Bryan S. Wood, as Administrator of the Estate of Rhona Wood Zdrojowy v. Central Kentucky Federal Savings Bank

RENDERED: FEBRUARY 25, 2022; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2021-CA-0091-MR
BRYAN S. WOOD AND NICK WOOD
LOVE, F/K/A AMBER WOOD LOVE,
AS ADMINISTRATOR OF THE
ESTATE OF RHONDA WOOD
ZDROJOWY1 APPELLANTS
APPEAL FROM BOYLE CIRCUIT COURT
v. HONORABLE BRIAN K. PRIVETT, SPECIAL JUDGE
ACTION NO. 18-CI-00313
CENTRAL KENTUCKY FEDERAL
SAVINGS BANK APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CALDWELL, CETRULO, AND JONES, JUDGES.
CALDWELL, JUDGE: The Appellants, Bryan S. Wood and Nick Wood Love,
f/k/a Amber Wood Love, as Administrator of the Estate of Rhonda Wood
1
The notice of appeal contained a misspelling of the Estate, naming the “Estate of Rhona [sic]
Wood Zdrojowy.” The record makes it clear that the former Mrs. Wood’s first name was, in
fact, Rhonda, not Rhona.
Zdrojowy (“the Woods”), seek relief from the decision of the Boyle Circuit Court’s
grant of summary judgment in favor of the Appellee, Central Kentucky Federal
Savings Bank (“Bank”). The Woods had filed suit against the Bank alleging
breach of contract for failure to maintain insurance coverage on a home purchased
by the Woods for which the Bank had provided a mortgage. The circuit court
entered summary judgment in favor of the Bank. We affirm.
FACTS
In December of 1998, Dr. Bryan Wood and his wife, Rhonda,
purchased a home in Danville, Kentucky, executing a promissory note and
mortgage with Central Kentucky Federal Savings Bank for the purchase. At the
time, the Woods were living in Oklahoma and Dr. Wood had just accepted the
position of Director of the Emergency Department at Ephraim McDowell Hospital.
Because they were purchasing the home from afar, the Bank assisted them in
securing necessary homeowner’s insurance. The Bank facilitated acquiring a
policy covering the home and its contents through State Farm as the Woods told
the Bank previous insurance had been obtained through that insurance company.
Every month, a part of the Woods’ mortgage payment was placed in
escrow and used by the Bank to pay the insurance premiums, which were actually
remitted by the Bank. This arrangement persisted until 2013.
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In September of 2013, State Farm insists that it noticed the Bank and
the Appellants that it would not be renewing the coverage when the current
insurance policy term expired on December 18 of that year. Neither the Bank nor
Dr. or Mrs. Wood2 acknowledged receiving the notice. The Bank became aware of
an issue with the policy when the annual billing notice was not received, and an
employee reached out to the local State Farm agent to inquire about the missing
invoice. The employee was told that the Woods would have to contact State Farm,
but was not informed that the insurance company had elected not to continue the
policy because of “overall claim activity” by the Woods.
An employee of the Bank attempted to contact Mrs. Wood on her cell
phone and was not able to reach her. On December 17, 2013, the Bank sent Mrs.
Wood a notice at the subject address stating that if insurance was not secured on
the residence, the Bank would place insurance covering only the structure and not
the contents (“force-placed insurance”). Mrs. Wood was out of town on a holiday
vacation and did not receive the notice until she returned home. A fire occurred on
December 26, 2013, shortly after Mrs. Wood’s return, destroying the home and
contents. Prior to the fire, the Bank had obtained force-placed insurance to protect
2
The Woods were divorced in 2012 and only the former Mrs. Wood was living in the residence.
Dr. Wood had executed a quitclaim deed granting his interest in the property to Mrs. Wood as
part of the property settlement. However, he remained obligated to the Bank on the promissory
note and mortgage.
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its interest in the property. However, at the time of the fire, there was no insurance
in place to cover the Woods’ equity in the home or its contents.
Mrs. Wood, then remarried and known as Rhonda Wood Zdrojowy,
passed away on June 29, 2015, and her child and only beneficiary, Amber Wood
Love, n/k/a Nick Wood Love, was named Administrator of her estate. Thereafter,
in August of 2018, the Woods sued the Bank, State Farm, and the local State Farm
agent in Boyle Circuit Court, alleging breach of contract and breach of fiduciary
duty. State Farm and the local agent moved for dismissal, which was granted and
affirmed on appeal.3 The Bank filed a motion for summary judgment, which was
likewise granted. The Woods appeal that determination.
