action against Farmers was, in fact, timely, and for other
proceedings not inconsistent with this opinion. If the trial court finds the
limitations period applies to each claim and has run, it is instructed to vacate the
judgment.
We retain no further jurisdiction.
TAYLOR, CHIEF JUDGE, CONCURS.
THOMPSON, JUDGE, DISSENTS AND FILES A SEPARATE OPINION.
THOMPSON, JUDGE, DISSENTING: Respectfully, I dissent. Farmers
answered Gray’s counterclaim with a general denial and this matter was transferred
to the circuit court on June 22, 2006. Farmers did not raise the affirmative defense
of statute of limitations until April 1, 2008. I believe the trial court was in the best
position to determine whether Gray had expended time and expense to complete
discovery and proceed with the action.
The statute of limitations must be pled as an affirmative defense. CR 8.03.
The failure to plead an affirmative defense results in a waiver of that defense.
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Independent Order of Foresters v. Chauvin, 175 S.W.3d 610 (Ky. 2005). Because
of the time between the filing of an answer and the attempt to argue the statute of
limitations, I cannot agree that the trial court abused its discretion when precluding
the statute of limitations as a defense.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
W. Scott Stinnett
Louisville, Kentucky
Gary A. Little
Albany, Kentucky
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