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By: Barry Miller
A Kentucky Court of Appeals decision adopted a federal court’s observation that Kentucky bad faith decisions fall into two broad categories. One category reflects “a more expansive approach to a finding of bad faith,” analyzing facts where the insurer’s conduct was oppressive and the facts establishing liability were clear. The second category represents the “greater number” of Kentucky cases which follow the “standards set forth in the landmark case of Wittmer v. Jones.”
In Wittmer the Supreme Court of Kentucky states three elements that a bad-faith claimant (whether first or third party) must meet: (1) The insurer must be obligated to pay the claim under the terms of the policy; (2) The insurer must have lacked a reasonable basis to delay or deny payment; and (3) The insurer must have known or been conscious of the fact that it lacked a reasonable basis to delay or deny. Later Kentucky cases make it clear that a claimant must show proof of all three.
According to the Messer court, the claimant thought his case fell into the “more expansive” category of bad faith claims, but instead it fell into the second and failed to meet the Wittmer standards. First, the case presented a legitimate coverage question. There was a question about whether the tortfeasor’s use of the insured vehicle was permissive, and if it was not, the claim was excluded. Messer makes it clear that an insurer does not have to prevail on a coverage question to avoid bad faith; the insured’s claim need only be reasonably debatable. Because coverage was debatable here, Messer could not meet the first Wittmer element of proving that Universal was obliged to pay his claim under the terms of its policy.
This was true even though Universal settled the claim against the tortfeasor. Liability also remained in doubt because that settlement occurred before the jury could decide the questions of liability and apportionment. The settlement did not foreclose the liability issue; under Kentucky law “settlements are not evidence of legal liability, nor to the qualify as admissions of fault.” Nor did the insurer’s reserves, which were discoverable, constitute evidence of coverage, liability, or fault.
The Court of Appeals concluded that Messer never produced evidence eliminating the possibility that a jury could have held him 100 percent at fault for causing the accident. Thus, it was reasonable for the insurer, throughout the case, to challenge the allegation that the tortfeasor was not liable for causing the accident, or for Messer’s damages.
Messer has 30 days to ask the Supreme Court of Kentucky for discretionary review. It can take the Supreme Court several months to consider such motions. If the Court of Appeals’ decision is allowed to stand, this opinion represents an important synthesis of Kentucky bad faith opinions that will remind bad faith plaintiffs of the “tall burden of proof” in a bad faith claim.
If you have questions or would like more information, please contact Barry Miller at [email protected].