Sauder W. Farms, Inc. v. Sentry Select Ins. Co.

320 F.Supp.3d 1214

SAUDER WEST FARMS, INC. and Farmers State Bank of Aliceville, Plaintiffs,

v.SENTRY SELECT INSURANCE CO., Defendant.

Case No. 16–4192–DDC–KGG

United States District Court, D. Kansas.

Signed March 16, 2018

William J. Fitzpatrick, Fitzpatrick & Bass, Independence, KS, for Plaintiffs.

John M. Brigg, W. James Foland, Foland, Wickens, Eisfelder, Roper & Hofer, PC, Kansas City, MO, for Defendant.

MEMORANDUM AND ORDER

Daniel D. Crabtree, United States District JudgePlaintiffs Sauder West Farms, Inc. ("Sauder") and Farmers State Bank of Aliceville ("Farmers State Bank") filed this breach of contract action against defendant Sentry Select Insurance Co. ("Sentry"). This matter comes before the court on plaintiffs' Motion for Summary Judgment (Doc. 26) and defendant's Motion for Summary Judgment (Doc. 28). Plaintiffs filed a Response and Memorandum in Opposition to defendant's motion (Doc. 30), and defendant submitted a Reply (Doc. 32). And, defendant submitted a Memorandum in Opposition to plaintiffs' motion (Doc. 31). But plaintiffs never submitted a Reply. The motions thus are fully briefed, and the court is prepared to rule. For reasons explained below, the court grants defendant's Motion for Summary Judgment, and the court denies plaintiffs' Motion for Summary Judgment.

I. Uncontroverted Facts

The following facts are either stipulated to by the parties in their Stipulation of the Parties (Doc. 25), or are uncontroverted.

Sentry Select Insurance Policy

Plaintiff Sauder owned a John Deere 2011 Model no-Till Drill ("drill") and a Model 1910 cart ("cart") to transport the drill. Plaintiff Farmers State Bank owned a lien on the drill and cart. Defendant Sentry issued an insurance policy ("the policy") for the drill and cart. The policy insured the drill for $90,000 and the cart for $55,000 for an annual period beginning July 26, 2012 and ending July 26, 2013. Plaintiff Sauder paid the full annual premium on this policy. The policy's "Loss Payable Clause" identified plaintiff Farmers State Bank as the loss payee. The insured filed no claims on this policy from July 26, 2012 to July 26, 2013.

The policy contained a cancellation provision. The cancellation provision is titled "Common Policy Conditions." In relevant part, the "Common Policy Conditions" provide:

A. Cancellation

...

2. We may cancel this policy by mailing or delivering to the first Named Insured written notice of cancellation at least:

a. 10 days before the effective date of cancellation if we cancel for nonpayment of premium....

Doc. 25–1 at 4. The "Common Policy Conditions" was modified by an Endorsement titled KANSAS CHANGES–CANCELLATION AND NONRENEWAL. This Endorsement provides:

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

KANSAS CHANGES–CANCELLATION AND NONRENEWAL

...

A. Paragraph 2. of the Cancellation Common Policy Condition is replaced by the following:

2a. We may cancel the policy by mailing or delivering to the first Named Insured written notice of cancellation, stating the reason for cancellation, at least:

(1) 10 days before the effective date of cancellation if we cancel for nonpayment of premium....

Id. at 20. The policy's Loss Payable Clause contained the following language:

The endorsement modifies insurance provided under the following:

COMMERCIAL INLAND MARINE COVERAGE—CONTRACTORS EQUIPMENT COVERAGE FORM.

With respect to coverage provided by this endorsement, the provisions of the Coverage Form apply unless modified by the endorsement.

...

C. We may cancel the policy as allowed by the CANCELLATION Common Policy Condition. Cancellation ends with this agreement as the loss payee's interest. If we cancel the policy, we will mail you and the loss payee the same advance notice.

Id. at 6. The policy also included a relevant modification in an Endorsement titled "KANSAS CHANGES–CANCELLATION AND NONRENEWAL." This Endorsement provided:

NONRENEWAL

1. If we decide not to renew this policy, we will mail or deliver written notice of nonrenewal, stating the reasons for nonrenewal, to the first Named Insured at last 60 days prior to the expiration of the policy.

Id. at 20.

Correspondence

On June 18, 2013, defendant Sentry sent plaintiff Sauder (but not plaintiff Farmers State Bank) a letter captioned "RENEWAL OFFER." The letter requested that plaintiff Sauder pay the annual premium for the renewal policy on or before July 26, 2013. The premium amount for the renewal policy was $798.00. The letter explained that if defendant Sentry did not receive the annual premium payment by the policy's expiration date, then defendant Sentry would "assume that the renewal offer has been rejected." Doc. 25–2 at 2. The June 18, 2013 correspondence also provided plaintiff Sauder with a "Billing Information" document containing a bill due date of July 26, 2013. Near the end of the Billing Information, the following statement appears: "Premium payment must be received by the billing due date to prevent cancellation of the policy for non-payment of premium." Id. at 8. That same documents also included "Coverage Information" containing the following language:

Renewal of Policy Number: DA888482–IM503468

...

