Knotts v. Zurich Insurance Co.

COOPER, GRAVES, JOHNSTONE, It insignificant is not that Turner re- Nuckols v. Stone25 ROACH, SCOTT, tained a life estate. WINTERSHEIMER, grantor JJ.,

this Court said “the fact the re- concur. given serves life estate to himself is illustrating

effect as his intent operative present

deed should be as a

transfer of title.”26 The of a reservation signifies

life estate a deed

grantor parted believes he has with the conveyed. acknowledgement

land It is an that the remainder interest has dis- been Lloyd KNOTTS; and Jackie of, posed for otherwise the retention of a Knotts, Appellants, unnecessary. life estate would be

There can be no doubt that Fletcher had fiduciary relationship with Turner. A COMPANY; ZURICH INSURANCE Zu- aspect relationship central of that Companies; rich American and Zu- duty imposed upon Turner Fletcher to ac- Company rich American Insurance complish purpose transferring Turner’s Illinois, Appellees.

ownership property to Howell. No. 2004-SC-0400-DG. Fletcher was without discretion refrain discharge duty imposed refuse to Kentucky. Supreme Court directions, upon him. Turner’s ac- May 2006. companied by perform- Fletcher’s ance, delivery effected of the instruments. Rehearing Aug. Denied 2006.

Turner was bedfast and could not do for attorney,

himself. Therefore he hired an attorney authority

insured that the had the

to execute an via instrument his behalf power attorney, gave directions as to do, attorney-in-fact

what the must created, relationship deprived

vh'tue of the attorney-in-fact authority to do oth- delay, certainly

erwise. The while not ex-

cessive, in discharging the of notifica- and physical delivery change did not imposed

the circumstances task An

upon unequivocal Fletcher Turner. fiduciary delivery

order to a to make

delivery. herein,

For the reasons stated we re- Appeals,

verse the Court of and remand to judgment

the trial court to enter consis- opinion.

tent with this Ky. (Ky.1905).

25. 120 87 S.W. 799 26. Id. 802. Hance, Franklin,

Larry B. Franklin & Sitlinger, McGlincy, E. Sitlinger, Lee Steiner, Karem, Louisville, Theiler & Appellants. for Counsel Harris, Jr., Douglas Wyatt, Tar- James Combs, Green, Bowling E. rant & Robert Boehl, Graves, Louis- Stopher, Stopher <& ville, Appellees. Counsel for Smith, Hoots, Douglas Tyler Griffin Shouse, Lexington, & Landrum Counsel Curiae, Amicus Institute Insurance Kentucky, Compa- Auto State Insurance nies, Companies. State Farm Insurance Frederick, Joseph D. Paul Hersh- Carl Handmaker, Louisville, berg, Seiller & Curiae, Counsel for Amicus Academy Attorneys. of Trial Anderson, Anderson, R. Eugene Kill & Olick, York, NY, Bach, Amy New Mill CA, Mehr, M. E. Valley, Timothy Austin Geertz, Offices, Lexing- Austin Law Mehr Curiae, ton, Counsel for Amicus United Policyholders.

ROACH, Justice.

I. Introduction Knotts, seriously Appellant, Lloyd injured in a accident while construction work a con- performing construction under company. for a He a claim tract initiated company’s insurer later filed personal injury compa- employed attorney, Larry action Knotts Franklin, ny. subsequently He who advised Lawson Mardon filed bad-faith suit Lloyd that he company’s representing insurer would be viola- letter, Knotts and his wife. his initial Kentucky’s tions of Unfair Claims Settle- (UCSPA). 30, 1992, dated November Franklin asked ment Practices Act The suit Mardon to Lawson cover Knotts’s medical allegations included of violations that oc- expenses, therapy, payment future and full filing personal inju- curred after the of his job in- performing for the he was when ry rejected action. The lower courts jured. The letter also Mr. stated: “After claim grounds Knotts’s bad faith Knotts im- reaches maximum medical inapplicable the UCSPA is to an insurance provement, we will negotiate conclusion company’s conduct that occurs after the If proposal this matter. this is not satis- underlying commencement of an tort ac- factory you, please let us know so we tion. Because we hold that the UCSPA can proceed litigation.” with apply during litigation, continues to we reverse. Lawson Mardon referred the matter to insurer, Zurich, began the claims Background

