Phelps v. State Farm Mutual Automobile Insurance
2012 U.S. App. LEXIS 10612
6th Cir.2012Background
- Accident occurred July 18, 2003 in Kentucky; Phelps injured, underwent spine surgery in Oct. 2003; Kirby insured by State Farm at fault; Phelps filed third-party claim with State Farm; initial adjuster handled claim then multiple substitutions; State Farm delayed processing, gathered records from 1999 injury, and offered $25,000 in Oct. 2004 despite damages documented around $22,620; Phelps sued in 2005 after settlement with Kirby, later settlement reached for policy limits in Apr. 2006; Phelps filed UCSPA claim in 2007, district court granted summary judgment for State Farm; Sixth Circuit reversed and remanded for trial with expert testimony not fully considered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether UCSPA claim requires outrageous conduct showing | Phelps argues Wittmer standard threshold shown | State Farm contends no outrageous conduct, only delay/lack of evidence | Summary judgment improper; genuine dispute exists about bad faith |
| Whether State Farm’s initial offer was a bad-faith lowball | Offer undervalued damages beyond documented costs | Offer within evaluation range; not necessarily bad faith | Issue for jury; not proper for summary judgment |
| Whether delay and information withholding support bad faith | Delays and withholding policy limits indicate bad faith | Delays may be investigatory or reasonable; policy limits disclosure not required | Reversal on delay and disclosure considerations for UCSPA claim |
| Whether failure to disclose policy limits supports bad faith | Non-disclosure could indicate bad faith | Not required by Kentucky law; no evil motive shown | Not per se bad faith; depends on evidence of intent |
| Whether expert reports should have been considered at summary judgment | Experts show State Farm’s noncompliance | Court need not consider experts if insufficient basis | District court erred in not addressing expert testimony |
Key Cases Cited
- Farmland Mut. Ins. Co. v. Johnson, 36 S.W.3d 368 (Ky.2000) (unreasonableness not sole defense; must settle fairly; lowballing disallowed)
- Motorists Mut. Ins. Co. v. Glass, 996 S.W.2d 437 (Ky.1999) (good faith requirement; delay alone not bad faith without more)
- Knotts v. Zurich Ins. Co., 197 S.W.3d 512 (Ky.2006) (allowable consideration of settlement behavior in bad-faith analysis)
- Wittmer v. Jones, 864 S.W.2d 885 (Ky.1993) (threshold standard of outrageous conduct for bad faith; punitive-damages requirement)
- Empire Fire & Marine Ins. Co. v. Simpsonville Wrecker Serv., Inc., 880 S.W.2d 886 (Ky.Ct.App.1994) (“fairly debatable” matters may proceed to litigation; must be fairly debated)