Earth Scientists v. United States Fidelity & Guar.

• Citation: 619 F. Supp. 1465
• Decision Date: 17 October 1985
• Docket Number: Civ. A. No. 84-2204.
• Parties: EARTH SCIENTISTS (PETRO SERVICES) LTD., Plaintiff, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant.
• Court: U.S. District Court — District of Kansas

619 F. Supp. 1465

EARTH SCIENTISTS (PETRO SERVICES) LTD., Plaintiff, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant.

Civ. A. No. 84-2204.

United States District Court, D. Kansas.

October 17, 1985.

COPYRIGHT MATERIAL OMITTED

Jerry K. Levy, Levy, Smith Garrett & Smith, Topeka, Kan., for plaintiff.

H.W. Fanning and Arthur S. Chalmers, Kahrs, Nelson, Fanning, Hite & Kellogg, Wichita, Kan., for defendant.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, Chief Judge.

This matter is presently before the court on defendant's motions to dismiss and for summary judgment. This diversity action arises out of the alleged breach of an insurance policy entered into by plaintiff Earth Scientists (Petro Services) Ltd. hereinafter Earth Scientists with defendant United States Fidelity & Guaranty Company hereinafter USF & G to insure, among other things, plaintiff's drilling rig for collapse.

Plaintiff's complaint sets forth the following four claims: (1) breach of contract; (2) violation of the Kansas Uniform Trade Practices Act; (3) fraud; and (4) negligence, carelessness, intentional, willful, malicious and outrageous actions. Plaintiff seeks actual and punitive damages, and consequential damages in the nature of lost profits.

For purposes of this motion, the uncontroverted material facts in this case are as follows:

Plaintiff Earth Scientists is a Kansas corporation, which, at all times pertinent to this action, was engaged in the oil and gas drilling business. A.W. Karns, President of Earth Scientists, contacted C.L. Kinnard, an insurance agent with Gilmore, Dennis and Miller Insurance, Inc., to purchase an insurance policy. Karns specifically requested coverage for collapse or overturn of the company's drilling rigs. Previously, one of plaintiff's drilling rigs had overturned and plaintiff's insurance (with a company other than defendant) had not covered the loss.

Kinnard had an agency agreement with defendant USF & G, a Maryland corporation, to solicit customers and submit applications for policies to USF & G. Kinnard recommended to plaintiff that it purchase defendant's policy (the policy involved in this action) and plaintiff did so. The policy expressly covered the peril of the derrick or mast collapsing. The policy did not, however, define the term "collapse." Kinnard never informed defendant of plaintiff's desire to insure loss of its rigs caused by overturns, nor did plaintiff ever tell defendant of its previous rig overturn. In turn, defendant never told plaintiff that such an overturn would be covered.

On December 13, 1983, the insured rig fell over and was damaged. On January 16, 1984, defendant formally denied coverage of the incident. Disatisfied with defendant's failure to pay the claim, plaintiff contacted the Kansas State Insurance Commissioner's Office. On March 1, that office admonished defendant for denying liability when liability was "reasonably clear." On April 11, of that same year, defendant offered plaintiff a sum between $32,500 and $35,000 to settle the claim. Plaintiff rejected the offer. Consequently, plaintiff filed this lawsuit. Defendant admits in its answer coverage of the rig's collapse and that it owes the cost to repair or replace the rig for actual cost value.

I. Motion to Dismiss Plaintiff's Claim Under the Kansas Uniform Trade Practices Act.

Defendant moves the court to dismiss plaintiff's claim for violation of the Kansas Uniform Trade Practices Act (KUTPA), K.S.A. 40-2401 to -2414 (1981 & Supp. 1984), for failure to state a claim upon which relief can be granted. Defendant maintains that the Act provides no private cause of action in favor of an individual for an insurer's violations of KUTPA.

The court may not dismiss plaintiff's complaint for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). In considering a motion to dismiss, the factual allegations of the complaint must be taken as true and all reasonable inferences from them must be indulged in favor of the plaintiff. Mitchell v. King, 537 F.2d 385, 386 (10th Cir.1976).

After reviewing the Kansas Uniform Trade Practices Act, the court is convinced that plaintiff's claim for damages for defendant's alleged violations of K.S.A. 40-2404(9)¹ must be dismissed for the following reasons.

