Double Trouble – Kuehn v State Farm

Imagine having to file not one, but two, lawsuits against your insurer in an attempt to resolve your Katrina damage claim!  That’s exactly the situation facing Henry and June Kuehn – a couple with by far the most interesting case in the small sample I selected at random from the approximately 200 insurance cases in the Southern District Federal Court showing some activity last week.

As we move further from the August 29, 2005 storm and more cases make their way through the courts, at times it seems only the name has changed.  The circumstances described in the Kuehn’s Complaint, however, don’t fall in one of the usual patterns.

Ironically, the central issue in Kuehn v State Farm is a policy provision intended to resolve disputes and prevent litigation – appraisal.

In a letter to Plaintiffs dated January 4, 2006, State Farm Fire, contrary to the subject policy coverage provisions and despite the fact that the insured property was damaged by wind, rain and/or wind-propelled objects, informed Plaintiffs that it would not cover the loss beyond what was already paid, which was $10,765.48.

Enclosed is our payment in the amount of $10.765.48. The draft represents payment for the wind damage to the roof of your home and attached building and for water damage caused by wind driven rain on the walls and ceilings of the two buildings. A $2.500.00 overpayment on your flood claim has been deducted from the loss amount...

Plaintiffs were completely unsatisfied with the inadequate payment, but they continued their negotiations with State Fann Fire in an effort to settle their claim. The Kuehns then demanded appraisal under the terms of their policy, as was their right under the terms of the contract.

On April I, 2006, Mr. Kuehn wrote to State Farm Fire to follow up on his prior request to participate in the appraisal process.

It has been over Sixty days since I asked State Farm to participate in the appraisal process. Feeling as though I am being deprived of this process. I felt I had no other choice but to seek legal advice.  I have determined that when State farm males an offer acknowledging coverage for wind damage and I dispute the amount being offered, the policy affords me the contractual right to demand appraisal, and that this refusal to enter into appraisal is a breach of contract.

On April 17, 2006, Mr. Kuehn had a telephone conversation with a State Farm representative named Tina, from Team 10. During this conversation, Tina informed Mr. Kuehn that “The State of Mississippi has overrode [sic] our appraisal options”. Mr. Kuehn asked her “You can’t get appraisal now, is that more or less what you’re saying”, to which she replied, “Exactly.” She went on to say, “That’s what our management is saying, we’re not offering appraisal at all because mediation overrides it.

On June 21, 2006, Plaintiffs filed their Complaint in the Chancery Court of  Jackson County, Mississippi, asking for injunctive relief by the Chancellor; i.e., to compel State Farm to comply with the terms of its contract and go through with the appraisal process. On July 28,2006, State Fann Fire filed the Notice of Removal to the United State District Court and also filed its Answer to the Complaint contesting the requested appraisal.

Plaintiffs filed their Motion to Remand on August 17,2006. On August 24, 2006, the U. S. Magistrate Judge entered an Order Staying Case pending a ruling on Plaintiffs’ Motion to Remand. The case remained on the docket for a year with no response by the Court to Plaintiffs’ Motion to Remand.

One year after Hurricane Katrina on August 29, 2006, State Farm Fire filed its Motion to Conduct Remand Related Discovery and for Additional Time to Respond to Plaintiffs’ Motion to Remand, which the Federal Court granted, allowing limited discovery on the appraisal Issue.

After the parties conducted discovery on the appraisal issue, United States District Judge Senter entered an Order of Remand on January 19,2007, granting Plaintiffs’ Motion to Remand and remanded the case to the Chancery Court of Jackson County, Mississippi.

Senter’s Order closed the case on the District Court’s docket.

After the remand, the Chancery Court of Jackson County entered an Order on April 24, 2007, granting Plaintiffs’ request for an appraisal and ordered each party to designate an appraiser within 30 days. Plaintiffs filed their Designation of Appraiser on May 29,2007, and State Farm Fire filed its Designation of Appraiser on or about June 14, 2007. The parties actually went through with the appraisal process under the State Farm policy, and the appraisers appointed by both parties determined the value of the loss.

On February 28, 2008, the appraisal process concluded, and the umpire and the parties’ appraisers signed an Award setting forth the appraisal amount of$174,811.80.

No wonder they weren’t satisfied with State Farm’s offer of  $10, 765.48!

Yet after the initial Award was produced, counsel for State Farm Fire told the appraisers and the umpire that the Award did not specify which part was for wind. Therefore, the appraisers and umpire rewrote the Award to indicate that the entire amount was for wind damage.

This Award indicates that the damage was all caused by wind, and State Fann Fire still will not pay. As of the date of filing the Complaint, State Farm Fire has contemptuously failed and refused to pay Plaintiffs any portion of the appraisal Award, contrary to the clear tenns of its own insurance contract and breaching its duty to the Plaintiffs.

Three years after the hurricane and despite their best efforts to settle their claim with State Farm Fire, Plaintiffs still have not been fully compensated for their losses and State Farm still has not complied with the terms of the policy it drafted and sold to Plaintiffs. The only other payment State Farm Fire has made was for $4,771.55, which was made on August 20, 2008.

Before turning to State Farm’s answer to the Complaint, we need to look at the policy in question.

