MOTORISTS MUTUAL INSURANCE COMPANY V. JEFFREY GLASS; GARNETT DOYLE GLASS; BRENDA GLASS; GREGG Y. NEAL, Attorney; COMPANY KENTUCKY FARM BUREAU MUTUAL INSURANCE COMPANY V. JEFFREY GLASS; and MOTORISTS MUTUAL
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AS
MOTORISTS MUTUAL
V.
RENDERED:
MODIFIED:
OCTOBER 30, 1997
FEBRUARY 18, 1999
TO BE PUBLISHED
INSURANCE COMPANY
ON REVIEW FROM COURT OF APPEALS
93-CA-2137, 93-CA-2198 & 93-CA-2235
SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
90-CI-136
JEFFREY GLASS; GARNETT DOYLE GLASS;
BRENDA GLASS; GREGG Y. NEAL, Attorney;
and KENTUCKY FARM BUREAU MUTUAL INSURANCE
COMPANY
and
95-SC-980-DG
KENTUCKY FARM BUREAU
INSURANCE
COMPANY
V.
APPELLEES
MUTUAL
APPELLANT
ON REVIEW FROM COURT OF APPEALS
93-CA-2137, 93-CA-2198 & 93-CA-2235
SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
90-CI-136
JEFFREY GLASS; and
INSURANCE
COMPANY
MOTORISTS
MUTUAL
APPELLEES
gl&
96-SC-800-DG
JEFFREY GLASS; GARNETT DOYLE GLASS;
BRENDA GLASS; and GREGG Y. NEAL
CROSS-APPELLANTS
ON REVIEW FROM COURT OF APPEALS
93-CA-2137, 93-CA-2198 & 93-CA-2235
SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
90-CI-136
v.
MOTORISTS MUTUAL INSURANCE COMPANY;
and KENTUCKY FARM BUREAU MUTUAL
INSURANCE COMPANY
CROSS-APPELLEES
OPINION OF THE COURT BY JUSTICE COOPER
AFFIRMING IN PART AND
REVERSING IN PART
On May 13, 1988, Jeffrey Glass was injured while riding
as a passenger in a vehicle owned by him and driven with his
permission
Motorists
by
Stephen
Mutual
Shelburne.
Insurance
Jeffrey was insured by
Company
(Motorists
Mutual)
and
Shelburne was insured by Kentucky Farm Bureau Mutual Insurance
Company
(Farm
Bureau).
Following a'trial by jury on Jeffrey's
claim of bad faith against both insurers and his claim against
Motorists
Mutual
for
underinsured
motorists
coverage
payments,
the jury returned verdicts against Motorists Mutual in the total
sum of $694,208.11
$443,208.12.
The
and against Farm Bureau in the total sum of
trial
judge
subsequently
- 2 -
awarded
Jeffrey
attorney fees against Motorists Mutual in the sum of $231,402.70
(one-third of $694,208.11).
On July 19, 1993, judgment was entered in favor of
Jeffrey Glass against Motorists Mutual in the total sum of
$925,610.81
and against Farm Bureau in the total sum of
The judgment also awarded interest from July 9,
$443,208.12.
1993,
the date of the verdict.
reduced
the
underinsured
On appeal,
the Court of Appeals
motorists' portion of the judgment
against Motorists Mutual from $200,000.00
to $150,000.00
and
ordered the interest to run from the date of judgment instead of
the date of verdict.
affirmed.
In all other respects, the judgment was
We granted discretionary review and now reverse.
Jeffrey's claim that the insurers were guilty of bad
faith in failing to effect a prompt and fair settlement of his
claim necessitates a detailed recitation of what occurred in this
case.
I.
THE
ACCIDENT
AND
INJURIES.
On May 13, 1988, Jeffrey Glass was nineteen years of
age and resided with his parents, Doyle and Brenda Glass, in
Waddy,
Motor
Kentucky.
Company.
He was employed as a parts salesman at Pierce
That evening, he drove his 1980 Ford pickup truck
to Stephen Shelburne's home in Shelbyville.
On the way, he
stopped at a liquor store and purchased some beer, which he iced
down in a cooler in the back of the truck.
He picked up
Shelburne and the two proceeded to Bagdad, where they met
Jeffrey's
girlfriend, Kim Embert (now Hardin), and her friend,
- 3 -
Heather
Wentworth.
The four left Bagdad at about ,6:30 p.m. and
drove to Georgetown where more alcohol was purchased.
