Indiana Insurance Company v. James Demetre
2015 SC 000107
Ky.Sep 18, 2017Background
- James Demetre purchased liability coverage (including an umbrella) from Indiana Insurance that was later expanded to include a former gas station lot in Campbell County.
- In Sept. 2008 neighbors (the Harris family) sent a demand alleging petroleum migration and medical/property injuries; Demetre notified Indiana Insurance, which provided a defense under a reservation of rights but repeatedly investigated primarily Demetre (and coverage) rather than the Harris claims.
- Indiana Insurance pursued coverage defenses (including a declaratory-judgment cross-claim and theories like loss-in-progress/time-on-loss), delayed thorough investigation, and for years resisted accepting coverage despite later internal indications the Harris claims were unlikely; settlement of the underlying suit occurred in Jan. 2012 for $165,000.
- Demetre incurred roughly $397,500 in personal legal fees defending the coverage dispute and sued Indiana Insurance for breach of contract/bad faith, violations of the Kentucky Unfair Claims Settlement Practices Act (UCSPA), and the Kentucky Consumer Protection Act (KCPA). Trial jury awarded $925,000 (emotional distress) and $2,500,000 (punitive); verdict affirmed below.
- Key contested legal questions on review: whether (1) insurer was entitled to directed verdict/JNOV because it provided defense and indemnity; (2) emotional-distress damages required expert proof under Osborne; and (3) evidentiary/instructional rulings warranted reversal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer was entitled to directed verdict/JNOV on bad-faith/contract/UCSPA claims | Demetre: insurer unreasonably delayed/obstructed coverage, pursued meritless coverage theories, failed to investigate the Harris claims, causing emotional and economic harm | Indiana Ins.: it provided a defense and ultimately indemnified Demetre; insurer may litigate coverage questions (reservation of rights/declaratory judgment) without automatic bad-faith liability | Held: Denied. Jury could find insurer acted unreasonably despite later defense/indemnity; factual record supported bad-faith and statutory violations |
| Whether attorney fees qualify as "ascertainable loss" under KCPA | Demetre: his out-of-pocket attorney fees (~$397,500) incurred defending the coverage dispute are an ascertainable monetary loss supporting KCPA recovery | Indiana Ins.: attorney fees cannot satisfy KCPA’s ascertainable-loss requirement | Held: Demetre’s attorney fees were sufficient to present KCPA claim to jury; directed verdict on KCPA claim denied |
| Whether expert medical/scientific proof is required to recover emotional-distress damages in a bad-faith/statutory/contract claim | Demetre: Osborne’s expert‑proof rule applies to negligent/intentional infliction claims only; lay testimony here suffices | Indiana Ins.: Osborne requires expert proof for emotional distress generally; Demetre offered only lay testimony, so damages are unsupported | Held: Osborne’s expert-testimony requirement is limited to negligent or intentional infliction of emotional distress claims; lay testimony (with clear and satisfactory proof) can support emotional-distress damages in bad-faith/contract/statutory claims |
| Whether exclusion of two insurer witnesses and certain jury instructions require reversal | Indiana Ins.: exclusion of defense witnesses Schenkel/Lane and asserted instruction errors prejudiced its defense and warrant new trial | Demetre: procedural defaults and trial court scheduling justified exclusion; instruction on punitive damages properly limited | Held: These issues were not preserved for review before this Court (not raised in discretionary-review motion), so Court declined to address them on the merits; Court of Appeals found witness exclusion harmless error |
Key Cases Cited
- Osborne v. Keeney, 399 S.W.3d 1 (Ky. 2012) (held impact rule abandoned but required expert proof for "severe" emotional injury in negligent/intentional infliction claims)
- Guaranty Nat'l Ins. Co. v. George, 953 S.W.2d 946 (Ky. 1997) (insurer may litigate debatable coverage issues and defend under reservation of rights without automatic bad-faith liability)
- Davidson v. American Freightways, Inc., 25 S.W.3d 94 (Ky. 2000) (survey of bad-faith theories and statutes; applies Wittmer test)
- Wittmer v. Jones, 864 S.W.2d 885 (Ky. 1993) (articulated elements for bad-faith claims: policy obligation, lack of reasonable basis to deny, and insurer’s knowledge or reckless disregard)
- Goodson v. American Standard Ins. Co. of Wisconsin, 89 P.3d 409 (Colo. 2004) (an insurer’s eventual payment does not erase emotional distress caused by prior bad-faith conduct)