II. adjustment process. On December 1992, Zurich Franklin letter ac- wrote a Knotts, Lloyd In November a self- knowledging representation his of Knotts. contractor, employed construction con- stated, pertinent part: The letter also Flexible, tracted with Lawson Mardon initial stage We are of our Inc.1 to build an “aging room” at the com- investigation of this accident. There- pany’s Shelby County. warehouse in On fore, ... we are not in a position 12, 1992, November Knotts working was However, liability. discuss we must ad- atop thirty-foot high with an electric drill a you a vise we do not find this to be platform. power through The drill drew compensation exposure, workers out- as an extension cord that was tethered by lined Workers Com- platform and ran across the warehouse pensation Act. are Mr. as we floor to an electrical At outlet. the same car- compensation Knott’s workers [sic] time, Lovings, temporary employ- Brian a riers, payment we cannot make his Mardon, operating ee of Lawson expenses you requested medical vicinity platform. forklift in As your[ of November 30. ] [letter] Lovings past the ex- platform, drove Naturally, completed once we have caught tension cord on the fork of the investigations, our will in further we forklift, causing platform topple contact you. with serious, Knotts to fall. Knotts suffered 18,1992, injuries signifi- Franklin permanent and incurred On December wrote expenses simply: cant medical as a result. At the letter to that read “I rec- Knotts accident, beginning right away. time of the Lawson had ommend It Mardon suit general liability they going us.” policy of insurance with looks like stall On 14, 1993, Group.2 January Zurich American Insurance Knotts filed suit Shel- accident, appears 1. At the time of the 2. This moniker to be an umbrella by Appellees Insur- name used Packaging, was called Alusuisse Flexible Inc. —Zurich Company, Companies, ance Zurich American changed, we Because the name has since will Company Insurance Zurich American name, employ company’s current Lawson collectively here- Illinois—to whom we refer Flexible, Mardon Inc. inafter as "Zurich.” trial, jury practice It is claims settlement At ren- an unfair Circuit Court. any perform to commit or person dered a verdict in favor of Knotts and $1,202,104.29, following omissions: damages him re- acts or awarded after apportionment duced 20% of fault (1) pertinent facts Misrepresenting own The Court of negligence. Knotts’s relating to policy provisions Appeals affirmed. issue; coverages subsequently pursued Knotts bad faith act rea- acknowledge Failing Knotts Specifically, claim Zurich. sonably upon communications promptly claimed that Zurich had violated Ken- under in- arising to claims respect 304.12-230, UCSPA, tucky’s KRS policies; surance underlying tort litigating course of the (3) adopt implement rea- Failing to The trial resulting appeal. case and the inves- prompt sonable standards granted summary judgment a in fa- court tigation arising claims under insur- of Zurich, holding vor that KRS 304.12- of policies; ance only applied to an insurer’s conduct (4) con- Refusing pay claims without litigation. before the commencement of ducting investigation based a reasonable affirmed, Appeals The Court of and we information; upon all available granted discretionary review. (5) coverage or of Failing deny to affirm after claims a reasonable time within Analysis III. have been com- proof of loss statements urges Zurich us the trial to affirm court pleted; and the of both of Appeals, Court which (6) in good faith to ef- attempting Not duty that the fair held equitable fair set- prompt, fectuate by dealing imposed an insurer KRS liability tlements of claims which 304.12-230 ends at commencement a clear; reasonably become tort action for a under which claim (7) liti- insureds institute Compelling policy made. insurance has been While an due under gation to recover amounts approach such an ap- has some instinctive by policy offering substantial- peal, given especially that the adversarial ultimately re- ly less than the amounts litigation undoubtedly nature of makes it in- brought by in actions such covered an difficult for insurer to fulfill such a sureds; demanding to what amounts to an (8) to settle claim for less Attempting ultimately find opposing party, we that the than amount to which a reasonable simply statute cannot be read such a man entitled would have believed he was limited manner. or adver- by printed reference to written imposes gen- 304.12-230 what KRS tising or made accompanying material erally known part application; an dealing by and fair owed an insurer (9) claims on Attempting settle person bringing an or to insured another which was altered application basis of an policy. under an How- claim to, con- knowledge or or without notice ever, lay the statute does not out an insured; sent Instead, non-specific duty. amorphous, (10) in- proscribes Making payments list claims particular acts and accompanied practices. specifically pro- sureds or beneficiaries not statute coverage following: by setting forth the statement vides (8th ed.2004) payments being under Law Dictionary Black’s made; (defining aggregate “claim” as: “1. The operative facts giving rise to en- Making known to insureds or claim- short, forceable a court plaintiffs <the appealing ants a from arbitra- plain statement about the crash estab- tion awards in favor of or insureds lished the claim claimants for the >.—Also termed claim purpose compelling existing right; 2. The assertion of an accept compro- them settlements or relief. any right payment equitable mises less than the amount or to an awarded arbitration; remedy, contingent provisional even if or spouse’s lottery <the claim to half the (12) Delaying investigation pay- winnings >. A money, prop- 3. demand for insured, by requiring ment claims erty, legal remedy or a to which one as- claimant, physician or the of either to right; esp., part serts a of a complaint submit a preliminary report claim specifying a civil action what relief the requiring subsequent then submis- plaintiff asks for.... 4. An forms, sion interest or proof of formal of loss both law; remedy recognized of which submissions contain means substan- information; person which a can tially privilege, pos- the same obtain a session, enjoyment right thing; or of a or (13) Failing claims, to promptly settle (1) < CAUSE OF ACTION claim liability where reasonably has become employer wrongful the for termi- (1) clear, portion under one of the insur- nation>.”). basic, But at the its most in policy coverage ance order to influ- right, word means an assertion of with a ence portions settlements under other the specific contours and nature of the policy coverage; the insurance right depending on context. (14) Failing to promptly provide a rea- explanation sonable in the basis the general use to applicable is policy insurance in relation to the facts “right” being KRS 304.12-230. The assert applicable law for denial of a claim or policy ed arises under the insurance and is for compromise the offer of a settle- injuries right compensation the to for ment; or liability has which been established. (15) Failing comply to with the decision “claim,” statute, in as used the means an independent entity pro- of an review right assertion of a to remuneration under coverage vide for a person covered liability an insurance once rea policy has result of an external review accor- sonably usually been established. This is 304.17A-621, dance with KRS 304.17A- by making directly done the claim 623, and 304.17A-625. company, engages insurance which then KRS 304.12-230. adjustment process. the claim But it

