BlogLine

Kentucky court rejects homeowners’ bad faith insurance claim

4/30/25

By: Barry M. Miller

In February, the Kentucky Court of Appeals ruled against homeowners who claimed their insurance company acted in bad faith and violated the state’s consumer protection act by initially denying coverage for water damage. Holland v. United Services Automobile Association, No. 2024-CA-0254-MR (Ky. Ct. App. Feb. 28, 2025).

In June 2019, the Hollands’ home suffered water damage after heavy rains. Their insurer, USAA, paid for some damages, but said that its policy did not cover the replacement of deteriorated fiberboard between the brick exterior and framing. Based on its expert report, USAA said the damage was not “sudden and accidental,” and instead asserted that the damage resulted from a construction defect. 

Before trial, the parties settled the breach of contract claim with USAA paying more than $150,000 to replace the fiberboard. Trial proceeded on claims that USAA violated the Kentucky Unfair Claims Settlement Practices Act (KUCSPA) and the Kentucky Consumer Protection Act (KCPA) and committed common law bad faith. On the bad faith claim, the jury found that USAA did not violate any part of Kentucky’s three-part test: 

1. USAA was not obligated to pay under the policy; 

2. USAA had reasonable grounds to deny the claim;

3. USAA did not knowingly or recklessly disregard a lack of reasonable grounds to deny the claim. 

On the consumer protection claim, the court found that any conduct by USAA did not damage the Hollands. The appellate court upheld this verdict, explaining that under Kentucky law, proving a KCPA violation occurred is not enough; the statute also requires consumers to prove the violation caused their loss. 

Insurers often must contemplate whether paying a claim under the policy during litigation will disadvantage them in a bad faith case. This case highlights that claimants must still show that the insurer had no reasonable basis to dispute their claim at the time it was first asked to make a claim decision. 

For more information, please contact Barry M. Miller at barry.miller@fmglaw.com or your local FMG attorney.

Information conveyed herein should not be construed as legal advice or represent any specific or binding policy or procedure of any organization. Information provided is for educational purposes only. These materials are written in a general format and are not intended to be advice applicable to any specific circumstance. Legal opinions may vary when based on subtle factual distinctions. All rights reserved. No part of this presentation may be reproduced, published or posted without the written permission of Freeman Mathis & Gary, LLP.