Kim Hardin
testified that Jeffrey and Shelburne purchased some wine coolers
for the girls and two more cases of beer, which they iced down in
the cooler.
The four then proceeded to a fairgrounds in Scott
County where they attended a truck pull contest for several
hours.
Jeffrey admitted that he drank beer while driving from
Shelbyville
to Bagdad
and that both he and Shelburne drank beer
while driving from Bagdad
to Georgetown.
Kim Hardin testified
that all four occupants of the pickup truck consumed alcohol
during the trip from Georgetown to the fairgrounds, and continued
to do so until they left the fairgrounds at approximately 9:30
p.m.
As he drove the pickup truck out of the fairgrounds,
Jeffrey almost rear-ended another vehicle and the girls "didn't
think that I should be driving."
He agreed to permit Shelburne
to drive the vehicle.
Shortly
thereafter, Shelburne made a wrong turn onto a
narrow road and proceeded down a hill with a curve at the bottom
of the grade.
conditions.
The vehicle apparently was going too fast for
When Shelburne applied the brakes, the vehicle slid
into a guard rail and turned up on its right side.
seated next to the passenger side door.
When
the
Jeffrey
vehicle
was
rolled
over, the weight of the other three passengers pressed against
him and his right arm broke through the window and was severed
when it was caught between the truck and the guardrail.
Captain
Willie Scott of the Scott County Police Department investigated
- 4 -
the
accident
and
interviewed
Shelburne.
Although he noted on his
accident report that alcohol involvement was a cause of the
accident,
believe
Scott did not arrest Shelburne, because he did not
Shelburne
consumed
was
intoxicated.
Shelburne told Scott he had
"only two beers."
Jeffrey's
arm
was
surgically
reattached
by
Louisville
Hand Surgery specialists at Jewish Hospital in Louisville.
However,
despite
several
surgeries, he has never regained full
function of his right arm and has little or no use of his right
hand.
He was unable to return to his previous employment and
testified that he could perform only light work on his
grandmother's
farm.
incurred $82,168.75
accident,
As of the date of trial, Jeffrey had
in medical expenses as a result of this
of which $36,564.40
Hospital and $30,647.50
had been incurred with Jewish
had been incurred with Louisville Hand
Surgery.
II.
THE
INSURANCE
POLICIES.
Jeffrey's 1980 Ford pickup truck was insured by
Motorists Mutual policy number 5342-04-224866-11D.
The trial
judge concluded that the same policy also covered a 1978 Ford
pickup
truck.
However,
the
policy
declaration
pages
introduced
into evidence in this case reveal that a previous vehicle was
deleted from the policy on January 15, 1988, and that the 1978
Ford pickup truck was added to the policy on June 7, 1988; thus,
as found by the Court of Appeals, the policy only covered one
vehicle at the time of this accident.
- 5 -
The
policy
provided
liability coverage of $50,000.00
per person and $100,000.00
accident for bodily injury and $50,000.00
per accident for
property
coverage
per
damage; uninsured
$50,000.00/$100,000.00;
motorists
and
of $50,000.00/$100,000.00.
(UM)
underinsured
of
motorists
(UIM)
coverage
The policy also provided basic
personal injury protection (PIP) coverage of $lO,OOO.OO.
Doyle
and Brenda Glass were also named insureds on this policy, and
bodily injury liability coverage was extended to Shelburne as an
additional insured under the policy's omnibus c1ause.l
Property
damage liability coverage was excluded for this accident, both
because the damaged vehicle was owned by the named insured,*
Jeffrey
Glass, and because it was damaged while "used by" or "in
the care of"
an additional insured,3 Shelburne.
These
exclusions
reflect the logic that damage to a vehicle owned or operated by a
named insured or an additional insured is more appropriately the
subject
of
collision
(third-party)
(first-party)
coverage.
coverage
than
of
liability
Jeffrey had not opted to purchase
collision coverage for his vehicle.
The policy extended UIM coverage to the named insured
and any family member living in the household.“
motor
An
"underinsured
vehicle" was defined as a land motor vehicle covered by a
'Part A,
Insuring
Agreement,
*Part A, Exclusions,
paragraph
B2.
paragraph A2.
3Part A, Exclusions, paragraphs A3 b and c.
4Part C,
paragraph F.
Insuring
Agreement,
paragraph
- 6 -
Bl;
Definitions,
policy of insurance with liability limits less than the liability
limits of the Motorists Mutual policy.5
However,
the
policy
excluded from this definition any vehicle owned by or furnished
or available for the regular use of the insured or any family
membere6
The policy further provided that any amounts payable
under UIM coverage shall be reduced by all sums paid for bodily
injury damages by or on behalf of any person legally responsible,
including
"all sums paid under Part A."'