Zurich argues accomplished by instituting litiga the use the word also be tion, pre-litiga- “claim” in the statute means a is another simply means tion, adjustable asserting claim made the under the insurance policy, policy. Though litigation the statute from thus does is distinct adjustment apply process acts or omissions the claims it specifically power insurer after commences. How- invokes the courts’ ever, argument liability, proce Zurich’s fails from too nar- decide the issue of both simply pursuing row a “claim.” Like dures are methods of reading of the word words, subject It many multiple, policy. “claim” is claims under an insurance is See, subtly e.g., different definitions. often the case both methods em- (or at- requires that we the statute following ture of ployed, which, in a purpose, adjustment process. tempt to effectuate preempting) claim one, requires applying like this situation The commencement occurring after to conduct the statute even filing complaint, when tort ac- litigation of a commencement underway, adjustment is process claim tion. however, change the does not fundamental The what claimant nature of seeks. con approach that this also note We payment under compensatory “claim”—for every other of almost with that sistent as be same —is the issue. to have addressed jurisdiction claimant litigation began. fore consistently held Those courts have opted simply to seek satisfaction faith, inherent whether an through different procedure. claim contract or statu aspect of the insurance Nothing appli limits its KRS 304.12-230 construct, any litiga during continues tory conduct, and since cability pre-litigation liability to determine brought that is “claims,” applies continues the statute See, v. e.g., tort. White underlying long to an so as a claim apply insurer 870, 221 Title 40 Cal.3d Western such, As we KRS play. hold that 710 P.2d 316-17 applies 304.12-230 both before and contin (holding that the litigation. contrac during litigation because the ues continues); clear, Haddick relationship Though language statute’s tual Ins., Ill.Dec. reading Ill.App.3d also note that this is consistent we Valor (2000) (“We re public the stat- 735 N.E.2d policy underlying with the an insurance State Mut. Ins. Co. and hold that ute. See Farm Auto. verse Reeder, 116, settling a duty good to in faith in (Ky.1988) v. 763 has a act S.W.2d 118 (“The timely ain policyholder is similar to those claim law is and after suit adopted by thirty-eight other and is manner both before states Fontenot, 72, filed.”); the the Harris v. 606 So.2d based on 1971 amendment (‘We note that (La.Ct.App.1992) first National Association Insurance Com- 74 ex relating is there an to its model nowhere either statute missioners made ‘act to limiting the competition application unfair and un- distinction press methods insur conduct the deceptive practices pre-litigation fair and acts and in the in- that it is clear [W]e of insurance.’ This er.... believe business statute a re protect impose unfair enacted public tended to from the statute was dealing on be faith fair practices quirement good trade and fraud. It should insurer, less that are no liberally requirements so as to construed effectuate If as be important litigation begun not after purpose.”). KRS 304.12-230 were fore.”); Exchange, commenced, in- Farmers once Palmer v. Ins. applicable (1993) 91, 895, P.2d 913 companies per- would 261 Mont. 861 surance have (“[A]n fairly deal and not injured to- insurer’s spur parties verse incentive to claims does litigation, whereupon payment to withhold valid ward complaint would claim end when an insured files be shielded from insurer.”); ex rel. reading under- O’Donnell bad faith. Such a would Co., 901, A.2d by Mitro v. Allstate Ins. 734 purpose mine the statute’s fundamental (“[W]e refuse engage (Pa.Super.Ct.1999) allowing companies duty- good act unfair’— hold that an insurer’s practice sort of or whatever —fair by the upon initiation of suit fit to na- faith ends they employ. see remedial insured.”); Companies, DPIC handling or or pay refusal Barefield Inc., 544, 256, claim.”). W.Va. 600 S.E.2d But see Parker v. Southern (2004) (“We therefore must conclude that Ins., Farm Bureau Cas. 326 Ark. language of the (1996) UTPA does not re S.W.2d (stating that “none strict scope of the conduct that by of the conduct Farm Bureau after the proscribed by the Act to that which oc filing complaint, including of the legal posi lawsuit.”). curred prior filing of a asserted, provide tions can a basis for Par claim”); ker’s bad-faith Wyo Roussalis v. jurisdictions, Other expressly while not Center, Inc., ming Medical 4 P.3d addressing the viability issue of the (Wyo.2000) (holding post-filing con litigation, after have duct is controlled the Rules of Civil implicitly approved concept by allow Procedure disallowing the bad faith ing admission of evidence of the insurance conduct). claim based on such company’s conduct occurred after the See, commencement of litigation. e.g., Recognizing the existence of a con T.D.S. Inc. v. Shelby Mut. Ins. faith, however, tinuing duty is not (11th Cir.1985) F.2d (applying the end of our inquiry. must also We Florida “Certainly law: con question address the further of what sorts duct of [the insurer] relevant to the post-filing an insurer will be claim that [the acting insurer] those admissible a bad faith action. its behalf dishonestly dealt with [in truly impression of first issue this sured].”); Argonaut Southerland v. state, jurisdictions so we turn to other 1102, 1106 794 P.2d (Colo.Ct.App.1990) guidance. Treatment of this can issue (holding that admission of evidence of (1) broadly camps: divided into two allow post-filing conduct was not an abuse of ing only evidence of compa the insurance discretion because the helped evidence es ny’s settlement behavior allowing tablish a habitual pattern dealing plus that evidence evidence of the plaintiff); Owens, Home Ins. Co. v. tactics, strategies, techniques em So.2d 344 (Fla.Dist.Ct.App.1990) ployed on behalf of the insurance compan (“[W]e concur with the Eleventh Circuit y.3 Appeals. Court of In Shelby T.D.S. Inc. v. Co., approach appears The first to have de- Mutual Insurance 760 F.2d 1520 (11th California, Cir.1985), veloped initially in case, beginning ... a bad faith Co., with White v. Western court held that Title Insurance company’s the insurance 870, 509, admissible, 40 221 litigation Cal.Rptr. Cal.3d 710 P.2d relevant evidence.”); (1985), Shield, 309 Spadafore 21 is considered the seminal v. Blue 201, White, 1201, case in of In App.3d Ohio 486 N.E.2d this area the law. 1204 (1985) (“[E]vidence Supreme California of the breach of the Court held that insurer’s admission of exercise occur low “settlement offers and ring filing after the time of other occurring suit relevant matters after commence- long so as the evidence related to the bad ment of litigation” could be used to prove however, actually approach, namely (Wyo.2000). 3. There approach, third prohibition post- blanket of the admission of continuing amounts to the denial of exis- filing Wyoming conduct. Arkansas and tence of a of faith once representative of this rule. Parker v. Southern begins. applies our statute be- Because both Ins., 1073, Farm Bureau Cas. 326 Ark. 935 during litigation, fore and we need not ad- 556, (1996); Wyo- S.W.2d 562 v. Roussalis approach any dress this further. Center, Inc., 209, ming Medical 4 P.3d 257

519 Auto. & Id.; v. National see also Nies faith. Id. 316. court declined bad 1192, Cal.App.3d Casualty Ins. all strate- a blanket exclusion of (hold- (Cal.Ct.App.1988) cognizant it was gy, noting that while from will be disabled ing that insurers company’s jurors fear that the insurance in a bad conducting vigorous defense distinguish able to between would not be pleadings if their action faith insurance legitimate, though aggressive, prove may pre-existing used to faith, it nonethe- techniques and actual bad faith); v. Tomaselli Transamerica jurors will be less “trust[ed] Cal.Rptr.2d Cal.App.4th adver- parties aware that to a lawsuit are (claim (1994) faith cannot for bad saries, con- will evaluate the insurer’s from an appeal on an insurer’s be based setting.” Id. at duct in relation essence, In Califor- judgment). adverse court also noted that trial “[t]he 317. The to allow the approach nia’s has evolved authority to court ... would retain the settlement introduction of unreasonable exclude evidence settlement offers settlement of- (specifically, behavior low if it other conduct of the insurer concluded fers) filed that occurs after suit has been case it the prejudicial before litiga- prohibiting the admission while outweigh effect evidence of such would conduct, techniques, strategies. n. probative value.” Id. at 317 9. though pays lip- approach, The other White, however, Since California’s limiting post- service evidence courts accepted have invitation conduct, filing allows the introduction con- post-filing allow broader evidence of techniques as evi litigation strategies fact, have duct. California courts on of an insur part of bad faith dence sharply limited the so application White v. DPIC company. ance See Barefield prohibit as to admission of evidence of Inc., 215 Companies, W.Va. conduct, majority post-ñling vast name- (allowing the intro S.E.2d ly, litigation As techniques strategies. alleged misconduct duction evidence noted, appellate one California court has litigation, so defense counsel ri- proposition “White stands knowingly encourages, long as insurer offers diculously statutory low of settle- in, directs, upon or rati participates relies bearing ment .... as be introduced conduct); wrongful Home such alleged fies the issue of bad faith of (Fla. Owens, 343, 344 v. 573 So.2d Ins. Co. Physicians’ company.” Service California (upholding admission Dist.Ct.App.1990) Court, 1321, 12 Superior Cal.App.4th as well pleadings of an insurer’s evidence (1992). Cal.Rpt.2d That same request the insurer’s failure answer court held: further admissions). pleading, including the asser-

Defensive permissive approach unappeal- defenses, tion reasons, of affirmative communi- variety of the most for a ing litiga- protected by cation the absolute compelling of which have been addressed even privilege. pleading, Supreme Such extensively by the Montana false, interposed in bad though allegedly Ex- Palmer Farmers Court. (1993). 91, faith, for P.2d 895 inappropriate change, or even asserted 261 Mont. 861 basis the over- purposes, explained cannot used the court Specifically, be excluding No evi- allegations ongoing riding policy for bad faith. rationale for and strategies tech- litigation can such complaint grounded upon dence limiting evidence of generally and niques pleading. 520

an company’s post-filing judge behav- in the underlying case and not a ior: jury to a party determine whether held, penalized should be agree,

