National Home Ins. Co. v. King

CourtUnited States District Courts. 6th Circuit. United States District Court of Eastern District of Kentucky
Citation291 F.Supp.2d 518
Docket NumberNo. CIV.A.2003-131.,CIV.A.2003-131.
PartiesNATIONAL HOME INSURANCE COMPANY Plaintiff v. Todd E. KING and Cheryl L. King Defendants
Decision Date03 November 2003

Peter J. Stavros, Frost Brown Todd, LLC, Louisville, KY, for Plaintiff.

Thomas W. Rumpke, Boggs & Colvin, Florence, KY, for Defendant.


BERTELSMAN, District Judge.

This matter is before the court on defendants' motion to dismiss plaintiff's petition to compel arbitration (Doc. # 6).

The court heard oral argument on Wednesday, October 22, 2003. Peter J. Stavros represented the petitioner, National Home Insurance Company. Thomas W. Rumpke represented the respondents, Todd and Cheryl King, who also were present. Official court reporter Joan Averdick recorded the proceedings.

Having heard the parties, the court now issues the following opinion and order.


This is an action to compel arbitration in an underlying construction dispute concerning defects in a home.

Home Buyers Warranty Corporation ("HBW") created and administers the nationwide Home Buyers Warranty Program, a ten year insurance-backed new home warranty program providing warranty coverage against certain types of construction defects in homes offered for sale by home builders. The warranties in the HBW program are insured pursuant to the Federal Risk Retention Act, 15 U.S.C. § 3901, et seq. As such, the builders' contractual obligations under the warranty program are backed by a Risk Retention Group.1

Petitioner National Home Insurance Company ("NHIC") is the risk retention insurer selected by HBW to insure HBW Warranties issued in Kentucky. NHIC is a Colorado Risk Retention Group created pursuant to the Federal Risk Retention Act.2

Dickerson Construction is a Kentucky residential home builder owned by J. Matthew Dickerson, a Kentucky resident. Dickerson Construction was accepted into the HBW program in 2001. It is not named as a party in this action, although it was sued by the Kings in the state court action discussed below.

Respondents, the Kings, purchased a home from Dickerson in October of 2001. Dickerson enrolled the Kings' home in the HBW Program. The written warranty provided that the property would be free of workmanship defects for one year, systems defects for two years, and structural defects for ten years. If a warranted defect is found to exist in the home, NHIC, as the "Warranty Insurer," will "repair, replace or pay the reasonable cost of repair of any covered Defect or Structural Defect. The design, method, and manner of such repair shall be within the sole discretion of the ... Warranty Insurer, if the Warranty Insurer pays for the repair."

The warranty agreement also contains an agreement to arbitrate, which provides, in relevant part:

Any and all claims, disputes and controversies arising under or relating to this Agreement, including without limitation, any claim of breach of contract, negligent or intentional misrepresentation or nondisclosure in the inducement, execution or performance of any contract, and breach of any alleged duty of good faith and fair dealing, shall be submitted to arbitration by and pursuant to the rules of Construction Arbitration Services, Inc. (hereinafter `CAS') in effect at the time of the request for arbitration .... The decision of the arbitrator shall be final and binding and may be entered as a judgment in any State or Federal court of competent jurisdiction.

* * * * * *

The parties expressly agree that this arbitration provision involves and concerns interstate commerce and is governed by the provisions of the Federal Arbitration Act, (9 U.S.C. § 1, et seq.), now in effect and as the same may from time to time be amended, to the exclusion of any different or inconsistent state or local law, ordinance or judicial rule; and to the extent that any state or local law, ordinance or judicial rule shall be inconsistent with any provisions of the rules of the arbitral association under which the arbitration proceeding shall be conducted, the latter rules shall govern the conduct of the proceeding. If any provision of this arbitration agreement shall be determined to be unenforceable by the arbitrator or by the court, the remaining provisions shall be deemed to be severable therefrom and enforceable according to their terms.

The Kings apparently have experienced numerous problems, including a leaky basement, in their new home which Dickerson has failed to repair. On September 5, 2002, the Kings filed suit against Dickerson in Boone County, Kentucky Circuit Court. According to the Kings, they only filed suit after "months" of trying unsuccessfully to get Dickerson to fix the problems in their home.

