Baymon v. State Farm Insurance , 257 F. App'x 858 ( 2007 )

NOT RECOMMENDED FOR PUBLICATION
File Name: 07a0843n.06
Filed: December 12, 2007
No. 06-6527
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
James Baymon and Lorrene Early Baymon, )
)
Plaintiffs-Appellants, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR THE
State Farm Insurance Company, ) WESTERN DISTRICT OF KENTUCKY
)
Defendant-Appellee. )
)
)
BEFORE: Merritt, Cole, and Griffin, Circuit Judges.
MERRITT, Circuit Judge. Plaintiffs James and Lorrene Early Baymon obtained a
homeowner’s insurance policy issued by defendant State Farm Insurance Company. After the
Baymons lost their home in a fire, they filed a claim with State Farm. Due to material
misrepresentations made to State Farm by the Baymons about their financial condition at the time
of the fire and the suspicious origin of the fire, State Farm denied the claim and voided the policy.
The Baymons filed suit against State Farm in Union Circuit Court in Morganfield, Kentucky,
claiming breach of contract for failure to pay the loss claim, bad faith in denying the claim and
violations of the Kentucky Unfair Claims Settlement Practices Act, KRS 304.12-230, and the
Kentucky Consumer Protection Act, KRS 367.170. The case was removed by State Farm to federal
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Baymon v. State Farm
court based on diversity jurisdiction. State Farm moved for summary judgment which was granted
by the district court. (J.A. at 35) The Baymons now appeal, alleging that genuine issues of material
fact preclude summary judgment and that the district court erred as a matter of law on a variety of
issues. For the reasons stated below, we do not regard the arguments presented by the Baymons as
substantial or plausible, and we affirm the district court’s grant of summary judgment in favor of
State Farm based on the Baymons’ false statements made to State Farm during the claims process
which voided their policy.
I.
The material facts are not in dispute. On Sunday, March 30, 2003, James and Early Baymon
suffered a fire loss that totally destroyed their home. The Baymons left for church at about 9:50 a.m.
The fire was reported to the Morganfield Dispatch at about 10:12 a.m., which immediately reported
the fire to the volunteer fire department. Clyde Vos, the local fire chief who lives two houses away
from the Baymons, also received a phone call from a neighbor a few minutes past 10 a.m. reporting
that the Baymons’ house was on fire. The Baymons were notified in person at church that their
home was on fire and they immediately left and returned home.
The Baymons reported the loss to State Farm on Monday, March 31, 2003. A claims
representative, Brad Brown, contacted the Baymons by phone. On April 2, 2003, the claim was
referred to State Farm’s Special Investigative Unit because State Farm had learned that the Baymons’
home was scheduled to be sold at foreclosure on April 4, 2003, two days hence, the Baymons had
filed for bankruptcy in 2002 and the responding fire department had reported the fire to the State
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Police Investigator as being of a suspicious origin. State Farm learned this information from its own
investigation, not from the Baymons.
On April 4, 2003, State Farm Claims Representative Chuck Coppinger took a recorded
statement from the Baymons. In response to Coppinger’s questions, it is undisputed that the
Baymons made several misrepresentations as to their financial status, including the status of their
mortgage. Although Coppinger never expressly asked James Baymon if his house was set for
immediate foreclosure, he asked in many different ways if the Baymons were current with their
mortgage payments and taxes, to which James Baymon always said yes. Coppinger also asked if
there were any liens on their house or if they were involved in any law suits, to which James Baymon
said no. Coppinger specifically asked Mrs. Baymon, “Has your mortgage ever been foreclosed on?”
She answered, “No.”
Several months later, as part of its investigation into the Baymons’ claim, the Baymons were
examined under oath and they admitted that some of the answers they had given immediately after
the fire were false. Specifically, James Baymon admitted that he knew his house was scheduled for
foreclosure on April 4 and he knew that he owed on his taxes and mortgage. James Baymon said
that he gave false statements because he did not like Coppinger’s “attitude” and he found the
questions asked by Coppinger inappropriate and too personal.
Likewise, Early Baymon testified under oath that she knew that the house was scheduled to
be sold at foreclosure, although she did not know the exact date at the time, and she knew that they
owed back taxes. When asked why she lied to Coppinger after the fire, she answered, “I wasn’t
thinking.”
