JEFF MITCHELL v. WESTFIELD INSURANCE COMPANY
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RENDERED: JANUARY 12, 2001; 2:00 p.m.
ORDERED NOT PUBLISHED BY THE KENTUCKY SUPREME COURT:
AUGUST 15, 2001 (2001-SC-0103-D)
C o m m o n w e a l t h O f K e n t uc k y
C o urt O f A ppe a l s
NO.
1998-CA-002227-MR
JEFF MITCHELL
APPELLANT
APPEAL FROM MCCRACKEN CIRCUIT COURT
HONORABLE R. JEFF HINES, JUDGE
ACTION NO. 97-CI-00856
v.
WESTFIELD INSURANCE COMPANY
APPELLEE
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
BARBER, KNOPF, AND TACKETT, JUDGES.
BARBER, JUDGE:
Appellant Jeff Mitchell (Mitchell) was the
operator of a CITGO service station in Paducah, Kentucky.
Unknown individuals burglarized the station in July 1996.
The
police report details loss of a toolbox valued at $3,500.00,
tools valued at $10,000.00 and $17.00 in cash, for a total loss
of $13,517.00.
At the time of the theft, Mitchell’s property was
insured by Appellee Westfield Insurance Company (Westfield), and
the theft occurred during the time period covered by the $25,000
insurance policy issued by Westfield.
Mitchell notified the
insurance agent of the loss the day after the burglary and
reported a loss.
Mitchell provided Westfield’s claims representative
with a handwritten list of the items stolen.
This list included
not only those items listed on the police report, but also
additional items.
The cost of each tool was provided by Mitchell
using the Snap-On Tools catalogue.
losses in the sum of $21,351.00.
The completed list showed
The majority of the property
stolen during the burglary was purchased from Snap-On Tools.
Mitchell did not have receipts for these tools, having been
informed by the Snap-On salesman that if something ever went
wrong with a Snap-On tool it would be replaced, no questions
asked.
Mitchell provided Westfield with all the documentation
in his possession regarding the type and value of the tools
stolen, including a receipt for tools valued at $1,029.70
purchased in 1996.
The Snap-On Tools representative provided
receipts showing that Mitchell had purchased tools from him with
a value of $8,000-$10,000.00.
The representative stated that
Mitchell purchased approximately $2000 worth of new tools, not
replacement tools, each year.
The Snap-On Tools representative’s
letter also stated that Mitchell kept his tools in a careful and
orderly fashion and that he believed Mitchell’s statement of loss
of $20,000.00 worth of tools was accurate.
In February 1997, Westfield requested additional
documentation from Mitchell, including a profit and loss
statement for the business for each year it was operational,
shipping documents, invoices, sales receipts, canceled checks,
bank statements for his personal and business accounts for the
years 1993 through 1996, statements of all debts and loans during
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that time period, whether business or personal, and tax returns
for the same years.
Westfield also requested Mitchell’s
telephone records for 1996 from January through August.
provided all such documents in his possession.
Mitchell
Mitchell also
provided Westfield with an authorization to obtain these
documents from the relevant sources, and informed Westfield that
he could not afford to pay postage and copying charges to obtain
the documents himself.
Mitchell also provided a credit receipt
showing that he had purchased a replacement toolbox and a few
lower quality replacement tools valued at under $10,000.00.
Mitchell made a good faith effort to provide the
documentation and verification of claim reflected by Westfield,
and did not object to the overly broad and burdensome requests
for unrelated documentation, which were not relevant to his
request for coverage.
The record reflects that Mitchell
cooperated with his insurer, as required under the policy.
Westfield admitted receiving receipts for the purchase
of some replacement tools by Mitchell, but refused to pay even
that portion of the claim, despite testimony at trial from
Westfield’s claims representative, who admitted that it was
Westfield’s policy to pay the non-disputed portion of the claim
under such circumstances.
Westfield also admitted receipt of a
fully completed and notarized proof of loss form in February
1997.
This form listed a toolbox valued at $4,520.00, Snap-On
hand tools valued at $12,813.24, Snap-On air tools valued at
$2,353.45 plus sales tax, for a total of $21,351.00.
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The Westfield policy requires, in event of loss, that
the insured meet the following conditions:
(1) Notify the police if a law may have been
broken.
(2) Give us prompt notice of the loss or
damage. Include a description of the
property involved.
(3) As soon as possible, give us a
description of how, when and where the loss
or damage occurred.
. . . .
(5) At our request, give us complete
inventories of the damaged and undamaged
property. Include quantities, costs, values
and amount of loss claimed.
. . . .
(7) Send us a signed, sworn proof of loss
containing the information we request to
investigate the claim. You must do this
within 60 days after our request. We will
supply you with the necessary forms.
(8) Cooperate with us in the investigation or
settlement of the claim Insurance Policy,
relevant duties after loss.
The insurance policy does not specify what type of
documentation must be provided to support a claim for loss.