Courts have bad faith tactics. and we Honda, 530, fairly an insurer’s Ted Stevens Cal.App.3d deal and not 193 363, White, payment 369, to withhold claims Cal.Rptr. of valid does 221 (citing 525, not end when an (Lucas, insured files a com Cal.Rptr. at 710 P.2d at 325 See, plaint e.g., J., insurer. concurring and dissenting)). (1985), v. Western White Title Ins. Co. attorney in litigation ethically An 870, 509, Cal.3d Cal.Rptr. represent zealously bound to the client 309, 317. P.2d Several courts have con provided by within framework stat sidered whether an evidence of insurer’s and the utes Rules of Civil Procedure. during litigation the underly procedural These rules define clear suit is ing subsequent admissible in a boundaries of If a conduct. bad faith action. examining After attorney defense exceeds the bound reasoning of courts that have considered aries, judge can strike the answer issue, we conclude the continu judgment and enter for the en plaintiff, ing does necessar summary plaintiff, judgment ter for the ily render post- evidence of an insurer’s or impose attorney. sanctions on the filing conduct admissible. See Palmer v. White, 525, 221 Cal.Rptr. See Honda, (1987), Ted Stevens Inc. 193 Cal. 325, (Lucas, J., concurring P.2d at 530, 363, 366-69; App.3d Cal.Rptr. dissenting). penal There is no need to White, 221 Cal.Rptr. at 710 P.2d at repre ize when attorneys insurers their (as interpreted by Nies v. both Na zealously sent them within the bounds (1988), tional Auto. & Casualty Ins. Co. jury conduct. To allow a Cal.App.3d find that insurer acted in bad 523-25, and Physicians’ v. California zealously defending impose itself is to (1992), Superior Ct. 9 Cal.App.4th penalty. such a 99-100). Cal.Rptr.2d, Indeed, policy The most serious consideration rarely courts should allow such evidence allowing evidence of the insurer’s we have adopted balancing test for post-filing punishes conduct is that it those rare circumstances. pursuing legitimate lines of insurers Public favors exclusion right defense obstructs their con- evidence of an post-filing litiga- insurer’s coverage test As dis- dubious claims. respects. tion conduct at least two below, if cussed defending questiona- First, permitting such evidence is unnec- faith, ble claim were actionable as bad essary action, because initial impair the to a right would insurer’s trial courts can assure that defendants right zealous defense and even its Next, act improperly. do not and more to the courts. access importantly, the introduction such evi- dence hinders the defend and Allowing evidence of strate- impairs access to the courts. tactics gies expose would the insur- action coverage er’s entire defense

The Rules of Civil control Procedure scrutiny and, jury, to the insur- litigation process the in most in- unless the stances, er the provide adequate underlying jury remedies for won suit. The then, the improper litigation hindsight, conduct the assistance of insight the into process. parties Once the have assumed and without assistance of roles, it generally litigation techniques, adversarial for the could “second (Lucas, J., and concurring dissent rationales for tak guess the defendant’s White, (Cal. ing ing) Young course.” v. Redman particular (quoting (Lucas, P.2d Cal.Rptr. at at 324 Cal.App.3d Cal. App.1976), J., concurring dissenting). In addi 93). dictates, and Rptr. Public policy tion, jury the consider evidence of could therefore, courts use extreme must litigation strategy the defendant’s and to deciding admit such evi caution the in any showing tactics without if it is relevant insur dence even technically improp surer’s conduct was underly deny initial to the er’s decision er. insurers would be reluctant to ing claim. coverage of claims. questionable contest brings us to another crucial exemplifies hand the The case at of the insurer’s point, the relevance in his warning given by Justice Lucas In in general, post-filing conduct. Lucas dissent to White. Justice warned litigation strategy tactics and surer’s post- permitting evidence of the defending a claim are not relevant to filing attorneys conduct of the insurer’s coverage. In deny insurer’s decision to juries liability impose allow to would deed, rely on evi if the insured must litigation in and of tactics which are post-filing dence of insurer’s merely proper, themselves because coverage, to bad faith denial prove jury may strategy conclude that and validity to questions arise as in and of to tactics themselves amounted faith. One insured’s initial claim bad White, Cal.Rptr. bad faith. See at far to hold that gone court has so 523-24, (Lucas, 710 P.2d at 323-24 n. commenced, ac “once J., concurring dissenting). not, in its in our tions taken defense case, White, plaintiff this as in view, defendant probative of whether did not contend that insurer’s tactics law bad faith denied contractual improper, of themselves were rather Honda, 238 suit.” Ted Stevens Cal. claim implicit was that the Rptr. at 368. to strategy tactics amounted bad jury faith. The to consider allowed an insur litigation, After the onset legitimate strategy Farmers’ defense supporting er on begins concentrate and proper litigation tactics as evidence deny led it the decisions faith, inquiry when relevant heavily The insurer relies claim. should have whether Farmers’ had been attorneys using common strat denying reasonable basis for the claim. against a egies and tactics defend permit litiga To evidence insurers’ actions Consequently, debatable claim. strategies impede and tactics is at after an insured files suit are taken insurers’ access to the courts and of the insur marginally probative best defend, it them reluc because makes deny coverage. See er’s decision to coverage questionable tant to contest Note, Randy Papetti, Duty Insurer’s “Free access the courts is an claims. Litigation, Faith in Context Good of an ef important aspect valuable (1992). Geo.Wash.L.Rev.1931, 1972 system jurisprudence, and a fective instances, however, evidence In some claim party possessing a colorable must post-filing conduct of the insurer’s fear of be allowed assert without of the insur- bear on reasonableness penalty severe than suffering more mind when er’s decision and state typically imposed parties.” on defeated underlying White, it evaluated and denied 710 P.2d at Therefore, impose claim. we do not an See Mut. Ins. insurer. Federated prohibition Anderson, 33, blanket on such evidence. Co. v. 991 P.2d Mont. litigation (allowing 922-23 some policy Id. 913-15. Similar concerns have conduct, appeals, specifically meritless to driven the decisions a number of other faith). as introduced evidence of jurisdictions prohibit the introduction of is, doubt, express- no because Palmer See, litigation strategy techniques. and ly open left admission the door e.g., v. Fidelity Timberlake Const. U.S. Co. Co., (10th extraordinary post-filing evidence of con- 340-41 Guar. F.3d Cir.1995) claim, duct (“Allowing support bad faith litigation conduct to “rarely it serve as evidence of bad would un restriction that should be admit- However, ques given chilling dermine an insurer’s contest ted.” effect tionable claims and to defend itself that allowing introduction of evidence of ... [Permitting allegations such claims litigation on conduct would have the exer- litigation misconduct have a chilling would legitimate cise of company’s an insurance insurers, effect on could unfairly which litigation any rights, exception threatens penalize by inhibiting attorneys them their to turn system our adversarial on its head. zealously from effectively representing pro- We are confident that the remedies their within permitted clients the bounds vided Rules of Procedure for Civil by law. Insurers’ would be placed counsel any wrongdoing may occur within the position legitimate in an litiga untenable if litigation context of the itself render un- tion conduct could be as used evidence necessary introduction of evidence of improper litigation bad faith. Where con litigation particularly conduct. This is issue, duct generally is at Federal given true who in fact attorneys, provide adequate Rules of Civil Procedure control con- perpetuate redress, means of such as motions to company, duct on of an behalf strike, compel discovery, protective secure subject are to direct under the sanction orders, sanctions.”); impose Sims v. Civil conduct. improper Rules Travelers Insurance 16 P.3d 468 Though goes saying, without we also (Okla.Civ.App.2000) (specifically adopting significant attorneys note that have those disallowing of litiga Timberlake’s rule use duties Re- under the Rules Professional strategy); conduct and O’Donnell ex sponsibility, allow for further sanc- which rel. Mitro Allstate Ins. 734 A.2d tions for unethical behavior. we (Pa.Super.Ct.1999) 908-09 (prohibiting think approach the better absolute of improper introduction evidence prohibition of such introduction evi- discovery techniques). Those con brought dence in actions under KRS equally play Kentucky cerns under 304.12-230.4 law. preferred rule as what evi recognize Supreme Our We Montana’s dence of conduct be admis post-filing since from what Court has retreated had summed appeared to be a strict rule sible a bad action is best allow- ing up introduction of follows: law, application approach power practice regulate 4. We note of this also attorneys applies need would means we not address Zurich’s claims mean that UCSPA Constitution, (in companies), specifically thus under the addition allowing violating prohibits the Gen- introduction such which Section Assembly enacting Section eral from that relate conduct evidence would violate laws subject. grants to the Justice the to more Court of sole than one re- unquestioned is an prejudice fac- and distinguishing note a ness One should evidence, KRE of see be- of the law quirement tor insurer’s settlement between height- during litigation and other there has been havior we note that issue, applies Rules Civil this as it litigation conduct. The of about ened concern conduct, for lat- provide began remedies courts Procedure since post-filing pass judg- jury To faith. permit considering ter. evidence of bad such White, tac- ment on the defense counsel’s trial P.2d See finding and of bad faith premise tics no while it will doubt n. 9. unfair places conduct an on counsel’s admissibility post-filing of limit the further counsel, poten- burden on the insurer’s behavior, be- emphasize we want of insur- tially inhibiting the defense be- post-filing admitting evidence fore offers, on An er. insurer’s settlement havior, weigh be careful to courts must hand, separate the other are not a abuse evidence proposed probativeness If a liti- litigation process itself. re- prejudice, as potential of- gant to settle or makes low refuses by 403. Timberlake KRE See quired fers, adversary avail himself his cannot Fidelity and Guar. Co. v. U.S. Const. argument, Cir.1995) (“In or compel, (10th of motions light 71 F.3d cross-examination to correct his failure. existing public policy case law and ..., ... evidence of an principle, an insurer’s to settle concerns while may, the commence- conduct in some should continue after insurer’s instances, issue litigation. ment If the insurer were rare be admissible faith, generally objectional settlement such evidence will immunized of bad inadmissible, occurring litigation begins, probative value conduct after lacks be prejudice. rem- risk See high the insured would be left without a carries a 403.”). sense, therefore, It edy. makes to hold Fed.R.Evid. responsible the insurer for such conduct. reasons, the Court of foregoing For rules, however, provide litigants Appeals is reversed. protection against other forms [conduct], for that reason C.J.; LAMBERT, GRAVES rationally court could exclude evidence JOHNSTONE, JJ., concur. of the insurer’s other misdeeds commit- J., COOPER, by separate dissents litigation process. during