STANDARD OF REVIEW
The standard of review of a trial court’s determination on a motion for
summary judgment is de novo, as such is a pure question of law. Cmty. Fin. Servs.
Bank v. Stamper, 586 S.W.3d 737, 741 (Ky. 2019). “A grant of summary
judgment is reviewed de novo because factual findings are not at issue.” Feltner v.
PJ Operations, LLC, 568 S.W.3d 1, 3 (Ky. App. 2018), discretionary review
denied (Mar. 6, 2019) (citing Pinkston v. Audubon Area Community Services, Inc.,
210 S.W.3d 188, 189 (Ky. App. 2006)).
3
Wood v. State Farm Fire & Cas. Co., No. 2019-CA-000462-MR, 2020 WL 1898401 (Ky. App.
Apr. 17, 2020).
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ANALYSIS
The Woods argue several theories which place liability for the failure
to adequately insure the home and its contents on the Bank. We find these theories
of liability unpersuasive and affirm the trial court.
A. Breach of Contract
The Woods allege that the Bank breached the mortgage contract when
it failed to obtain sufficient insurance to cover their interests, as well as the Bank’s,
after the State Farm policy was terminated by the insurer. The trial court found
that the plain language of the mortgage contract belies the Woods’ claim, and we
agree.
Paragraph 5 of the mortgage reads:
Hazard Insurance. Borrower shall keep the
improvements now existing or thereafter erected on the
Property insured against loss by fire, hazards included
with in the term “extended coverage,” and such other
hazards as Lender may require and in such amounts and
for such periods as Lender may require; provided, that
Lender shall not require that the amount of such coverage
exceed that amount of coverage required to pay the sums
secured by this Mortgage.
Under the contract, it was the Woods’ responsibility to obtain and
maintain coverage in an amount equal to the amount of indebtedness even if the
Bank had a responsibility to remit the payments from funds held in escrow for such
purpose. Further, it is not clear that the Bank could have instituted a contract
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covering the contents of the property as the Bank had no ownership interest in the
personalty contained in the home. See KRS4 304.14-060.5
In Rayborn v. Fort Thomas Bldg. & Loan Ass’n, the Court held that
the terms of a mortgage placing responsibility for obtaining and maintaining
insurance coverage on the subject property is the responsibility of the mortgagor,
even when, as here, the mortgagee paid the premiums for such insurance from
escrowed funds. 453 S.W.2d 558 (Ky. 1970). “Since the mortgagee had no duty,
only a right, to secure insurance coverage if the mortgagors failed to do so, we can
only conclude that this unfortunate loss occurred as a result of the failure of the
Rayborns to perform a function that they alone were required to do.” Id. at 560.
Paragraph 7 of the mortgage provides:
Protection of Lender’s Security. If Borrower fails to
perform the covenants and agreements contained in this
Mortgage . . . then Lender at Lender’s option, upon
notice to Borrower, may make such appearances,
4
Kentucky Revised Statutes.
5
(1) No contract of insurance of property or of any interest in property or arising from
property shall be enforceable as to the insurance except for the benefit of persons having an
insurable interest in the things insured as at the time of the loss.
(2) “Insurable interest” as used in this section means any actual, lawful, and substantial
economic interest in the safety or preservation of the subject of the insurance free from loss,
destruction, or pecuniary damage or impairment.
KRS 304.14-060.
“Insurable interest is that interest in the subject matter insured by virtue of which the person
insured will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary
loss or damage from its destruction or injury by the happening of the event insured against.”
Patrick v. Kentucky Farm Bureau Mut. Ins. Co., 413 S.W.2d 340, 343 (Ky. 1967).
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disburse such sums and take such action and is necessary
to protect Lender’s interest . . . .
Because the Woods had failed to comply with their duties under
Paragraph 5, the Bank acted pursuant to Paragraph 7 to obtain force-placed
insurance to protect its interests. Under the clear language of the contract, the
Bank had no duty to obtain coverage over that amount of remaining indebtedness.
In fact, the clear terms of the contract restricted the Bank from securing insurance
in an amount greater than its interest.
As noted by the trial court, mortgage contracts are contracts between
the borrower and lender and the common rules of contract interpretation apply.