Part A is the liability
coverage portion of the policy containing the omnibus clause
under which Shelburne was an additional insured for purposes of
this
accident.
Doyle and Brenda Glass were also the named insureds on
Motorists
Mutual
policy
number
5342-06-224865-OOA,
which
insured
two vehicles, a 1983 Pontiac Grand Prix and a 1979 Ford pickup
truck.
This policy contained liability coverage with limits of
$100,000.00/$300,000.00
property
for bodily injury and $50,000.00
damage; UM coverage of $50,000.00/$100,000.00;
coverage of $50,000.00/$100,000.00.
The
policy
also
for
and UIM
contained
basic PIP coverage, which did not apply to Jeffrey's injuries,
since he was not a named insured of the policy and was not
occupying the insured vehicle at the time of the accident.
second
policy
contained
identical
insuring
agreements,
This
exclusions
5Policy Provision Amendments to Part C, paragraph 1 (quoted
verbatim at footnote 17, infra).
6Part C, Insuring Agreement, paragraph C, exception 1.
'Part C, Limit of Liability, paragraph
at footnote 18, infra).
- 7 -
Bl
(quoted
verbatim
and exceptions as policy number 5342-04-2248'66-11D.
As a family
member living in the household of the named insureds, Jeffrey was
an insured for purposes of the policy's UIM coverage.
Shelburne was the named insured of an insurance policy
issued by Farm Bureau.
Although a specimen of this policy is not
found in the record, a copy of the declarations page was filed in
response to a discovery request.
Examination
of
this
document
reveals that the policy provided liability coverage with limits
of $100,000.00/$300,000.00
property
damage.
for bodily injury and $100,000.00
Thus, Shelburne had available $150,000.00
for
in
bodily injury liability coverage for this accident, $100,000.00
as the named insured under his own Farm Bureau policy and
$SO,OOO.OO
as an additional insured under the Motorists Mutual
policy covering Jeffrey Glass's 1980 Ford pickup truck.
As the
insurer of the motor vehicle involved in the accident, Motorists
Mutual was the "primary" insurer for this accident, whereas Farm
Bureau was the "excess" insurer. 46 C.J.S. Insurance § 1138.
Through
her
employment, Brenda Glass had a health
insurance policy with Humana
$47,972.93
of
Jeffrey's
Health Plans, Inc., which paid
medical
expenses.
Humana
retained
a
subrogation claim in that amount and eventually intervened in
this action to collect that claim.
III.
THE
NEGOTIATIONS.
The Glasses immediately reported this accident to their
local agent, who in turn reported it to the claims department of
Motorists
Mutual's
home
office.
-
Based on the local agent's
8
-
description of the injuries, the home office established a
reserve account of $50,000.00,
the policy limits.
The claim was
assigned to claims representative Ted Gillahan, who obtained a
copy of the police report, recorded
Glass and Shelburne, and
truck.
Gillahan
discussed
photographs
the
statements
of
provisions
from
Jeffrey's
of
both
Jeffrey
damaged
pickup
Motorists
Mutual's
policy with Doyle Glass and told him that the policy provided
$50,000.00
the
liability
medical
coverage.*
Doyle's primary concern was that
providers, particularly the hospital, would end up
with all the money.
According
to
Gillahan,
Doyle
wanted
Jeffrey
to receive some cash up front and the balance protected from the
medical
providers.
Gillahan continued to document his file with medical
and
hospital
records.
limits of $lO,OOO.OO
He authorized payment of the PIP policy
to Jewish Hospital.
He
received
information
from the doctor who had performed the surgery that Jeffrey could
possibly regain 60% to 70% of the function of his right arm. On
July 26, 1988, Gillahan spoke with Doyle Glass and suggested the
possibility of a "structured
settlement,"
whereby
the
insurance
money would be used to purchase a tax-free annuity which
eventually would pay Jeffrey more than the $50,000.00
policy
limits and would spread the payments over a number of years. A
'Doyle Glass did not recall this conversation and professed
not to have known at that time the liability limits of Motorists'
policy.
Of course, he was a named insured on the policy and
could have ascertained the policy limits by looking at the
declarations page.
- 9 -
note in Gillahan's
file indicates that the Glasses were unsure of
what they wanted to do.
On July 28, 1988, Motorists
Mutual's
home
authorized Gillahan to pay up to the $50,000.00
settle the case.