ted opinion. Ashley, Stephen S. Bad Faith Actions Li (2005).5

ability Damages § 5A:6 WINTERSHEIMER, J., dissents add, however, must that such SCOTT, We J., joins. in which opinion separate automatically admissible. evidence is Justice, COOPER, dissenting. post-filing often Evidence of if majority opinion in the I to a claim of bad would concur limited relevance first-party faith action and raises distinct concerns about this were Zurich’s Mr. and Mrs. Knotts were company. the insurance prejudice event, Zurich would owe In that of the tension between insureds. While resolution fiduciary duty probative- continuing competing considerations note, truly itself are in his of the bad faith action 5. We also since Knotts alludes handling proof introducing of bad faith possibility such irrelevant to brief evidence, simply is underlying Such evidence improper abu- claim. that evidence of the bad faith suit. inadmissible in sive tactics 530, 363, and fair in dealing implicit Cal.App.3d Cal.Rptr. insurance 193 238 368 by (1987) (“[Ujnlike purchased White, contract the insureds that con there was no any not superior would conflict with duty tinuing relationship contractual between might it owe to someone else. See plaintiff in and defendant the instant case Johnson, Farmland Mut. Co. v. Ins. 36 implied and therefore no covenant to treat (“[A] 368, (Ky.2000) S.W.3d 380 bad faith plaintiff fairly....”). action is upon fiduciary duty based plaintiff When the tort commences by owed in- its tortfeasor, tort against action the insured upon sured based the insurance con- primary obligation insurer’s is the de tract.”). A first-party bad faith action is fense of its insured. J. Brown Graham brought by one against the insured Found., Inc. v. St. Paul Fire & Marine insurance company seeking to enforce cov- Co., 273, Ins. (Ky. 814 S.W.2d 279-80 erage provided claimed to by be the in- 1991); v. Wolford, 662 S.W.2d Wolford e.g., sured’s own policy, homeowner’s 835, (Ky.1984). 838 If the insurer violates (UM) claims, uninsured and underinsured by that duty, e.g., failing to reason pay a (UIM) claims, motorist for claims collision demand, able settlement Harvin v. U.S. coverage payments, reparation basic bene- Co., 213, Fid. & Guar. 428 214-15 S.W.2d (BRB) claims,

