Arnold v. Liberty Mut. Ins. Co.

Citation392 F.Supp.3d 747
Decision Date28 May 2019
Docket NumberCIVIL ACTION NO. 17-224-DLB-CJS
Parties Jessica ARNOLD et al., Plaintiffs v. LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants
CourtU.S. District Court — Eastern District of Kentucky

392 F.Supp.3d 747

Jessica ARNOLD et al., Plaintiffs
v.
LIBERTY MUTUAL INSURANCE COMPANY, et al., Defendants

CIVIL ACTION NO. 17-224-DLB-CJS

United States District Court, E.D. Kentucky, Northern Division. at Covington.

Signed May 28, 2019


392 F.Supp.3d 756

Kevin Matthew Adams, Taylor Jon Ferguson, Adams Legal Group, Louisville, KY, William D. Nefzger, Bahe, Cook, Cantley & Nefzger, PLC, Louisville, KY, for Plaintiffs.

Rand L. McClellan, Pro Hac Vice, Rodger L. Eckelberry, Pro Hac Vice, Alexa E. Cellier, Brian Noethlich, Baker & Hostetler, LLP, Columbus, OH, Robert T. Razzano, Baker & Hostetler - Cincinnati OH, Cincinnati, OH, for Defendants.

MEMORANDUM OPINION AND ORDER

David L. Bunning, United States District Judge

I. INTRODUCTION

In this putative class-action lawsuit, Plaintiffs Jessica and Michael Arnold claim that when they purchased an automobile-insurance policy from Safeco Insurance Company of Illinois, they expected that the policy would cover the full amount of their auto loan in the event of a total loss of the vehicle. Specifically, they expected the policy to include coverage for the "gap" between the actual value of the vehicle and the amount of Plaintiffs' indebtedness under their auto loan. Defendants assert that a policy exclusion precludes coverage for a portion of the auto loan amount called "negative equity rollover," which is caused when a remaining balance on the insureds' old vehicle is "rolled over" onto the loan for their new vehicle. Plaintiffs do not dispute the fact that the policy exclusion exists,

392 F.Supp.3d 757

but take issue with the timing in which it was disclosed by the insurer. Plaintiffs argue that because the insurer waited to disclose the exclusion until after the policy had been purchased, Plaintiffs were not sold the policy they expected and were foreclosed from purchasing exclusion-free "gap" insurance from the dealership. Plaintiffs assert twelve (12) causes of action arising from this central dispute.

This matter is now before the Court on three pending motions: Defendants' joint Motion to Dismiss and for Judgment on the Pleadings (Doc. # 49); Plaintiffs' Cross-Motion to Stay (Doc. # 51); and Defendants' Motion for Sanctions (Doc. # 52). All three motions have been fully briefed and are now ripe for review. See (Docs. # 50, 53, 54, 55, and 56). For the reasons set forth herein, Defendants' joint Motion to Dismiss and for Judgment on the Pleadings (Doc. # 49) is granted ; Plaintiffs' Cross-Motion to Stay (Doc. # 51) is denied ; and Defendant Liberty Mutual's Motion for Sanctions (Doc. # 52) is denied .

II. FACTUAL AND PROCEDURAL BACKGROUND

On October 30, 2017, Plaintiffs Jessica Arnold and Michael Arnold (the "Arnolds"), both individually and on behalf of a class of similarly-situated persons ("Plaintiffs"), filed a Class Action Complaint in the Circuit Court of Boone County, Kentucky, against Defendants Liberty Mutual Insurance Company ("Liberty Mutual") and Safeco Insurance Company of America ("Safeco-America"). (Doc. # 1-4) (noting Complaint filed in Boone Circuit Court, No. 17-CI-01433). Plaintiffs filed a First Amended Class Action Complaint on November 9, 2017. (Doc. # 1-2). On December 4, 2017, Defendants removed the action to this Court pursuant to the Class Action Fairness Act of 2005 ("CAFA"), codified in relevant part at 28 U.S.C. §§ 1332(d) and 1453. (Doc. # 1).

Plaintiffs' First Amended Class Action Complaint alleges that, in 2014, the Arnolds entered into an agreement to trade their 2013 Mazda sedan for a 2014 Toyota Camry at a dealership in Florence, Kentucky. (Doc. # 1-2 at ¶¶ 27-28). The dealership determined that the Arnolds' Mazda had $ 3,700 in "negative equity," but it agreed to subtract $ 1,500 when calculating the amount to be "rolled over" into the auto loan for the Toyota Camry; the Arnolds claim this reduced the "negative equity roll-over" onto the financing for the Toyota Camry to $ 2,200. Id. ¶¶ 29, 31.