Hackney
settlement
policy limits to
According to Doyle Glass, Gillahan first
offered $25,000.00,
William
office
of
which was refused.
Ringler
Associates,
Gillahan
Inc.,
a
then
contacted
structured
specialist, and requested that he prepare several
proposed structured settlements costing in the range of
$40,000.00
to $42,000.00.
Gillahan testified that his plan was
to offer a structured settlement in that range with the balance
of the policy limits to be paid in cash.
Shelburne did not report this accident to Farm Bureau
until August 17, 1988.
representative,
Joel Depp, a Farm Bureau senior claims
then obtained a copy of the police report, which
indicated alcohol involvement as a cause of the accident. He
took recorded statements from Jeffrey Glass and Shelburne, both
of whom admitted that they had been drinking prior to the
accident.
Depp also obtained information that Jeffrey's right
arm had been severed and surgically reattached with a "good
result."
At this point, the medical bills were in the
neighborhood
of
information,
he placed a settlement valuation on the claim at
$150,000.00
$20,000.00.
to $200,000.00
Depp testified that based on this
with a 50% discount
- 10 -
for
comparative
negligence because of the alcohol involvement,g
evaluation of $75,000.00
to $100,000.00.
for a total
He admitted that his
file did not contain a written notation of this evaluation.
Farm
Bureau was the excess insurer and, at this point, Motorists
Mutual had neither paid its policy limits nor demanded any
contribution
toward
a
possible
settlement.
further action until October 6, 1988, when
Thus, Depp took no
a
supervisor
suggested
that he contact Motorists Mutual to determine the status of the
claim.
Meanwhile,
settlement
Gillahan, who was not a structured
specialist, had authorized Hackney to negotiate with
the Glasses on behalf of Motorists Mutual.
status update was forwarded to Hackney.
Depp's
request for a
On October 19, 1988,
Hackney met with the Glasses and advised them that Farm Bureau
might be induced to contribute to a possible settlement.
time, Humana
By this
had put the Glasses on notice of its subrogation
rights against any settlement Jeffrey might receive.
Throughout
their negotiations with Gillahan and Hackney, the Glasses
expressed reluctance to accept any settlement offer absent a
guarantee that the settlement would be protected from Humana's
subrogation
claim.
Gillahan testified that this was one reason
why he proposed a structured settlement rather than a lump sum
'A passenger injured while riding in a vehicle operated by
an intoxicated driver can be charged with contributory fault.
Isaac v. Allen, Ky., 429 S.W.2d 37 (1968); Whitnev v. Penick, 281
Any judgment in favor of the
KY. 474, 136 S.W.2d 570 (1940).
plaintiff passenger is reduced by the amount of the judgment
which correlates with his percentage of contributory fault. Hilen
V . Havs, KY.,
673 S.W.2d 713 (1984).
- 11 -
payment.
Hackney
suggested
that
the
settlement
agreement
might
be drafted to reflect that the settlement was only for pain and
suffering and impairment of earning capacity, which might protect
it from Humana's
However,
subrogation claim for medical payments-l0
he would not guarantee that the settlement would be
insulated from Humana's
claim.
On October 31, 1988, Hackney
asked
authorization to spend the entire $50,000.00
Gillahan
for
to purchase an
annuity to be offered as a structured settlement.
(Hackney is
paid by the annuity insurer, not the liability insurer.)
Gillahan authorized Hackney to apply $46,000.00
toward the
purchase of the annuity.
On November 10, 1988, Hackney contacted Depp about a
possible
contribution
and
toward
also
settlement.
written
proposal
medical
bills, medical reports, etc.
contacted
Doyle
$5,000.00
to $6,000.00
by Humana.
Motorists
requested
Depp requested a
updated
Depp
documents,
then
including
personally
Glass, who advised that there were still
in medical bills which had not been paid
On November 18, 1988, Hackney advised Depp that
Mutual
would
send
Depp
the
requested
documents.
On
December 15, 1988, it was learned that Motorists Mutual had
10Ironically,
the ‘Glasses asserted at oral argument that
this offer to "beat" Humana out of its subrogation claim
constituted additional evidence of Motorists Mutual's overall bad
faith in handling the Glasses' claim.
Eventually, the Glasses
were able to negotiate a settlement with Humana for $12,500.00,
approximately $35,000.00 less than its claim, which is also
ironic in view of the Glasses' continued claim that it was "bad
faith" for the insurance companies to attempt to negotiate a
settlement with them for a sum less than their policy limits.
