Kentucky requires insurers to pay amounts clearly due. Under Wittmer v. Jones [enhanced version available to lexis.com subscribers], to create a jury question, “there must be sufficient evidence of intentional misconduct or reckless disregard of the rights of an insured or a claimant to warrant submitting the right to award punitive damages to the jury.” Farmland Mutual Insurance Co. v. Johnson [enhanced version available to lexis.com subscribers] arguably relaxed this requirement. But courts have correctly found little change.
The commentary notes that, under Wittmer,
An insured must prove three elements in order to prevail against an insurance company for alleged refusal in bad faith to pay the insured’s claim: (1) the insurer must be obligated to pay the claim under the terms of the policy; (2) the insurer must lack a reasonable basis in law or fact for denying the claim; and (3) it must be shown that the insurer either knew there was no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed … . An insurer is … entitled to challenge a claim and litigate it if the claim is debatable on the law or the facts.
Moreover, “This means there must be sufficient evidence of intentional misconduct or reckless disregard of the rights of an insured or a claimant to warrant submitting the right to award punitive damages to the jury.”
The commentary further notes that Farmland upheld a bad faith judgment where the amount of the loss had been fairly debatable, stating that
Although there may be differing opinions as to the value of the loss and as to the merits of replacing or repairing the damaged structure, an insurance company is still obligated … to investigate, negotiate, and attempt to settle the claim in a fair and reasonable manner. In other words, although elements of a claim may be “fairly debatable,” an insurer must debate the matter fairly.
Moreover, Farmland quoted the following language from Zilisch v. State Farm Mutual Automobile Insurance Co. [enhanced version available to lexis.com subscribers] as supporting its holding:
“But coming up with an amount that is within the range of possibility is not an absolute defense to a bad faith case. The carrier has an obligation to immediately conduct an adequate investigation, act reasonably in evaluating the claim, and act promptly in paying a legitimate claim. It should do nothing that jeopardizes the insured’s security under the policy. It should not force an insured to go needless adversarial hoops to achieve its rights under the policy. It cannot lowball claims or delay claims hoping that the insured will settle for less. Equal consideration of the insured requires more than that. The court of appeals therefore erred in concluding that fair debatability is both the beginning and the end of the analysis … .”
In Phelps v. State Farm Mutual Automobile Insurance Co., [enhanced version available to lexis.com subscribers] the Sixth Circuit found Kentucky courts’ continued application of the Wittmer standard “confusing” in light of the later formulation by Farmland:
a claim will obviously meet Farmland's lower standard of "unreasonableness" if it has first met Wittmer's higher standard of "reckless disregard." Wittmer's threshold inquiry thus appears to render superfluous the merits inquiry into an insurance company's alleged bad faith. In any event, this seems to be the current state of Kentucky law.
This commentary analyzes Wittmer, Farmland, and all post-Farmland cases shedding light on the impact, if any of Farmland on the Wittmer standard. It concludes that the cases have correctly found little change, and that even the one case suggesting a substantial change in a narrow area probably erred in finding that change.
William T. Barker is a member of Dentons US LLP's Insurance Litigation & Coverage Practice Group and practices in the firm's Chicago office. He has a nationwide practice in the area of complex commercial insurance litigation, including coverage, claim practices, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is the co-author, with Ronald D. Kent of The New Appleman Insurance Bad Faith Litigation, Second Edition and with Charles Silver of the forthcoming Professional Responsibilities of Insurance Defense Counsel; he has written over 100 published articles on insurance and litigation subjects. He has been described as "[t]he leading lawyer commentator" on the relationships between insurance and civil procedure. Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 & n.4 (1995). He is an Adviser to the American Law Institute project on Principles of the Law of Liability Insurance. He is a member of the Editorial Board of The New Appleman on Insurance Law Library Edition and The New Appleman Insurance Law Practice Guide. He is Editorial Board Director and Senior Contributing Editor of Insurance Litigation Reporter and a member of the Board of Editors of Defense Counsel Journal.
Ronald D. Kent heads the Litigation Department in Dentons US LLP's Los Angeles office. He is also Co-Chair of the Firm's National Insurance Litigation and Coverage Practice and is a member of the firm-wide Policy & Planning (Management) Committee. Since 2005, he has been named each year as a leading trial lawyer nationally and in California, based on peer and client evaluations, by Chambers USA: America's Leading Lawyers, the highly respected independent attorney rating organization. Mr. Kent has extensive experience representing major insurance companies on a wide variety of matters, including fraud and bad faith actions, class action and multiple plaintiff litigation, defense of toxic tort and other environmental claims, insurance coverage actions and general business disputes. Mr. Kent has tried matters in state and federal courts throughout California, and in other states, and has successfully handled in excess of 70 arbitrations to final resolution. In addition, he has briefed and argued numerous appellate matters in the California Supreme Court, nearly all California district courts of appeal and the Ninth Circuit Court of Appeals. Mr. Kent is the co-author of the second edition of New Appleman Insurance Bad Faith Litigation.
Bruce E. Baty is the co-head of Dentons' legacy Insurance Regulatory practice and a member of the firm's Insurance practice. With more than 30 years of experience, his practice focuses exclusively on representing insurance companies and reinsurance companies in Property & Casualty and Life, Accident and Health insurance matters.
Sign in with your Lexis.com ID to access the full text of this commentary, Dentons on What Does Kentucky Require To Find Failure to Pay in Good Faith? Additional fees may be incurred. (approx. 36 pages)
If you do not have a lexis.com ID, you can purchase the full text of this commentary on the LexisNexis Store or you can access this commentary and additional Insurance Law Emerging Issues Commentaries on the Store
Sign in with your Lexis.com ID to access the complete set of Emerging Issues Analysis for Insurance Law
For more information about LexisNexis products and solutions connect with us through our corporate site