fit duty enforcement of (Ky.1968), and such results an excess defend, enforcement denied coverage, judgment insured, against the insurer case, however, etc. is a third-party excess, can be liable to the insured for the faith plaintiffs, action tort strang- and the can make an assignment insured ers contract who claim injured plain chose action to the that the liability tortfeasor’s insurance car- tiff. Manchester Ins. & Indem. Co. v. owed fiduciary duty rier them a 493, Grundy, (Ky.1975). and fair 531 S.W.2d 498 defending dealing the tort However, they against say action it makes no sense to brought its insured. plain the insurer is answerable to the tort Kentucky, first-party both and third- tiff performs for the which it manner party premised upon claims can be a viola contractual to defend insured 304.12-230, tion KRS the Unfair Claims potential the tort action. The for (“UCSPA”). Settlement Act Practices a conflict of interest in that is scenario Reeder, Farm State Mut. Auto. Ins. Co. v. filed, self-evident. suit Rules Once 116, (Ky.1988); 763 S.W.2d FB 118 Ins. of Civil control Procedure the conduct Jones, 926, v.Co. 864 929 (Ky.App S.W.2d parties provide remedies for .1993). I agree that the insurer’s Palmer, alleged abuses. Cal.Rptr. negotiate in good faith with its in own (“Litigation governed by a different sured continues even after the commence set of is for rules. It the law-and-motion a first-party ment the insured of action judge jury (See not the assess whether against the insurer White v. W. Title party penalized 870, should for bad 509, 221 Cal.Rptr. Cal.3d (1985))(“[T]he Wyo. discovery positions.”); Roussalis v. 710 P.2d contractu Ctr., Inc., (Wyo.2000) Med. 4 P.3d relationship al insurer between and the (“The Rules of Procedure control the insured does not terminate with Civil com and, instances, However, litigation process litigation.”). mencement of I most do provide agree adequate any duty improper the insurer owes remedies party third party litigation process. after com a tort parties mences action Once the have insured. assumed adversarial Honda, Inc., roles, Palmer v. Ted in the generally judge Stevens Cf. Court, 1321, 12 Superior Cal.App.4th not a to deter underlying jury case and (1992) (claim under Cal.Rptr.2d 95-96 party penalized mine whether a should be Nies v. Nat’l tactics.”). policy); health insurance for bad faith Cal.App.3d Auto. & Cas. Ins. Reeder permits plaintiff while (1988) (UM premised upon sue the tortfeasor’s insurer claim); rel. v. Farmers Palmer ex Diacon UCSPA, a violation of the a violation of 91, Exch., 895, P.2d 899 Ins. 261 Mont. 861 be actions premised upon UCSPA cannot (1993) (UM claim); ex rel. Mi O’Donnell occurring in- plaintiff after sues the 901, Co., 734 A.2d 902- tro v. Allstate Ins. Thereafter, in tort. the insurer’s sured (homeowner’s (Pa.Super.Ct.1999) 03 insured, duty is and the insurer can to its claim). exception is v. only Barefield negoti- for itself settlement determine how 544, Cos., Inc., 600 S.E.2d DPIC 215 W.Va. (In strategy. ations enter into the defense (2004). However, cases 256 all of the cited Reeder, motion the insurer’s CR 12.02 holding were support Barefield granted, did not dismiss was so case Tucson Air first-party also actions. See a could address whether UCSPA violation Underwriters, v. 186 port Auth. Certain premised upon occurring after 1063, 45, (App.1996) Ariz. 1064 918 P.2d 117. suit was filed. 763 S.W.2d at (failure defend); v. State Farm Gooch Glass, Motorists Mutual Insurance v.Co. Co., 38, 712 39 Mut. Auto. Ins. N.E.2d (Ky.1997), giv- 996 S.W.2d 437 the actions (UM claim); Federated (Ind.Ct.App.1999) ing rise to the bad faith claims all occurred Anderson, 33, Mut. v. 297 Mont. Ins. Co. prior the commencement of the lawsuit (1999) (denial 915, 991 P.2d 919 cover except to pay failure a settlement demand (UM Palmer, claim); age); P.2d at 861 899 limits, course, which, in excess of (home O’Donnell, 734 A.2d at 902-03 could not constitute faith. at 442- Id. claim). date, jurisdic To no other owners’ 46.) proposition for the has cited Barefield case, one, foreign Each a party bring save tort claimant can a third in this action tortfeasor’s proposition been cited action bad faith suit brought against can be an insurer insurer. violation the UCSPA was first- jurisdic majority An overwhelming party claim. See Timberlake Co. v. Const. do not tions that have addressed the issue Co., 335, Fid. & Guar. 71 U.S. F.3d 338 allow faith actions any third-party bad r (10th Cir.1995) (denial coverage to in E.g., O.K. whatsoeve insurers. policy); sured risk Gra under builder’s Co., Inc., Washing Lumber v. Providence Group, F.Supp.2d ham v. Gallant Ins. 60 (Alaska Co., 523, ton 759 P.2d 525-26 Ins. (UM 632, (W.D.Ky.1999) 633 and collision 1988) (“The relationship between the claims); coverage v. Parker Farm Bu S. carrier for claimant and Co., 1073, reau Cas. Ins. 326 Ark. 935 to be is an adver party alleged third liable (1996) (action 556, 557 to enforce S.W.2d fiduciary sary giving to no relationship rise liability collision denied automobile obligation part of on the such Co., coverage); Title 40 obligation White v. W. Ins. Any carrier to claimant. 870, 509, 221 710 P.2d Cal.3d deal with settlement offers (action (1985) 309, insured.”); Page 311 denied v. All only enforce runs 339, Co., 258, Ariz. 614 P.2d coverage); title insurance Tomaselli v. state Ins. (“The Co., in duty to settle is Cal.App.4th Transamerica Ins. 340 (App.1980) (home (1994) insured, 1766, 224, in Cal.Rptr.2d to benefit the tended claimant.”); claim); jured Murphy v. Allstate Ins. Physicians’ v. owner’s Cal. Serv. Co., 937, 424, 17 Cal.3d 132 Cal.Rptr. plaintiffs claim against State Farm as the 584, (insured’s P.2d 586-87 (Citation to insurer of [tortfeasor].” omit- insured, settle runs to the not to in ted.)). jured claimant);1 Scroggins v. Allstate Niemeyer See also v. Fid. U.S. & Guar. Co., Ill.App.3d 1027, 30 Ill.Dec. (Okla.1990) (“Be- 789 P.2d (1979) (insurer’s 393 N.E.2d 721-22 Niemeyer claimant, cause party third dealing and fair is owed she bring could not a bad faith action insured, not to parties); third Menefee G.”); against USF & Auclair v. Nation- Schurr, (Ind.Ct. 751 N.E.2d wide Mut. Ins. 505 A.2d (“The