- 12 -
mistakenly forwarded the documents to Doyle Glass instead of to
Dew -
Depp contacted Doyle Glass and made arrangements for the
documents to be sent to Farm Bureau.
The
documents
finally
arrived on December 19, 1988.
On December 21, 1988, Depp informed Hackney that before
Farm Bureau could contribute to the settlement, he needed written
proof that Motorists Mutual intended to pay its policy limits.
On the same day, Motorists
Mutual
confirmation of that intent.
sent
Farm
Bureau
written
Also on the same day, Motorists
Mutual issued payment drafts for, $49,500.00
to United Pacific
Life Insurance Company to purchase an annuity which would pay
Jeffrey Glass $485,000.00
over a period of forty years, and
$500.00 to Reliance Insurance Company for a bond premium to
guarantee
the
annuity
payments.
Upon receipt of those documents,
Depp gave Hackney authority to use up to $35,000.00
of Farm
Bureau's money to settle the claim.
On December 22, 1988, Hackney advised Depp that the
Glasses had rejected the $35,000.00
$50,000.00
1988,
offer and requested
authority to attempt a settlement. On December 30,
Depp gave Hackney the requested authority.
Hackney
then
offered the Glasses the United Pacific annuity plus Farm Bureau's
$50,000.00.11
May 1989.
The Glasses did not respond to this offer until
Hackney testified that Doyle Glass told him he needed
to confirm that the settlement was tax free.
Doyle
llIt is unclear whether Farm Bureau's $50,000.00
in cash or in the form of an annuity.
- 13 -
testified
was to be
that he met with an attorney in Lexington and confirmed that
Humana
had a valid subrogation claim under its health insurance
On May 17, 1989, Hackney
policy.
$25,000.00
requested
an
additional
authority from Farm Bureau to settle the claim, but
advised Depp that he did not believe he would need to use the
full $75,000.00
gave
Hackney
the
to obtain a settlement.
requested
additional
On May 25, 1989, Depp
authority.
On May 31, 1989, Hackney notified Depp that on May 27,
1989,
policy
he had settled with the Glasses for Motorists Mutual's
limits, represented by the United Pacific annuity, and
$64,373.00
to be paid by Farm Bureau.
Of this sum, $53,873.00
would be paid to Safeco Insurance Company for an annuity which
would pay Jeffrey Glass a total of $424,200.00,
payable in
monthly installments over the duration of his life; $500.00 would
be paid to Safeco Assigned Benefits Company for the bond premium;
and the final $lO,OOO.OO
would be paid in cash, $2,500.00
directly to Jeffrey and $7,500.00
directly to Doyle and Brenda to
reimburse them for medical bills not covered by insurance.
Farm
Bureau issued payment drafts for the annuity, the bond, and the
lump sum payments, all of which were forwarded to Hackney.
Hackney purchased the annuity and the bond and prepared the
necessary
settlement
settlement.
agreement
and
releases
to
memorialize
It was Hackney's intention that on June 23, 1989, he
would personally deliver the annuities, the checks and the
documents to the Glasses and obtain their signatures on the
settlement
the
agreement
and
releases.
- 14 -
When Hackney called Doyle Glass to confirm the June 23,
1989
appointment, he was told that the Glasses were discussing
the annuities with a tax advisor.
Approximately
two
months
later, Doyle advised Hackney that he was seeking the advice of an
attorney.
On September 7, 1989, the Glasses' present attorney
advised Hackney that he was representing the Glasses and that the
Hackney
offer of a structured settlement had been rejected.
notified Gillahan and Depp of this fact and requested advice on
what to do with the payment drafts and the annuities.
He was
told to hold them until further notice.
On September 14, 1989, the Glasses' attorney wrote a
letter to Motorists Mutual demanding that the liability coverages
for the four vehicles covered under both policiesl*
for a total of $300,000.00,
be stacked13
and that the UIM coverages for all
four vehicles be stacked for an additional $200,000.00,
total settlement demand of $500,000.00.
Glasses'
for a
On the same day, the
attorney wrote a letter to Depp demanding that Farm
Bureau pay its bodily injury liability policy limits of
$100,000.00,
and that it also pay Humana's
subrogation claim.
These were the first demands received by either Motorists Mutual
or Farm Bureau to settle this case.
limits of their respective policies.
Both demands exceeded the
Motorists
Mutual
responded
'*As explained suora, there was only one vehicle covered
under policy number 5342-04-224866-11D.
13Liability coverages cannot be stacked. Butler v.
