Kentucky Supreme Court Reaffirms Standard for Insurance Bad Faith
In Hollaway v. Direct General Ins. Co. of Miss., 497 S.W.3d 733 (Ky. 2016), the Kentucky Supreme Court addressed the first substantive insurance bad faith case to come before it in ten years. In the September 22, 2016, decision, the Court affirmed a summary judgment granted by Fayette Chief Regional Circuit Judge Thomas Clark, who had found an absence of evidence of bad faith on the part of the insurer. The Court had no trouble agreeing with Judge Clark, who had found that liability for the disputed parking lot fender bender that gave rise to the claim was never reasonably clear. Without clearly proving liability for the accident, or the injuries stemming from it, the plaintiff could not prevail on a claim of bad faith, which requires that an insurer be obligated to pay under the terms of the policy.
There are three key takeaways from Hollaway. Most importantly, the Court rejected the idea that a claimant must prove an “evil motive” on the part of the insurance company. As practitioners who have litigated insurance cases know, the phrase “evil motive” has been an oft-quoted line by insurers arguing that a plaintiff has failed to prove that they had acted with evil intent. Second, the Court also dispelled the notion that a bad faith claim could only lie if the claimant proved that liability for the accident was “beyond dispute.” The Court of Appeals had used the “beyond dispute” language in its lower decision in Hollaway, but the Supreme Court did not adopt the “beyond dispute” standard. Instead, the Supreme Court discussed whether there was a “genuine dispute as to liability,” and whether “fault for the accident [was] debatable.” Finally, the Court’s decision reaffirmed that third-party bad faith claims under the Unfair Claims Settlement Practices Act are viable in Kentucky when there is proof of “recklessly indifferent” conduct on the part of an insurer. This harkens back to one of the first discussions of the bad faith cause of action by the Kentucky Supreme Court in Federal Kemper Ins. Co. v. Hornback, 711 S.W.2d 844, 846 (Ky. 1986) (Liebson, J., dissenting) (adopted by Curry v. Fireman’s Fund Ins. Co., 784 S.W.2d 176 (Ky. 1989)), where the “reckless disregard” standard was first discussed.
Given the facts of the Hollaway case, the result reached by the Court to affirm the grant of summary judgment is what one might expect. What’s important is that the Court reinforced the long-held “reckless indifference” standard while clarifying that seemingly higher standards of “evil motive” and “beyond dispute” are not required.