On September 6, 2002, the Kings filed a claim with HBW, which forwarded a copy of the claim to NHIC for adjustment. This claim included a one-year workmanship claim and a structural defect claim based upon a "substantial" crack that had occurred across the basement floor of the Kings' home. The Kings further alleged that Dickerson had promised repeatedly to make repairs but had not done so.

NHIC retained Slesser Engineering to investigate the claimed defects at the Kings' home. Slesser concluded that there were no structural defects in the home.3 On October 30, 2002, NHIC denied the Kings' claim as to structural defects only, but not as to the workmanship complaint, which was being handled separately through HBW customer service.

Jeff Stuwe of HBW wrote to the Kings' counsel on September 26, 2002, stating that "[w]e only act if the builder is unable or unwilling to remedy a defect that is COVERED by its warranty.... Should the builder fail to resolve any WARRANTED defects within 60 days of the date of this letter, or if your client(s) and Dickerson Construction, Inc. are unable to resolve any dispute through conciliation, we suggest arbitration." (Def.Exh. C).

On November 12, 2002, Stuwe wrote to Dickerson stating that HBW had received a second complaint from the Kings and that Dickerson had not responded to previous correspondence concerning the matter. Stuwe also wrote that "[i]f you fail to respond to us in writing with your intentions within five (5) days of receipt of this letter, then we may advise the homebuyers to file a claim and the warranty insurer will take the place of the builder." (Def.Exh. D).

Dickerson responded to Stuwe by letter dated November 19, 2002, stating that he intended to make the necessary repairs. (Def.Exh. E). Dickerson did review the Kings' home on November 26, 2002, but he made no attempts to perform the repairs.

When Dickerson failed to complete any repairs by December 10, 2002, the Kings requested that HBW notify NHIC that Dickerson was refusing to fix the house and further requested that the warranty insurer accept the claim, adjust the claim, and pay for the necessary repairs under the warranty agreement.

NHIC responded to the Kings via letter dated December 20, 2002. NHIC told counsel for the Kings that an inspector would inspect the Kings' home. NHIC described the process for reviewing the claims as "[a]fter the inspector has viewed the defects and their report is completed, it will be forwarded to NHIC. Once it is reviewed, we will analyze the defects to determine coverage based on the Warranty's Construction Quality Standards and prepare a cash settlement offer for the items afforded coverage." (Def. G).

Notwithstanding this letter, NHIC thereafter wrote the Kings' counsel on December 31, 2002, stating that it was

in receipt of new information that indicates that the builder and his attorney have attempted reconciliation and arbitration prior to the date of Mr. Stuwe's letter of December 13, 2002. Please refer to the warranty, page 6, Arbitration, which states: "Any and all claims, disputes and controversies arising under or relating to this Agreement, including without limitation, any claim of breach of contract, negligent or intentional misrepresentation or nondisclosure in the inducement, execution or performance of any contract, and breach of any alleged duty of good faith and fair dealing, shall be submitted to arbitration by and pursuant to the rules of Construction Arbitration Services, Inc. (hereinafter "CAS") in effect at the time of the request for arbitration."

(Def.Exh. H).

The Kings' counsel responded to NHIC by letter dated December 31, 2002, stating that NHIC was acting in bad faith in refusing to pay the claim. Specifically, the letter stated: "[Y]our letter dated December 31, 2002 is just an attempt to renege on your company's agreement to adjust this claim. In Kentucky, we call that breach of contract. When you are an insurance carrier, it's called bad faith." (Def.Exh. I).

Dickerson contacted the Kings on January 8, 2003, to set up a time when he could have access to the Kings' home. According to the Kings, NHIC informed them that Dickerson could either arbitrate or choose to repair. NHIC also construed the Motion to Compel in the Boone Circuit Court case as an offer by Dickerson to arbitrate the matter. (Def.Exh. K). However, the Kings contend that Dickerson has exercised the option of repairing the property via his previous correspondence. On January 23, 2003, the Kings informed Dickerson that he could have access to the house whenever he was available.

The parties prepared an Agreed Order for Judge Bamberger's signature, which he signed on March 24, 2003. This order provided, in relevant part, that

the claims contained in Counts I, II, and III of the Complaint filed by the Plaintiffs were dismissed by the Court and instead would be referred to arbitration, if required under the terms of the Warranty Agreement attached to Plaintiff's Complaint as Exhibit B. The parties did not argue that arbitration was required at this stage of the dispute and the Court did not seek to address this issue. Instead, the issue before the Court was simply...

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