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The Baymons’ policy with State Farm about misrepresenting facts is clear. It reads in
pertinent part:
Concealment or Fraud. This policy is void as to you and any other insured, if you
or any other insured under this policy has intentionally concealed or misrepresented
any material fact or circumstance relating to this insurance, whether before or after
a loss.
Homeowners Policy at 19 (J.A. at 91). Based on the policy language, State Farm sent a letter to the
Baymons on October 2, 2003, voiding their policy as of March 30, 2003, the date of the fire, and
denying their claim. (J.A at 22)
II.
The Baymons raise numerous issues on appeal. Many of the appeal issues are interwoven
and arise from their basic argument that State Farm acted in bad faith in denying their claim.
Specifically, the Baymons argue that (1) the questions asked by the State Farm claims adjustor
shortly after the loss were intentionally vague and misleading as part of an effort by State Farm to
elicit a falsehood from them so that the fire loss claim could be denied; (2) any misrepresentation
made by the Baymons that was not given under oath cannot provide the basis to void the policy; (3)
the lack of prejudice to State Farm due to the Baymons’ misrepresentations precludes State Farm
from denying the claim; (4) Mrs. Baymon is an “innocent spouse” such that the loss claim as to her
should not be denied; (5) they were ignorant of the consequences of making misrepresentations
about their finances to State Farm and should not be held accountable for them; (6) the later truthful
statements by the Baymons made under oath estop State Farm from relying on the earlier statements
to void the policy and deny the claim; (7) State Farm had unclean hands and acted in bad faith in
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both the investigation and in denying the claim; (8) State Farm violated the Kentucky Unfair
Settlement Practices Act by failing to investigate the claim in good faith; and (9) State Farm violated
the Kentucky Consumer Protection Act by failing to deal with their claim in good faith.
Under Kentucky law, the rights of parties to an insurance policy are to be determined by the
terms of the policy, unless contrary to existing law or public policy. State Farm Mutual Ins. Co. v.
Fireman’s Fund American Ins. Co., 550 S.W.2d 554, 557 (Ky. 1997). It is undisputed that both
James and Early Baymon made false statements to the State Farm representative on April 4, 2003,
five days after the fire, in violation of clear policy language, as well as general ethical principles
requiring truthfulness in such transactions. They denied being behind on their mortgage payments,
and they denied knowing the home was set for foreclosure that very day. Statement of James
Baymon at pp. 21, 36, 39, 65 (Apr. 4, 2003) (J.A. at 11-13, 108); Statement of Early Baymon at pp.
29, 35, 36 (J.A. at 121, 123-24). They both later admitted under oath to knowing that the statements
made to Coppinger were false when they made them. James Baymon Examination Under Oath at
pp. 45-47 (J.A. at 14-16); Lorrene Early Baymon Examination Under Oath at pp. 15, 59, 61 (J.A.
at 96, 102-04). They clearly “intentionally concealed or misrepresented [a] material fact or
circumstance relating to this insurance,” thereby voiding the policy and relieving State Farm from
paying the loss.
In response, the Baymons argue that factual issues preclude summary judgment for State
Farm. They argue that because the statements made to Coppinger on April 4 were not under oath
they are not sufficient to void the policy. This argument is without merit. There is no requirement
that misrepresentations must be made under oath.
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The Baymons contend that because the claims adjuster did not expressly ask James Baymon
if a foreclosure action had been filed (when the adjuster in fact did know that a foreclosure action
had been filed) we should conclude that the insurance company was trying to trick or trap the
Baymons into giving false answers to the questions so it would not have to pay the claim. The
adjuster asked him several times and in several different ways if the mortgage was current, if the
Baymons were behind on house payments or if the Baymons had been sued or involved in any
lawsuits. James Baymon replied that he was current with his mortgage and that he not ever been
sued. Moreover, the adjuster did specifically ask Early Baymon if the property was in foreclosure,
which she denied. She was also asked if there were any liens on the property or if she had ever been
sued, to which she said no.
