Recently, there’s been a trend in the Kentucky Court of Appeals where insurers have been winning cases involving bad faith decisions. In September, however, a case was tried in the Supreme Court of Kentucky that reminded insurance carriers that juries ultimately get to decide what qualifies as reasonable coverage.
The insured, Nichols, was injured at work while driving for his employer. The automobile insurance policy held by his employer had a provision for $1,000,000 coverage for incidents involving underinsured motorists (UIM). This was a surprise to Nichols’s employer. The employer, however, rejected these UIM benefits 2 weeks after the incident occurred.
The insurance carrier stated that the UIM benefits were in the policy because of a mutual mistake, and they claimed Nichols’s employer never requested UIM benefits to be included in the policy. The Supreme Court of Kentucky deemed that the mistake was not, in fact, mutual. They ruled that the insurance carrier included UIM because they thought the insured wanted the benefits included.
The carrier believed that the coverage was clear and that none of the events of the incident changed the policy. This action meant that the first of 3 elements of a bad faith claim was satisfied under Kentucky law.
Furthermore, Nichols provided evidence that sufficiently proved the second element. The evidence showed that the insurance carrier did not have a reasonable basis for denying his workers’ comp claim. Additionally, no material error had been made to the policy that would justify a debate of coverage.
The third element, reckless disregard on the part of the carrier, was proven through the way the carrier dealt with Nichols. This included only sending Nichols the UIM rejection and not the whole insurance policy, which was what the insured had requested. It was this action that allowed for a misrepresentation of the contents of the policy. This is also the aspect of the case that a jury could rule as a violation under the Unfair Claims Settlement Practices Act.
To date, the only victory Nichols has gained is the ability to take this case of bad faith to a jury. The Kentucky Supreme Court has remanded the case to the trial court system for further proceedings. It’s likely, however, that the case will settle out of court.
Kentucky Unfair Claims Settlement Practices Act (UCSPA) specifics
Kentucky has a strong public policy in place to handle good faith claims. These provisions can be found within the Unfair Claims Settlement Practices Act (UCSPA). Kentucky’s UCSPA outlines the conduct that is considered unfair claims settlement practices.
According to Kentucky’s UCSPA, insurance companies must deal in “good faith” with claimants, regardless of whether the claimant is an insured customer or a third-party seeking reimbursement for an accident the insured caused. Furthermore, this good faith requirement also applies to the contractual obligation to pay out claims on behalf of their insured to other insurance companies. The statute specifically states that the UCSPA’s intention is to protect people from fraud and unfair trade practices by insurance companies.