App.2001) excess liability of Labil [a (R.I.1986) (“The relationship between the ity insurance] company arises out of the claimant and the insurance carrier for a relationship between insured and company. party third alleged to be liable is an adver- Claimant is a stranger to that relation sary relationship giving fiduciary rise to no ship.”). obligation on part of such insurance Co., See also Bates v. Allied Mut. Ins. carrier to the Any obligation claimant. 255, (Iowa 1991) (“[W]hile 467 N.W.2d 258 deal with settlement in good offers faith fiduciary insurer has a relationship with ”); only runs .... insured Caserotti insured, its it has an adversarial relation- Co., v. 561, State Farm Ins. 791 S.W.2d ship with a third-party claimant. There- (“The (Tex.App.1990) 566 present cause is fore, victim, a tort a third-party claim- distinguishable from those cases where ant, cannot compel a tortfeasor’s insurer to courts imposed have a duty good negotiate and settle a claim in good faith dealing and fair upon insurance companies. anymore than he could compel the tortfea- The cases imposing duty such a all involve (Citation sor to do so omitted.)); himself.” ie., claims, first-party suits insureds Linscott v. State Farm Mut. Auto. Ins. pursuant policies their oum insurance Co., 1161, (Me.1977) (“The 368 A.2d 1163 after their wrongly insurer denied or de- pretrial negotiations be con- layed recovery claims.”); of the insureds’ ducted between a tort claimant and a de- Pixton v. State Farm Mut. Auto. Ins. fending are adversary (Utah 746, 809 P.2d 749 Ct.App.1991) and, hence, nature will give rise to a (“[T]here duty is no of good faith and fair duty faith, bargain good as claimed dealing imposed upon an running insurer by plaintiff. A ‘duty good faith and fair claimant, to a third-party Pixton, such as dealing’ handling only claims runs seeking to against recover the company’s to an company’s ”); .... insured insured.”); Badger Kranzush v. Mut. Chenoweth, State 423, Chavez v. 89 N.M. 553 56, 256, Cas. 103 703, (“The Wis.2d P.2d N.W.2d (App.1976) ‘bad faith (1981) (“The duty insurer’s dealing’ applies rule between an insurer dealing and fair in- insured. arises from the dealings Plaintiff’s with State Farm in surance contract connection and runs to the damages insured. [tortfeasorj’s based on No alleged duty implied fault such can were favor of the not dealings insured, between insurer and claimant from the contract since the claim- length but arm’s dealings on the basis of ant a stranger to the contract and to the Supreme 1. The subsequently California Court Royal were authorized. Globe was overruled Royal held in Court, Superior Globe Insurance Co. v. points by on both Moradi-Shalal v. Fireman's 842, 23 Cal.3d Cos., Fund Insurance 46 Cal.3d 250 Cal. (1979), P.2d first-party that both 58, 63, Rptr. (1988). 758 P.2d third-party bad faith actions insurers violation that Herrig insurer for UCSPA fiduciary relationship signifies.”); sor’s (Wyo.1992) to commencement of Herrig, prior v. 844 P.2d occurs even (“[C]ourts authoriza- simply place legislative refuse to an insur tort action. Absent position owing tion, unwilling in the that liabili- er untenable I am conclude dealing fiduciary responsibility faith and fair to both ty insurers owe in adversary plaintiff tort the insured and and to the both to insured sured, insured, in the triggering whether double-insured con thus who sued its not”). text or to defend. contractual insurer’s Schurr, the Indiana Court Menefee Accordingly, I dissent. states, “[ojnly four Appeals noted ], Louisiana, Reeder Massa [see WINTERSHEIMER, Justice, chusetts, Virginia [see and West Bare dissenting. ... permit third-party direct action ] field ... faith claims insurers.” from the ma- respectfully I must dissent n. 2. Menefee, 751 N.E.2d at 761 Massa compa- an insurance jority opinion because created its of direct action chusetts ny must continue abide Unfair by a amendment of Uniform Act, Practices KRS Claims Settlement Acts, Laws Trade Protection Mass. Gen. after a lawsuit been 304.12-230 even 93A, 9(1), § UCSPA-type under eh. which against insured. filed its “[a]ny are litigated, provide claims majority recognize opinion that the We a person, person other than entitled to How- Appeals. reverse the Court of does bring action under this section eleven of ever, far majority go enough does not by chapter, injured who has been another reversing of in and as such the result is employment person’s any use or of meth value, if these very any, appel- limited od, practice or act declared to be unlawful may or others who share lants ... by any person section two or whose general Any conduct en- problem. same rights by person are affected vio another by in form the gaged the insurer 176D, lating the provisions [G.L. c. ” a claim. basis of bad faith 3(9) may § an bring action .... ] 406, § Although Mass. Acts ch. 1. Louisi impression This is a of first case permit third-party ana does a direct action major Kentucky. is whether the The issue its against insurer a violation of only pre-litigation claims regulates Act Act, Trade Uniform Practices La.Rev.Stat. differently, adjusting process. Stated 22:1220(A), § specifically Ann. which con company an insurance can be whether requiring tains a “reasonable ef language a faith conduct after lawsuit guilty fort to claims with insured or the settle insured. against been filed Other claimant,” added), it (emphasis does questions whether related third-party against a action permit direct continuing a supports law federal case UCSPA, an insurer for a violation of filing faith after the duty of 22:1214, § Ann. con La.Rev.Stat. lawsuit; recog- jurisdictions other whether Mid language. tains no such Theriot v. whether the construction duty; nize such Risk 190-91 land So.2d Appeals of word by the Court of (La.1997). contrary usage; its common “claim” and, post-litiga- Massachusetts, relating rule Kentucky, and whether a separation permitting tion conduct violates Virginia stand alone West plaintiff powers. tort to sue tortfea- third-party Knotts,

Lloyd a self-employed construc- Competition ods of and Decep Unfair and contractor, suffered per- serious and tive Acts and Practices in the Business injuries manent as a result of a fall from a Insurance.” Davidson v. American high 30-foot platform Inc., working Freightways, while on the (Ky. S.W.3d 2000). premises Lawson-Mardon, Inc. At the model act adopted has been accident, time one form or Lawson-Mardon another in all 50 states and all insured general under a territories. Id. at 96-97. liability The UCSPA protect insurance issued intended to public the Zurich from unfair Insurance practices fraud, trade Company. and and it significant Knotts incurred should be liberally medical construed so hospital as to expenses effectuate its because purpose. his State Farm Mut. injuries severe Auto. Ins. for which he Co. did not Reeder, 763 S.W.2d (Ky.1988). have available health insurance. Zurich refused to assist payment Knotts with The statute is legislation remedial any of expenses his medical thereby broadly should interpreted so as to prevented him from obtaining necessary accomplish is, purpose, intended medical care. As a result of the denial of make certain that companies assistance, proceeded Knotts fil- fairly deal with their insureds and third ing of a insured, lawsuit Law- party throughout claimants the claim han- son-Mardon, Inc., approximately two dling process. nothing There is months after the accident. jury contained the statute which terminates damages $1,202,104.29, awarded totaling the responsibility of an which was reduced 20% for comparative faith, in good act though even a lawsuit fault, resulting judgment of has been filed its insured. The $961,683.44 Lloyd Knotts company still has an obligation to exercise $20,000.00 wife, Knotts, for his Jackie for good faith in an attempt complete a her loss of consortium. judgment The prompt, fair equitable and settlement of appealed to Appeals the Court of which the claim in liability against its in- affirmed jury the verdict. reasonably sured has become clear. KRS 304.12-230(6).

The Knottses began present then the litigation, alleging continued bad faith con- It abundantly should be clear that this by duct Zurich filing after the of the continuing responsibility law- good suit. The circuit judge granted summary throughout pendency the claim the is judgment Zurich, in favor of holding separate that obligations distinct from the the upon statute which the claim was imposed on the insured and their counsel apply based did not to behavior that oc- under the procedure civil rules of once curred after litigation commenced. The litigation begins. It should also be ob- Appeals Court of affirmed and this Court served that the UCSPA is not intended to accepted discretionary review. interfere with attorney’s the exercise of an