It
merely states that the insured must provide aAcomplete inventory
of the damaged and undamaged property and must A[i]nclude
@
quantities, costs, values and amount of loss claimed. Kentucky
@
law holds that even handwritten notes showing loss, without
additional proof, are not necessarily insufficient to prove the
extent of the loss. Kentucky Farm Bureau Mut. Ins. Co. v.
Troxell, Ky., 959 S.W.2d 82, 84 (1997).
The insured must provide
a proof of loss sufficient to enable the insurer to
Ainvestigate
-4-
the claim and to make an intelligent estimate of the company’s
rights and liabilities . . . .
@
State Automobile Mut. Ins. Co.
v. Outlaw, Ky. App., 575 S.W.2d 489, 490 (1978).
In the present
case, Mitchell went far beyond that, providing cost of each tool
from the Snap-On Tools catalogue, as well as testimony from the
Snap-On Tools representative showing the cost of the tools he had
purchased from Snap-On.
The record shows that Mitchell provided
documentation of his loss in accordance with the policy
requirements.
Denial of the claim due to lack of documentation
was in error.
It is uncontroverted that Mitchell gave Westfield
prompt notice of his loss, and provided all documentation
available to him to show the value of the items lost.
Mitchell
provided Westfield with an authorization to obtain any records
relevant to the loss, and permitted Westfield to fully
investigate his premises and business records.
Mitchell also
provided Westfield with a signed proof of loss form.
Westfield
asserted that Mitchell failed to fully document his loss, and
denied the claim on that ground.
No assertion was made by
Westfield’s claims representative, who handled the claim on
behalf of Westfield, that Mitchell was attempting to defraud the
company, or that his claims of loss were false.
Mitchell’s insurance policy was canceled by Westfield
on July 29, 1996 with the effective date of cancellation being
August 17, 1996.
The cancellation was unrelated to the theft.
The record reflects that Mitchell’s initial notice of claim was
sent on July 15, 1996.
The record shows that Westfield had
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definitive notice of the claim on September 19, 1996.
Westfield
provided Mitchell with acknowledgment of the claim on December
19, 1996.
On that date, Westfield provided Mitchell with proof
of loss forms to complete and submit.
On January 24, 1997,
Westfield acknowledged receipt of Mitchell’s proof of loss forms,
but returned the proof of loss for verification by a notary.
On
February 7, 1997, Westfield acknowledged receipt of the notarized
proof of loss.
Westfield denied the claim on June 9, 1997,
almost a year after the initial notice of loss was submitted.
Mitchell filed suit against Westfield, alleging a bad faith
denial of his claim, in violation of the Kentucky Unfair Claims
Settlement Practices Act, KRS 304.12-230.
Westfield advised Mitchell that his claim was denied
due to failure to provide complete inventories with quantities,
costs and values for each item.
Westfield’s representative
stated that Snap-On’s representative had estimated the tools’
value at $8,000-10,000, that Mitchell had shown $10,700 in
replacement value for the tools, and that Mitchell had reported a
loss in the sum of $13,517 to the police.
Westfield admits that
the greatest value for the tools was given in the sworn and
verified proof of loss statement submitted after a full inventory
of the losses.
Westfield argues that these differences in value
justified its failure to pay any part of the claim.
The trial court disallowed the bad faith claim, and
allowed Mitchell to go before the jury on only one issue, his
contract claim against Westfield for the value of the stolen
property.
At the conclusion of the jury trial, the jury found
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that Mitchell had properly documented his claim, and unanimously
returned a verdict in favor of Mitchell under a jury instruction
stating:
Instruction No. 2: Insurance Contract If you
,
are satisfied from the evidence that Jeff
Mitchell suffered a loss because of a
burglary to his business establishment AND
the loss was insured by Westfield Insurance;
AND Jeff Mitchell substantially complied with
the terms of his contract with Westfield,
then you will find for Jeff Mitchell.
Otherwise you will find for Westfield.
We find for Jeff Mitchell
yes X
no ____
The jury then awarded Mitchell the sum of $16,897.80 in
compensation for the tools lost in the burglary.
Because the trial court directed a verdict in favor of
Westfield on Mitchell’s claims under the Unfair Claims Settlement
Practices Act, and dismissed Mitchell’s claim for punitive
damages, Mitchell appeals.
Kentucky law provides that where a
party provides any evidence supporting his claim of bad faith, he
is entitled to bring that claim before a jury. Shortridge v.
Rice, Ky. App., 929 S.W.2d 194, 197 (1996).
The Unfair Claims Settlement Practices Act, KRS 304.12230, details the steps which parties to an insurance contract
must take in order to properly resolve a coverage dispute.
The
Act details unfair claims settlement practices, including the
following acts or omissions:
(1) Failing to acknowledge and act reasonably
upon communications with respect to claims
arising under insurance policies;
. . . .
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(5) Failing to affirm or deny coverage within
a reasonable time after proof of loss
statements have been completed;
(6) Not attempting in good faith to
effectuate prompt, fair and equitable
settlement of claims in which liability has
become reasonably clear;
(7) Compelling insureds to institute
litigation to recover amounts due under an
insurance policy . . . .
