Watson v. United States Liability Insurance Co., 2018-CA-0475 (May 24, 2019).

A bad faith claim asserted arising out of a dram shop claim.  In reversing the trial court’s dismissal of the bad faith claim upon the five year statute of limitations, the Kentucky Court of Appeals held that the cause of action for bad faith did not accrue when an offer was made by the insurer, but when the claim was actually settled.

While the bad faith claim was permitted by the appellate court, citing to Curry v. Firemen’s Fund Insurance Co. in 1989, the court provided that, “An insurer’s refusal to pay on a claim, alone should not be sufficient to trigger the firing of this new tort.”

Citing to earlier precedent, the appellate court provides that “any actionable injury likewise depends upon the final resolution of another claim.”  Thus, the court reasons, a third party claim for bad faith cannot be maintained and cannot accrue, until after (1) a judgment fixing liability against the insured has been entered; or (2) the insured becomes legally obligated to pay pursuant to the terms of the insurance contract.

At the time the court denied heave to assert a bad faith claim, the appellate court found the claim was “unripe” as neither a judgment finding liability against the insured, nor was there an executed settlement resolving the underlying claim.  The court discussed that the period of time to focus on for evidence of bad faith was the time between the offer of settlement being communicated on June 30, 2012 until the date it was later accepted in December of 201.  It appears that prior conduct was not to be considered and further, the practice of filing a bad faith claim against the third party insurer at the time the claim was filed against the third party tortfeasor is no longer permissible under Kentucky law.

Of course, this decision is not yet final.

Messer v. Universal Underwriters Insurance Co., 2017-CA-293 (June 21, 2019).

In holding that the insurance coverage disputes on a material issue of fact as to the permission of the driver to operate the insured vehicle, the summary judgment in favor of the insured was affirmed.  As the issue of coverage was fairly debatable, the finding that no bad faith cause of action could be asserted by the trial court was affirmed.

The significance of the appellate court’s decision is the discussion of “reserves”.  The court rejects the plaintiff’s argument that dramatic incase in reserves and the disparity between the reserve amount and the offer constitute a concession of some liability.  The court finds that loss reserves are not the same as settlement authority.  The court’s citation that, “reserve amounts may be calculated based on the maximum possible exposure without regard for the strength of liability defenses or coverage defenses… [and] may not be based on a thorough factual or legal analysis of a case or claim.

Kentucky law follows the majority rule that reserves do not evident an admission of coverage, fault or liability by the insurer.

Finally the court reaffirms that “more delay in payment does not amount to outrageous conduct absent some affirmative act of harassment or deception.

As a finding that the driver was acting without permission would result in no contractual liability of the insurer, the Court of Appeals affirmed the summary judgment in favor of the insurer.  This decision is not yet final.