zealous, independent, professional judg- ment in the defense of a client. An attor- I. UCSPA ney by retained an company insurance Kentucky The Unfair Claims Settlement defend an ethically required insured is Act, 304.12-230, Practices KRS is almost a independently and vigorously defend the adoption verbatim of the 1971 version of interest of the insured. the by model act formulated the National Association of Insurance by Commissioners employed Counsel the insurance com- entitled “An Act Relating pany to Unfair Meth- to defend its cannot compel insureds rules civil insured. The against in faith once a the company to act the applicability to any not have procedure has filed the insured. do lawsuit been in by company their the conduct of an insurance They paid services handling involvement the claim and insurance company, their insurance litigation. to the dependent company party selec- not a company. process industry govern insurance standards The Act and has company no companies the insurance insurance Counsel the manner which insured, authority pri- to control conduct against its both handle claims litiga- not a to the company, party which is subsequent litigation. case, In this Zurich had distributed tion. this decision would practical The effect of outlining manual how counsel a company insu- an insurance be allow defend insureds. had to faith conduct late itself from merely has been filed. because lawsuit long been Ken There should tucky companies Law II. Case fairly so diligently to settle claims work However, if filing to avoid lawsuit. impres an of first Although this is issue subject not to the Unfair in Kentucky, decisions rendered sion Act, a compa Settlement Practices Claims federal courts both the Eastern ny litiga could have an incentive to make Kentucky law applying Districts Western tion, settlement, realizing that rather than support the contention that they nothing filing did after the date of faith which company has faith. could constitute bad This would vio filing of a bad faith past continues fiduciary relationship late exists complaint insurer. Gra Cf. between insurer and its insured. Cf. Group, F.Supp.2d ham v. Gallant Curry v. Fireman’s Fund Ins. King Lib (W.D.Ky.1999) and Cobb 176 (Ky.1989). S.W.2d (6th erty Fed.Appx. Mut. Ins. Cir.2003). It should also noted alleged bad faith Zurich viola- Glass, Co. v. Motorists Mutual Insurance tion of the Act does involve (Ky.1997), held S.W.2d parties or their counsel. apply third-party claims principles same basing The Knottses are not their bad Kentucky has party claims. first litigation claims Zurich against faith on the any type refused to make distinction insured, or strategies tactics used the proof nature that must be regarding the Lawson-Mardon, in attorneys or its third-party a bad presented to establish they that compa- matter which defended party to a opposed faith claim as first Instead, on ny. solely it is based case of Torres Any claim. rebanee on the process, in which Zurich manner failed Co., Employers Ins. 151 Fed. v. American a fair evaluate extend and reasonable (6th Cir.2005), unpersuasive. is Appx. 402 based information settlement offer on opinion A of the Torres indicates reading liability regarding to it available both relying was on Court that court throughout the entire damage issues case, that Appeals though in this even handling of its claim course a opinion final decision. insured. guilty of company An insurance can be III. Other Jurisdictions in which it the manner conduct many acceptance by general a continues to handle claim There an in- jurisdictions that the a other insured even after lawsuit has been filed 530 (1970).

surer to use a continuing faith is Dictionary International The responsibility simply usage that not end common of “claim” does also includes Kyriss of action.” & begun. because has “cause v. Aetna White v. Life (D.Mont. Casualty F.Supp. Western Title Ins. Cal.3d 1986). (1985), 710 P.2d 309 is con establishing sidered as the seminal case legislature’s repeated The use that insurance have a continu companies word “claim” in the Act indicates an intent ing duty policyholder throughout to a liti duties impose upon in the busi- those White, gation. supra, the California per- ness insurance to deal fairly Supreme Court authorized admission asserting right a or some- demanding sons evidence of unreasonably low settlement thing that is believed to due rightfully be during offers made trial establish su- policy. Barefield, under an company the insurance had acted in bad A or pra. simply lawsuit faith. asserting demanding means of or something by using judicial process.

The Supreme Virginia West Court of Barefield. has question considered the v. Barefield Inc., Companies, DPIC W.Va. commonly “Settlement” understood S.E.2d and held “the con- ending of a dispute by mean the final duct of an or company other II agreement. decision See Webster’s person Dictionary business of insurance University New Riverside (1988). pendency of a support meaning lawsuit plain literal Virginia way cause action under no from West Trade settlement inhibits the Act Practices Act.” of an act in Virginia extending Both the Act insurer to West and with fair dealing beyond Act are on model based legislation litigation. commencement of It promulgated the National is obvious that a settlement can occur at time Association of Insurance Commissioners. after in- before or which would IV. finality “Claim” appeal. clude the language There is no in the specifically The word “claim” Act is not de applicability anywhere pre-complaint limits the be- fined within the Act. Conse If the legislature havior. had intended quently, the word must construed ac apply the statute should not cording usage. to its common KRS 446.080(4); an insurance after suit System Ky. Alliant Health filed, Comm’n, easily provid- had it Couldhave been Unemployment Ins. 912 S.W.2d language It did ed definite to that effect. (Ky.App.1995). “claim” The word add not. The courts are not entitled to many “a meanings, including demand for due; language existing statutes. The statute something an of a assertion just not clearly apply does to claims ad- something.” English II Dictio Oxford all, After the (1970); justing. prohibits statute nary 451 for something “a demand practices” “unfair claims settlement or due believed to be due.” Merriam- (10th adjustment practices.” “unfair claims Collegiate Dictionary 210 Webster’s Ed., 2001); and, compensa “a demand for Constitutional Concerns VI. (as tion, benefits, payment ... one the upon Appeals made under an insurance the of concluded that The Court happening of of Powers contingency Separation the Doctrine announced issued).” it is Third 27 and of New Sections the Webster’s to va- circuit court with directions prohibit legislation would Constitution judgment. summary the cate be- regulating post-litigation from conduct the cause Section of Constitution SCOTT, authority regu- joins. J. sole

grants this Court hold- attorneys. the of late conduct miscon-

ing demonstrates fundamental rule, as well as the

ception majority of the majority of involved. The courts

statute issue unani-

that have examined this have

mously juries pass cannot recognized that attorneys of and

judgment on the conduct permitted to censure thus cannot MORRISON, Appellant, Donald advocacy. engaging in zealous insurer for allegations in matter do not focus The this the undertaken the defen- on DEPOT; Sedgwick Claims THE HOME counsel; dant insurer on the advice Services; Management Workers’ Com- they rather indicate that claims handlers Board; B. pensation and Hon. John disregarded the of counsel to the advice Coleman, Judge, Law Administrative insurer and in benefit contravention Appellees. agents

of the Act. It is the behavior No. 2005-SC-0719-WC. employees company and of the insurance Act, subject not the Kentucky. Supreme Court attorneys engaged conduct of who May 2006. litigation. The of a rule re- adoption lating post-litigation behavior of an Rehearing Denial As Modified on not violate the does Aug. 2006. provisions separation powers Aug. As 2006. Corrected Kentucky Constitution. unambiguous and language clear 304.12-230, KRS nature and remedial legislative underlying intent the stat-

ute, all that it of an duty indicate fair

insurer to exercise

dealing and that continues litigation has simply

does not end because

begun. protect The Act was intended to public practices from unfair trade nature settle-

fraud and because good faith negotiations

ment post- trial pre-litigation,

exists finally re-

litigation until matter

solved. of Appeals of the Court decision case

should reversed and this remanded

Case Details

Case Name: Knotts v. Zurich Insurance Co.

Court Name: Kentucky Supreme Court

Date Published: May 18, 2006

Citation: 197 S.W.3d 512

Docket Number: 2004-SC-0400-DG

Court Abbreviation: Ky.