. . . .
(14) Failing to promptly provide a reasonable
explanation of the basis in the insurance
policy in relation to the facts or applicable
law for denial of a claim or for the offer of
a compromise settlement.
Where a delay in payment is without reasonable foundation, the
insured is entitled to full payment and reimbursement of all
costs expended to obtain payment.
KRS 304.12-230(6) states that
an insurer has acted in bad faith where it has failed to attempt
Ain good faith to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably
clear.@
Kentucky law holds that an insured has the right to
file an action where the insurer has failed to act in good faith
in settling a coverage dispute. State Farm v. Reeder Ky., 763
,
S.W.2d 116, 118 (1988).
A plaintiff who presents evidence of bad
faith sufficient for a jury to conclude that there was conduct
that was outrageous or recklessly indifferent to the rights of
the insured is entitled to an award of punitive damages.
Guaranty National Ins. Co. v. George Ky., 953 S.W.2d 946 (1997).
,
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Mitchell asserts that Westfield’s violation of the
Unfair Claims Settlement Practices Act entitled him to an award
of punitive damages.
Punitive damages are permitted against an
insurer where the insured shows a reckless disregard of the
rights of the insured by the company. See Wittmer v. Jones Ky.,
,
864 S.W.2d 885 (1993), where the insurance company refused to pay
a claim made by its insured due to a dispute over the dollar
amount of the loss.
In that case, the Kentucky Supreme Court
held that Awhere the record establishes that an insurance company
has operated arbitrarily or unreasonably, or from ulterior
motives . . . [it] may be proof of bad faith. Id. at 892.
@
Similarly, in the present action, Westfield did not dispute
coverage of the claim.
Westfield refused to pay the claim
because it held that Mitchell had not provided adequate
documentation of the amount of the loss.
Mitchell was forced to
institute litigation and go through trial before recovering sums
clearly due and owing under the policy of insurance.
In order to prove bad faith, an insured must show as
follows:
(1) the insurer must be obligated to pay a
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. . . .
Federal Kemper v. Hornback Ky., 711 S.W.2d 844, 846-47 (1986).
,
Mitchell made such a showing, and provided evidence sufficient to
permit his claim to go before the jury.
-9-
The law requires an insured to document his claim of
loss.
Kentucky Farm Bur. Mut. Ins. Co. v. Troxell Ky., 959
,
S.W.2d 82 (1997).
The record shows that Mitchell documented his
claim, filed a proof of loss, and submitted additional evidence
supporting his claims of loss.
The insurer admits that it did
not believe the proof of loss to be false or fraudulent.
Mitchell had provided sufficient evidence of loss for the jury to
determine that he was entitled to compensation under the
contract, and to fix a dollar amount for the loss incurred.
Failure of Westfield to promptly provide coverage and to pay the
claim when faced with the same evidence reviewed by the jury
should be found sufficient to support a claim of bad faith.
Under such circumstances, entry of a directed verdict in favor of
Westfield was in error.
Punitive damages are properly recoverable in an
insurance bad faith action. FB Insurance Co. v. Jones Ky. App.,
,
864 S.W.2d 926 (1993).
Mitchell argues that the entry of a
directed verdict in favor of the insurance company on his claims
of bad faith, and his demand for punitive damages was in error.
The law requires that:
In ruling upon a motion for directed verdict,
the trial court Amust draw all fair and
rational inferences from the evidence in
favor of the party opposing the motion, and a
verdict should not be directed unless the
evidence is insufficient to sustain that
verdict. The evidence of such party’s
witnesses must be accepted as true.
@
Kroger Co. v. Willgruber Ky., 920 S.W.2d 61, 64 (1996), quoting
,
Spivey v. Sheeler Ky., 514 S.W.2d 667, 673 (1974).
,
Where, as
here, there is evidence of intentional misconduct or a reckless
-10-
disregard of the rights of the insured, a jury issue is created,
and entry of a directed verdict in favor of the insurer is in
error.
The jury may award punitive damages for the bad faith
actions of the insurer at its discretion. Holliday v. Campbell
,
Ky. App., 873 S.W.2d 839, 841 (1994).
Westfield’s claim that Mitchell is precluded from
bringing this appeal due to his acceptance of a check for the
monetary damages awarded by the jury is without merit.
Mitchell
is not appealing from that portion of the trial court’s ruling
entitling him to reimbursement for his loss, but rather is
appealing the entry of a directed verdict on his claims of bad
faith.
An appeal from only one portion of a multi-part judgment
is permitted by law. Webster Co. Soil Conservation Dist. v.
Shelton, Ky., 437 S.W.2d 934 (1969).
A party may properly appeal
from that portion of a judgment not satisfied. Hundley v.
Hundley, Ky., 291 S.W.2d 544, 546 (1956).
For the foregoing reasons, we reverse the judgment of
the trial court and remand this matter for further proceedings
consistent with this opinion.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Mark Edwards
Megibow & Edwards
Paducah, KY
Van F. Sims
Boswell & Sims
Paducah, KY
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