Kentucky Supreme Court Finds No Bad Faith as a Matter of Law

By Steven Plitt | June 7, 2017

The Kentucky Supreme Court in Hollaway v. Direct General Ins. Co. Mississippi Inc., 497 S.W. 3d 733 (Ky. 2016), recently affirmed summary judgment that was granted in favor of the insurance company, finding that the plaintiff did not present a viable bad faith claim under Kentucky’s Unfair Claim Settlement Practices Act. There are three elements to a third party bad faith claim under Kentucky’s Unfair Settlement Practices Act: first, the claimant must establish that the insurance company was obligated to pay the claim under its policy; second, the plaintiff must establish that the insurer lacked a reasonable basis in law or fact for denying the claims; and third, the plaintiff must establish that the insurer either knew there was no reasonable basis for denying the claim or that the insurer acted with reckless disregard for whether such a claim existed.

This case involved a low speed automobile accident in a private parking lot. The plaintiff was riding as a passenger in a vehicle that she owned. There were conflicting accounts regarding the cause of the accident. The accident was minor, as evidenced by the fact that no airbag deployment occurred in the collision and the plaintiff’s vehicle sustained only $463.62 in property damage to a fender. Both vehicles were drivable and the parties never called the police to investigate the accident or the scene. Plaintiff alleged that she injured her back and hip in the accident, which forced her to seek extensive physical therapy. Plaintiff also claimed that she lost her job because she could not perform her job responsibilities due to her injury.

The driver of the other vehicle was insured by Direct General, with minimum liability limits of $25,000 per person. Direct General investigated and settled the property damage claim involving the vehicles. Plaintiff also demanded $125,000 in compensation for her bodily injuries. After providing documentation of her medical records and lost wages, Direct General offered $5,000 to settle, which was rejected. Thereafter, plaintiff filed suit against the other driver alleging negligence, sought underinsured motorist (UIM) benefits from her own insurer, and brought a third party bad faith claim against Direct General under Kentucky’s Unfair Claims Settlement Practice Act (KUCSPA). Plaintiff’s theory against Direct General was that Direct General failed to reasonably evaluate, investigate and negotiate a settlement of her bodily injury claim. The trial Court granted summary judgement in favor of Direct General. The trial Court found that a legitimate dispute existed regarding who was liable for the accident and the nature and extent of the injuries that were caused by the accident. The Court held that Direct General could not have acted in bad faith as a matter of law because liability and causation were legitimately disputed by Direct General. The trial Court’s ruling was affirmed by the Kentucky Court of Appeals.

The Kentucky Supreme Court affirmed summary judgment. The Court found that the third element in the cause of action for third party bad faith required evidence that the insurance company’s conduct was outrageous, or was because of its reckless indifference to the rights of others. Plaintiff had failed to show that type of malevolent intent on the insurer’s part. Plaintiff offered no proof of intentional misconduct, but rather merely suggested that the process was a matter of interpretation, which was better suited for determination by a jury than on summary prejudgment.

There’s nothing novel about the Kentucky Supreme Court’s findings in Hollaway except that it demonstrates that occasionally plaintiffs are actually required to meet their burden of proof at the summary judgment stage in bad faith cases, and failure to do so results in dismissal. All too often trial judges are reluctant to grant summary judgment in bad faith cases and are more likely to agree with the approach advocated by the plaintiff that a jury should make the determination regarding the facts and the circumstances surrounding the claim disposition.

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About Steven Plitt

Steven Plitt is the current successor author to Couch on Insurance, 3d. He maintains a national coverage practice with The Cavanagh Law Firm. He has been listed continuously as one of Arizona's 50 lawyers by Southwest Super Lawyers. He can be reached splitt@cavanaghlaw.com. To read additional articles by Steven Plitt, go to www.insuranceexpertplitt.com. More from Steven Plitt

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