626 S.W.3d 579
Ky.2021Background
- Rhett Mosley died in a surface-mine lube-truck accident; MSHA found brake failure and lack of seatbelt use and cited inadequate preoperational checks.
- Crystal Mosley sued multiple mining-related entities; Arch insured Jean Coal, Regional Contracting, and Loving; National Union insured Rex Coal and Dixie Fuels.
- Litigation involved disputed liability issues (workers' compensation exclusivity, up‑the‑ladder immunity, bailment, apportionment for decedent’s failure to wear a seatbelt) and two mediations.
- At mediation Arch repeatedly offered its $1 million policy limit (but its policy excluded leased-employee injuries); National Union declined to fully join; Mosley later accepted Arch’s $1 million and National Union paid $2 million in separate settlement.
- Mosley filed third‑party bad‑faith and civil‑conspiracy claims under KUCSPA; the trial court granted judgment on the pleadings for Arch and summary judgment for National Union; the Court of Appeals and the Supreme Court of Kentucky affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Viability of third‑party bad‑faith claim under Wittmer | Mosley: insurers leveraged global settlements, refused separate negotiation, used single counsel, violated KUCSPA and acted in bad faith | Arch/National Union: liability of insureds was reasonably disputed; Arch's policy excluded leased‑employee injury so no payment obligation; settlement offers aren’t admissions | Court: Wittmer test applies — insurer obligation to pay, insured liability beyond dispute, and outrageous conduct causing actual damage. Arch fails prong 1 (no contractual duty); National Union fails prong 2 (liability disputed); Mosley fails prong 3 (no outrageous conduct or proven damages). |
| Discovery of mediation/settlement conduct (KRE 408 interplay) | Mosley: discovery of mediation conduct necessary to prove bad faith | Insurers: mediation and claim‑file materials are protected by KRE 408 and/or privilege; much sought material is litigation conduct | Court: Denial proper. Under Knotts some settlement conduct can be admissible, but Mosley sought only evidence of permissible negotiation and much sought was privileged litigation material; even admissible mediation evidence would not be probative of bad faith here. |
| Civil‑conspiracy claim | Mosley: joint representation and settlement tactics show a conspiracy to harm her claim | Insurers: no unlawful agreement or overt act alleged; conspiracy claim depends on independently proven tort (bad faith) | Court: Dismissed. Mosley offered no factual basis of an unlawful agreement; conspiracy fails as a matter of law and depends on failed bad‑faith claim. |
| Alleged improper "leveraging" under KRS 304.12‑230(13) | Mosley: insurers conditioned settlements across insureds to force concessions | Insurers: Arch conditioned exhaustion only to secure releases for both insureds it owed a duty to indemnify; leveraging rule applies only when liability is reasonably clear | Court: Not prohibited leveraging here; liability was disputed, and conditioning payment to obtain releases for both insureds is not leverage under the statute. |
Key Cases Cited
- Wittmer v. Jones, 864 S.W.2d 885 (Ky. 1993) (establishes three‑prong standard for third‑party bad‑faith claims)
- Holloway v. Direct Gen. Ins. Co. of Miss., 497 S.W.3d 733 (Ky. 2016) (insurer’s duty to pay is triggered only when insured’s liability is "beyond dispute"; settlements are not evidence of legal liability)
- Knotts v. Zurich Ins. Co., 197 S.W.3d 512 (Ky. 2006) (distinguishes admissible settlement behavior from inadmissible litigation tactics in bad‑faith proof; trial courts must gatekeep under KRE 403)
- Messer v. Universal Underwriters Ins. Co., 598 S.W.3d 578 (Ky. App. 2019) (third‑party bad‑faith fails when insured’s liability remains reasonably disputable)
- Farmland Mut. Ins. Co. v. Johnson, 36 S.W.3d 368 (Ky. 2000) (clarifies "fairly debatable" language pertains to amount in first‑party claims, not insured liability in third‑party context)
- Zurich Ins. Co. v. Mitchell, 712 S.W.2d 340 (Ky. 1986) (mere delay in settlement does not by itself constitute bad faith)
- Motorists Mut. Ins. Co. v. Glass, 996 S.W.2d 437 (Ky. 1999) (bad‑faith conduct must be outrageous to justify punitive damages)