…the policy at issue is an “all risk” policy, all risks of accidental direct physical loss are covered by the subject policy unless specifically excluded by the terms of the subject policy. In such policies, insureds such as the Plaintiffs only have the burden of showing the existence of a covered loss, at which point the burden of proof shifts to the insurer, State Farm Fire, to establish the applicability of a named exclusion under the facts of the case and the terms of the policy.

The option for an appraisal was clearly stated.

If you and we fail to agree on the amount of loss, either one can demand that the amount of the loss be set by appraisal. If either makes a written demand for appraisal, each shall select a competent, disinterested appraiser. Each shall notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers shall then select a competent, impartial umpire…Written agreement signed by any two of these three people for any item shall set the amount of loss.

State Farm’s policy further states that “Loss will be payable 60 days after we  receive your proof of loss.

In its Answer State Farm addresses the Counts of the Complaint – and, as common in these otherwise indefensible Katrina cases, muddies the water (no pun intend) with affirmative defenses.

An affirmative defense is a type of defense in which the defendant seeks to avoid liability by introducing new evidence not addressed in the claims of the plaintiff’s complaint. Such a defense must be raised in the defendant’s answer, and because affirmative defenses require the assertion of facts beyond those claimed by the plaintiff, the defendant has the burden of proof for the defense. The burden of proof is typically lower than beyond a reasonable doubt. It can either be clear and convincing or preponderance of the evidence. An affirmative defense must be timely made by the defendant in order for the court to consider it, or else it is considered waived by the defendant’s failure to assert it.

I vividly recall the first time I saw an answer filed with affirmative defenses in one of the Katrina cases.  Bottom line, I thought the attorney was some sort of nut case similar to those with the wild theories about FEMA recently described by fedresponse.  A day or so later, however, I came across a similar answer in another Katrina case and decided most of these defenses were just filling up space in the absence of a credible defense.  FWIW, IMO, the possibility both attorneys are a sandwich short of a picnic remains.

This answer, on the other hand, was filed by Hal Spragins (Hickman, Goza, Spragins; Oxford) who I’ve found to be one of the more stable in the State Farm stable of attorneys – leading me to believe he had no credible direct defense to offer.

Unfortunately, we won’t find out.  Yesterday, the Kuehn’s filed a Motion to Disqualify the firm.

Plaintiffs would show the law firm of Hickman, Goza & Spragins, PLLC,represented Defendant, State Farm Fire and Casualty Company, in prior litigation involving the appraisal, and also represents the Defendant in the instant litigation. Plaintiffs would show that circumstances have arisen making it clear that certain attorneys employed by Hickman, Goza & Spragins, PLLC (and potentially other employees as well), will, at the very least, be necessary and material witnesses in this action.

Counsel for Plaintiffs learned during the deposition of State Farm’s designated appraiser, John Minor, on or about February 6, 2009, that counsel for State Farm will be, at the very least, necessary and material witnesses in this action. Counsel for State Farm recognizedthis fact and the deposition was halted.

Today, State Farm responded with a Motion to Extend Deadlines Previously Set for Completing Discovery Limited to Whether the Appraisal Award in the Underlying Matter is Valid filed by John Banahan.

As a result of the filing of the Motion to Disqualify, State Farm has requested undersigned counsel enter an appearance in this matter in order to complete discovery and motion practice on the appraisal issue. That undersigned counsel has numerous conflicts that make it impossible to complete the discovery contemplated by the parties within the current deadlines as set by the Court. The Defendant requests that the Court enter an Order extending the deadline for completing discovery on the appraisal issue to March 31, 2009, and extending the deadline for filing motions relating to the appraisal issue to April 14, 2009. Undersigned counsel has conferred with counsel for the Plaintiff and represents to the Court that the Plaintiff does not object to the extension requested.

Why State Farm would give the Kuehn’s the additional advantage of further delay, I can’t say.  While we lack the statutorily limited time period for paying claims of our neighbor Louisiana, this is clearly a claim that should have been paid by mid-year 2006 at the latest – not one that has made a round-trip to the Southern District Federal Court.

Three years after the hurricane and despite their best efforts to settle their claim with State Farm Fire, Plaintiffs still have not been fully compensated for their losses and State Farm still has not complied with the terms of the policy it drafted and sold to Plaintiffs. The only other payment State Farm Fire has made was for $4,771.55, which was made on August 20,2008.

With their best effort not enough, the Kuehn’s returned to the Court for relief and filed the current suit eight days later – just under the wire of the three-year Statue of Limitations.  One need only to look at the letter Mr. Kuehn sent to State Farm before filing suit in 2006 to place this case in context for a jury:

I have been a loyal customer for over 30 years and do not want to turn to an attorney…

3 thoughts on “Double Trouble – Kuehn v State Farm”

  1. I’ve said it before and I’ll say it again: most insurance policies are adhesionary contracts, meaning one side (the homeowner) has no ability to negotiate/alter the terms. The only thing a homeowner has any input on is what coverages (and some deductibles) go on the declarations page.

    The appraisal clause is one that astute homeowners and their lawyers have used in their favor. But when you send a letter requesting appraisal, it is usually ignored. Then of course, as Mr. Kuehn pointed out, the carrier has breached the contract, which it wrote from the outset. The SFIP also has an appraisal clause.

  2. One thing that caught my eye, Rick, was State Farm telling him that mediation ruled out appraisals. Glenda Shows included “mediation fraud” in her RICO claim and it would be interesting to know what other options were shut down for policy holders trying to settle claims.

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