First, the court concludes that the overriding goal of the statute is to provide the public with the benefits that flow from a well regulated insurance industry. According to the Act itself:

The purpose of this Act is to regulate trade practices in the business of insurance ... by defining, or providing for the determination of, all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.

K.S.A. 40-2401.

Second, the court concludes that the plain meaning of the statute is clear in vesting all power under the Act in the Commissioner of Insurance. The Commissioner has the sole duty to enforce the Act. There is no language purporting to create a private cause of action. The pertinent language (with emphasis added) is as follows:

K.S.A. 40-2402(b):

"Commissioner" shall mean the commissioner of insurance of this state.

K.S.A. 40-2405:

The commissioner shall have power to examine and investigate into the affairs of every person engaged in the business of insurance....

K.S.A. 40-2406:

(a) Whenever the commissioner shall have reason to believe that any such person has been engaged or is engaging in this state in any unfair method of competition or any unfair or deceptive act or practice ... and that a proceeding by the commissioner in respect thereto would be to the interest of the public, the commissioner shall issue and serve upon such person a statement of the charges in that respect and a notice of a hearing thereon....

(d) The commissioner, upon such hearing, may administer oaths, examine and cross-examine witnesses, ....

K.S.A. 40-2407(a):

The commissioner ... shall issue and cause to be served upon the person charged with the violation a copy of such findings and an order requiring such person to cease and desist ... and may order:

(1) Payment of a monetary penalty of not more than one hundred dollars ($100)...;

(2) suspension or revocation of the person's license ...; or

(3) redress of the injury by requiring the refund of any premiums paid by and/or the payment of any moneys withheld from, any consumer and/or appropriate public notification of the violation.

K.S.A. 40-2411:

Any person who violates a cease and desist order of the commissioner ... may be subject to:

(a) A monetary penalty of not more than ten thousand dollars ($10,000) ...;

(b) suspension or revocation of such person's license;

(c) redress of the injury by requiring the refund of any premiums paid by and/or the payment of any moneys withheld from, any consumer and/or appropriate public notification of violation.

K.S.A. 40-2412:

The powers vested in the commissioner by this act, shall be additional to any other powers to enforce any penalties, fines or forfeitures authorized by law with respect to the methods, acts and practices hereby declared to be unfair or deceptive.

Nowhere in the Act is there a provision for the recovery of monetary damages, which the plaintiff in this case is seeking. As the above quoted sections reveal, the Act provides only for "cease and desist" orders, $100 monetary penalties, suspension of the insurer's license, refund of any premium and public notification of the insurer's violation, none of which the plaintiff is seeking.

In Spencer v. Aetna Life & Casualty Ins. Co., 227 Kan. 914, 611 P.2d 149 (1980), the Kansas Supreme Court discussed the provisions of KUTPA and the insured's remedies for breach of a first party insurance contract. The court was not specifically addressing the issue of whether the Act gives rise to a private cause of action, but rather whether the tort of "bad faith" was actionable in Kansas. Nevertheless, the court's rationale for denying a cause of action for bad faith applies equally as well to the private cause of action issue. In refusing to recognize the tort of bad faith, the court stated:

We are of the opinion the legislature has intended to provide a remedy for an insured who has problems with his insurance company. He can maintain an action on the contract for his policy benefits, with costs, interest and attorneys' fees under arbitrary circumstances. He may also report the company to the Department of Insurance under the Uniform Trade Practices Act for improper handling of claims pursuant to K.S.A. 40-2404(9). The company's actions are reviewable by the Department and punishable if found improper. The legislature has provided several remedies for an aggrieved insured and has dealt with the question of good faith first party claims. Statutory law does not indicate the legislature intended damages for emotional suffering to be recoverable by an aggrieved insured through a tort of bad faith. Where the legislature has provided such detailed and effective remedies, we find it undesirable for us to expand those remedies by judicial decree.

Id. at 926, 611 P.2d 149.

This language leads us to conclude that the Kansas Supreme Court would not expand KUTPA to imply a private cause of action. The Spencer court makes it clear that the aggrieved insured has only two remedies to pursue — he may file suit for breach of the insurance contract and/or he may report the insurer to the Insurance Commissioner who may proceed under the Act.

Plaintiff argues that the court in Spencer expressly left the door open for a private cause of action if the plaintiff made a definitive showing that the legislative remedies were inadequate. We believe plaintiff is misinterpreting the Spencer court's conclusions. The...