After the trade-in, the Arnolds purchased an insurance policy from the Defendants for the Toyota Camry and added guaranteed auto protection ("GAP") coverage to the policy.1 Id. ¶¶ 27, 34. Plaintiff Jessica Arnold alleges that she "worked as a licensed, independent insurance agent for 13 years with Jack Lillie Insurance Agency" and that "[t]he Agency had appointments to sell insurance on behalf of several carriers to include, but not limited to the Defendants, Safeco and Liberty Mutual." Id. ¶ 25. Further, Plaintiff Jessica Arnold alleges that during the course of her time as an agent, she "routinely sold GAP insurance to her customers with the understanding that GAP insurance offered by the Defendants would pay the difference between the remaining debt on the customer's financing and the actual cash value of the motor vehicle after being declared a ‘total loss.’ " Id. ¶ 26. The Arnolds

392 F.Supp.3d 758

allege that the dealership offered GAP insurance, but Plaintiffs declined and decided to buy GAP coverage through the Defendants "[d]ue to Mrs. Arnold's experience as an agent and her familiarity with GAP insurance through Defendants." Id. ¶¶ 32, 33.

Plaintiffs allege that, after purchasing the GAP coverage from Defendants, an endorsement was mailed to them on September 2, 2015, and received three days later. Id. ¶¶ 64-65. The endorsement contained terms regarding the GAP insurance coverage and exclusions. Id. ¶¶ 63-66. Regardless of the endorsement's terms, however, the Arnolds allege that they purchased this coverage "with the understanding that the Defendants would cover the difference between the remaining debt on their financing and the actual cash value [of the Toyota Camry] if it was ever declared a ‘total loss’ due to damage received in an accident or otherwise." Id. ¶ 33.

The Arnolds claim that they hit a deer while driving the Toyota Camry on November 29, 2015. Id. ¶ 35. After reporting the accident the following day, an adjuster allegedly inspected the vehicle and declared it a "total loss." Id. ¶¶ 36-38. Plaintiffs allege that Defendants were obligated under the GAP insurance policy to cover "the difference between the actual cash value of the automobile and the amount Plaintiffs owed through a financing agreement when the total loss occurred because the amount Plaintiffs owed exceeded the actual cash value." (Doc. # 1-2 at ¶¶ 150, 159). The Arnolds allege that, at the time of the accident, the actual cash value of their vehicle was $ 14,329.00 and the amount they owed on the vehicle was $ 19,686.04—leaving a $ 5,357.04 "gap" between these two values. Id. ¶ 57. The Arnolds allege that, after depreciation, the amount Defendants were obligated to pay under the GAP policy was $ 4,700. Id. ¶¶ 57, 84(b).

The Arnolds allege that, in response to their claim, Defendants asserted the Arnolds were only entitled to $ 747.04 under the GAP policy. Id. Defendants allegedly would not pay for the negative equity that Plaintiffs rolled over from the Mazda trade-in because the endorsement mailed to Defendants concerning their GAP coverage under the policy specifically excluded carry-over balances from previous loans or leases. Id. ¶¶ 56, 60. The language of the endorsement provides that:

With respect to this coverage, the provisions of the policy apply unless modified below:

Auto Loan/Lease Coverage

In the event of a total loss to a vehicle shown in the Declarations for which a specific premium charge indicates that Auto Loan/Lease Coverage applies, we will pay any unpaid amount due on the lease or loan for your covered auto less:

1. The amount paid under Part D of the policy; and

2. Any:

a. overdue loan/lease payments at the time of loss;

b. financial penalties imposed under a lease for excessive use, abnormal wear and tear or high mileage;

c. security deposits not refunded by a lessor;

d. cost for extended warranties, Credit Life Insurance, Health, Accident or Disability insurance purchased with the loan or lease; or

e. carry-over balances from previous loans or leases.

(Docs. # 47-1 at 75; 48-1 at 75) (emphasis added).

392 F.Supp.3d 759

In their pleadings, the Arnolds take issue with the fact that the endorsement containing the exclusion language for carry-over balances from a previous loan was not provided to them at the time that they purchased the policy, but rather was mailed to them three days later on September 2, 2015. (Doc. # 1-2 at ¶¶ 65-66). They allege that by offering GAP insurance to consumers purchasing a vehicle, but waiting to disclose the exclusions to consumers until after the purchase of the vehicle and insurance, Defendants foreclosed the purchasers' opportunity to obtain GAP insurance elsewhere without such an exclusion. Id. ¶ 10-11 (alleging that "this type of coverage is only available through the dealership at the time of purchase and delivery of a motor vehicle.").

Plaintiffs assert that they would not have purchased this GAP insurance but for the alleged "fraudulent representations and omissions" by the Defendants. Id. ¶¶ 124-25, 193-94. Consequently, Plaintiffs allege that Defendants' conduct "constitute[s] fraud and runs contrary to Kentucky Consumer Protection Act," Ky. Rev. Stat. § 367.120, et seq. , "and the Kentucky Unfair...

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