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Kentucky Supreme Court ends pro-insurer streak in bad faith cases

11/24/21

By: Barry Miller

Insurers have had a nice streak of winning bad faith decisions from Kentucky’s courts of appeal. But in September the Supreme Court of Kentucky reminded carriers that sometimes a jury gets to decide whether a coverage debate was reasonable. Nichols v. Zurich, 2020-SC-0284-DG, September 30, 2021. 

Nichols was injured while driving for his employer. The employer’s business auto policy had $1,000,000 in underinsured motorist (UIM) limits—to the employer’s surprise. Two weeks after the accident, the employer rejected UIM benefits. 

The carrier argued that the Policy as issued had UIM benefits only because of a mutual mistake, since the insured never meant to request them. The court found that any mistake was not mutual. The carrier meant to issue a policy with UIM benefits because it believed the insured wanted them. Coverage under the policy was clear and nothing that happened after the accident changed that, which satisfied the first element of a bad faith claim under Kentucky law.  

Nichols submitted sufficient evidence to prove the second element by showing that the carrier lacked a reasonable basis to deny his claim. There was no material error on the face of the policy to justify a coverage debate.  

The third element—reckless disregard on the carrier’s part—was shown by the carrier’s dealings with Nichols, including sending him only the UIM rejection rather than the entire insurance policy as requested. That amounted to misrepresentation of the policy’s contents, which a jury could find violated the Unfair Claims Settlement Practices Act. 

So far Nichols has only won the chance to take his bad faith case to a jury. The Supreme Court remanded Nichols’ case to the trial court for further proceedings. But based on a reading of the Supreme Court’s opinion it seems more likely that the case will settle.

For further information or inquiries please contact Barry Miller at [email protected]