If Coverage is bound, the full premium of $798.00 is due by the bill due date of 7/26/2013.

Id. The bottom of the "Coverage Information" read: "This is an application for insurance, NOT a binder for coverage." Id.

Plaintiff Sauder did not pay the renewal premium on or before July 26, 2013. Indeed, plaintiff Sauder never paid a renewal premium to defendant Sentry. Defendant Sentry sent plaintiff Sauder a letter on August 5, 2013, explaining that the policy lapsed on July 26, 2013. The letter advised plaintiff Sauder to call a company telephone number if it wanted to secure coverage. Plaintiff Farmers State Bank never received a copy of the August 5, 2013 letter.

The Claim

About two years later in August 2015, the drill was damaged in an accident. On September 29, 2015, defendant Sentry notified plaintiff Sauder that it was denying coverage because the policy was not effective when the accident happened. Defendant Sentry never issued a notice of cancellation of the policy to plaintiffs Sauder or Farmers State Bank as loss payee. Defendant Sentry never issued or served a notice of nonrenewal on either plaintiff Sauder or plaintiff Farmers State Bank. Plaintiff Farmers State Bank still had a lien on the drill and cart when the accident happened. The loan for the drill and cart had an outstanding balance due.

II. Summary Judgment Standard

Summary judgment is appropriate if the moving party demonstrates that "no genuine dispute" exists about "any material fact" and that it is "entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(a). The court applies this same standard to cross motions for summary judgment. Each party bears the burden of establishing that no genuine issue of material fact exists and that it is entitled, as a matter of law, to the judgment sought by its motion. Atl. Richfield Co. v. Farm Credit Bank of Wichita , 226 F.3d 1138, 1148 (10th Cir. 2000). Cross motions for summary judgment "are to be treated separately; the denial of one does not require the grant of another." Buell Cabinet Co., Inc. v. Sudduth , 608 F.2d 431, 433 (10th Cir. 1979). But where cross motions overlap, the court may address the legal arguments together. Berges v. Standard Ins. Co. , 704 F.Supp.2d 1149, 1155 (D. Kan. 2010) (citation omitted). Summary judgment is not a "disfavored procedural shortcut." Celotex Corp. v. Catrett , 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Instead, it is an important procedure "designed ‘to secure the just, speedy and inexpensive determination of every action.’ " Id. (quoting Fed. R. Civ. P. 1 ).

Here, neither party disputes the facts on summary judgment. And, the interpretation of an insurance contract is a question of law. Am. Media, Inc. v. Home Indem. Co. , 232 Kan. 737, 658 P.2d 1015, 1018 (1983). So, the motions here require the court to decide which party deserves judgment as a matter of law. See Great Plains Ventures, Inc. v. Liberty Mut. Fire Ins. Co. , 161 F.Supp.3d 970, 976 (D. Kan. 2016).

III. Governing Law

Before addressing the parties' arguments, the court must determine which state's substantive law governs their disputes with one another. Rigby v. Clinical Reference Lab., Inc. , 995 F.Supp. 1217, 1221 (D. Kan. 1998) (citing Erie R.R. Co. v. Tompkins , 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ). Because the parties are citizens of different states and the amount in controversy exceeds $75,000, the court has diversity subject matter jurisdiction over this case. See 28 U.S.C. § 1332. In a diversity case, federal courts apply the choice of law rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Under Kansas law, insurance contracts are governed by the law of the state where the contract was made. Safeco Ins. Co. of Am. v. Allen , 262 Kan. 811, 941 P.2d 1365, 1372 (1997). Here, the parties agree that Kansas law applies and no evidence suggests that the insurance contracts were made outside Kansas. Therefore, the court interprets the contract under Kansas's substantive law. The substantive law is determined by the state's highest court, although the court may consider other state court decisions as persuasive authority for what the highest court would hold. Etherton v. Owners Ins. Co. , 829 F.3d 1209, 1223 (10th Cir. 2016).

IV. Analysis

Plaintiffs assert that defendant Sentry breached its obligations under the policy when it refused to cover plaintiff Sauder's claim for the damaged drill and cart. Sentry asserts that it had no obligation to cover the claim because, as a matter of law, the policy was not in effect when the accident occurred. The parties' papers establish a robust dispute whether the policy was in effect on the date of the accident. Plaintiffs assert that it was. Defendant says it was not. This question turns on whether the policy...