“The rules of contract interpretation apply to our review of the language of a
mortgage.” First Commonwealth Bank of Prestonsburg v. West, 55 S.W.3d 829,
835 (Ky. App. 2000) (citing Calomiris v. Woods, 353 Md. 425, 727 A.2d 358, 362
(1999)). The language in paragraphs 5 and 7 is clear. Therefore, it is not only
unnecessary to resort to any extrinsic evidence of the parties’ course of dealing, as
the Woods urge, but to do so would be inappropriate. See Catron v. Citizens
Union Bank, 229 S.W.3d 54, 57 (Ky. App. 2006). The terms of the mortgage are
unambiguous, and it would not be appropriate to ignore the express terms of the
contract without reason. Regardless, the express terms of the mortgage, as noted
above, prohibited the Bank from obtaining force-placed insurance in an amount
greater than the Bank’s exposure, even if they could have obtained such insurance.
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The Woods would have us find that the failure of the Bank to notify
them of the need to obtain force-placed insurance, via certified mail, would equate
to a breach of such import so as to impute duties not bargained for under the
mortgage contract and cause the Bank to be liable for the personal losses of the
Woods. We will not so find.
The Bank points out that if the former Mrs. Wood was out of town so
as not to receive the first-class mail notification from the Bank announcing the
need to force-place insurance, she would not have received a certified mail
notification either. Further, it is not the method of notification that caused the
insurance to lapse, but rather the actions of the Woods, in claiming coverage for
past casualties, even if not of their own making, which led to the insurance
company’s decision not to renew the coverage. The mortgage contract is clear; the
duty to ensure the property lay with the Woods pursuant to paragraph 5 of the
contract. Further, the contents of the home are wholly irrelevant to the mortgage
and the Bank only was to force place insurance in an amount to “protect Lender’s
interest.”
B. Breach of Fiduciary Duty
Despite a dearth of caselaw supporting the contention that the Bank
owed them a fiduciary duty, the Woods maintain such duty exists. Rather, caselaw
makes clear that a bank owes no fiduciary duty to its customers.
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A fiduciary duty is defined as “a special confidence
reposed in one who in equity and good conscience is
bound to act in good faith and with due regard to the
interests of the one reposing confidence.” Steelvest [v.
Scansteel Service Center, Inc.], 807 S.W.2d [476] at 485
[(Ky. 1991)], quoting Security Trust Co. v. Wilson, 307
Ky. 152, 210 S.W.2d 336 (Ky. 1948). As a general rule,
banks do not owe a fiduciary duty to their customers. de
Jong v. Leitchfield Deposit Bank, 254 S.W.3d 817, 822
(Ky. App. 2007).
Snow Pallet, Inc. v. Monticello Banking Co., 367 S.W.3d 1, 4 (Ky. App. 2012).
The Bank owed no fiduciary duty to the Woods. And the fact that the
Bank facilitated the placement of the policy at the onset of the contractual
relationship and paid insurance premiums with escrowed funds, as alleged by the
Woods, are insufficient facts upon which to so find. There is no genuine issue of
material fact so as to hold summary judgment was improper. Looking at the
factual allegations of the Woods in a light most favorable to them, there has not
been a sufficient factual predicate to sustain the allegation of breach of fiduciary
duty.
To make out a claim that a fiduciary relationship existed,
the party claiming the fiduciary relationship must first
show the relationship existed before the transaction that
is the subject of the action. Second, the party claiming a
fiduciary relationship must show that reliance was not
merely subjective. Third, the party claiming a fiduciary
relationship must show that the nature of the relationship
imposed a duty upon the fiduciary to act in the
principal’s interest, even if such action were to the
detriment of the fiduciary.
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Ballard v. 1400 Willow Council of Co-Owners, Inc., 430 S.W.3d 229, 242 (Ky.
2013) (citations omitted).
While the Bank and the Woods had a fifteen-year relationship before
the insurance lapse and fire occurred and the Woods have shown that they, in fact,
relied upon the Bank to make the premium payments from escrowed funds, there
has been no factual allegation concerning the third requirement. The Woods have
forwarded no factual predicate for a finding that the Bank was required to act in the
Woods’ interests to the detriment of its own actions. Rather, the clear terms of the
contract between the parties established that the Bank had permission to act in its
own interest by obtaining force-placed insurance. In no way can this be argued to
be in favor of the Woods and contrary to the Bank’s interests. Summary judgment
was therefore proper and appropriate.
CONCLUSION
For the foregoing reasons, we affirm the Boyle Circuit Court’s order
granting the Bank summary judgment.
ALL CONCUR.
BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE:
David J. Guarnieri Brendan J. Shevlin
Trevor M. Nichols Danville, Kentucky
Lexington, Kentucky
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