The questions were designed to elicit information about the Baymons’ financial condition
and were straightforward, reasonable questions. There is no requirement that Mr. Baymon be
directly asked if his house was in foreclosure. Despite the Baymons’ challenges to the manner of
questioning, there is no evidence that State Farm was trying to avoid paying the claim through deceit
in the questioning process. It was the Baymons who engaged in deceitful conduct.
The Baymons next contend that they did not know that giving false answers to the questions
posed by State Farm could void their policy. They claim that Coppinger, the adjuster, should have
told them that false answers could void their policy. A review of the transcript shows that Coppinger
tried asking questions in a variety of different ways to ensure that the Baymons understood his
questions. He used words like “are your house payments current” and “have you ever been sued”
or “have you ever been involved in a lawsuit.” The questions were easily understandable by anyone.
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The Baymons make no serious argument that they lacked the intelligence to understand the
questions; in fact James Baymon admitted that he did not answer the questions truthfully because
he found them “inappropriate” and “too personal” — not because he did not understand them. Not
only did the insureds contract not to lie; the law generally does not condone lying.
The Baymons also argue that State Farm must demonstrate prejudice due to the
misrepresentations in order to void the policy. They argue that because State Farm knew that some
of their statements were false at the time they were given or shortly thereafter the company suffered
no prejudice in pursuing its investigation. The policy was voided due to breach of the terms of the
contract, not due to a tort or some other cause of action where detrimental reliance or injury must
be demonstrated. The policy provisions prohibiting false statements are valid and enforceable.
The Baymons also contend that the fact that State Farm later took statements from them
under oath estops State Farm from denying the claim and voiding the policy because once State Farm
knew of the misrepresentations, any continuing investigation was in bad faith. This argument is
without merit. The fact that State Farm undertook a later examination under oath does not negate
the effect of the prior misrepresentation. The fact that State Farm may have known of the
misrepresentations at the time they were made does not relieve it or prohibit it from making a full
investigation. It certainly is not bad faith for an insurance company to undertake a full investigation,
even if it believes it knows the facts. In addition to gathering information, an investigation may be
done to verify previously obtained information or beliefs. The Baymons’ own expert conceded that
examinations under oath are routine in many investigations.
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The Baymons further argue that Early Baymon should be permitted to proceed with a
separate claim for the fire loss because she is an “innocent spouse.” This claim was not raised below
and the district court did not address it. Rather than rely on “waiver,” we note that the argument is
wholly without merit. First, Mrs. Baymon is not an innocent spouse because she also made
misrepresentations to the claims adjuster on April 4. She told him that she had never been sued and
she did not know about any liens on the property. When specifically asked if the Baymons’
mortgage had ever been foreclosed on, she answered no. She later admitted under oath that these
statements were false. In addition, the policy states that it is void “if you [have] or any other
insured under this policy has intentionally concealed or misrepresented any material fact or
circumstance relating to this insurance . . . .”
Underpinning many of the challenges raised above and the heart of the Baymons’ appeal is
their challenge to the district court’s dismissal of their bad faith claim. An insured must prove three
elements to prevail on a bad faith claim under Kentucky law:
(1) The insurer must be obligated to pay the 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
....
Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993). The record contains no evidence creating a
material dispute of fact on this issue.
Part of the Baymons’ bad faith claim hinges on the fact that one of the reasons for denying
the claim was the fact that the fire was of suspicious origin and the Baymons had the opportunity and
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motive to start the fire. Linked to this challenge is the Baymons’ claim that State Farm encouraged
the state fire investigators to press arson charges against James Baymon, charges that were later
dismissed. The fact that Mr. Baymon was ultimately cleared of criminal wrongdoing does not make
it bad faith on the part of State Farm to investigate or even to deny the loss claim. The initial report
by the local fire chief noting that the fire was of suspicious origin is what brought the case to the
attention of the state investigators — not any action by State Farm.
Lastly, the Baymons brought a claim under the Kentucky Consumer Protection Act. As noted
by the district court in dismissing the claim, the same three elements necessary to prove bad faith
under Kentucky law must also be proven in a claim under the Consumer Protection Act. Wittmer,
864 S.W.2d at 890. The same reasons that support dismissal of the bad faith claim also support
dismissal of the claim under the Consumer Protection Act.
For the foregoing reasons, the judgment of the district court is affirmed.
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