Robinette, Ky., 614 S.W.2d 944, 947 (1981); Windham v.
Cunninsham, Ky. App., 902 S.W.2d 838 (1995).
- 15 -
that its liability limits were $50,000.00
any payment under its UIM coverage.
and that it did not owe
Farm
Bureau
responded
that
it was relying on the settlement reached on May 27, 1989.
Both
Motorists Mutual and Farm Bureau reiterated their willingness to
effectuate the terms of the May 27, 1989 agreement.
IV.
THE
PRE-TRIAL
LITIGATION.
The complaint in this action was filed on May 3, 1990.
It set forth a negligence claim against Shelburne, a UIM claim
against
Motorists
Mutual, bad faith claims and alleged
violations of the Unfair Claims Settlement Practices Act (UCSPA),
KRS 304.12-230,
against both insurers, and a claimed violation of
the Consumer Protection Act, KRS 367.220, against Motorists
Mutual.
The defendants all pled the May 27, 1989 settlement as a
bar to the action.
In pre-trial depositions, all three Glasses
testified that no settlement agreement had been reached on May
27, 1989.
Hackney testified that an agreement had been reached
and that the parties had shaken hands on the deal.
He
introduced
the annuities, the settlement documents, and the checks, which
had been prepared pursuant to the agreement.
The
Glasses
moved
for a partial summary judgment on this issue.
It has long been the law of this Commonwealth that the
fact that a compromise agreement is verbal and not yet reduced to
writing does not make it any less binding.
Furthermore,
if
a
dispute exists as to whether an oral agreement was reached, the
issue is to be resolved by a jury. Barr v. Gilmour, 204 Ky. 582,
265 S-W. 6 (1924).
Thus, not only was the defense of compromise
- 16 -
and
settlement
fairly
debatable, Hackney's
testimony
alone
was
sufficient to create a jury issue. Steelvest, Inc. v. Scansteel
Service Center, Inc., Ky., 807 S.W.2d 476, 482 (1991).
Nevertheless, on October 8, 1992, a partial summary judgment was
entered in favor of the Glasses to the effect that no settlement
agreement had been reached on May 27, 1989.
Shortly
thereafter, Farm Bureau offered to settle the
case by paying the Safeco annuity package, plus $35,627.00
cash,
representing the balance of its $100,000.00
in
policy limits.
At the request of the Glasses' attorney, this offer was reduced
to writing.
record,
Although the response to this offer is not in the
a subsequent letter to the Glasses' attorney from Farm
Bureau's attorney indicates that the response was another demand
for a sum in excess of Farm Bureau's liability limits.
letter, Farm
Bureau's
attorney
reiterated
his
In his
client's
willingness to pay its policy limits and offered to pay either
the annuity plus the cash balance or, in the alternative, to pay
a lump sum of $100,000.00
in cash.
On April 29, 1993, the Glasses settled Humana's
subrogation claim for $12,500.00.
On May 5, 1993, they settled
their liability claim against Shelburne for $150,000.00,
representing Motorists Mutual's policy limits of $50,000.00
Farm Bureau's policy limits of $100,000.00.
Both
made in cash without any structured settlement.
payments
- 17 -
were
The case then
proceeded to trial on the remaining issues raised in the
complaint.
and
V.
THE TRIAL.
At trial, Jeffrey
Glass,
Kim Hardin,
Heather
and the investigating officer, Willie Scott, testified
facts of the accident.
Wentworth,
about
the
Although Shelburne was called as a
witness by the Glasses' attorney, he testified only briefly and
not about the accident.
Scott was permitted to testify that in
his opinion, Shelburne was not intoxicated at the time of the
accident.
However,
Hardin
and Wentworth were not permitted to
express their opinions that all four occupants of the pickup
truck were intoxicated-l4
Jeffrey's
treating
physician
testified
to the nature and extent of his injuries and a vocational
economic analyst testified to the monetary loss resulting from
the permanent impairment of Jeffrey's power to labor and earn
money.
Jeffrey,
Brenda and Doyle Glass all testified to their
versions of their negotiations with Gillahan and Hackney.
Doyle
and Brenda Glass testified that they suffered mental anguish
about their possible financial problems as a result of Jeffrey's
injuries,
claim.
the
particularly
with
respect
to
Humana's
subrogation
Jeffrey did not testify to any mental anguish caused by
settlement
negotiations.
Gillahan
and
Hackney
testified
to
141n Kentucky, a lay witness may testify on the basis of
observation and appearance that another person was intoxicated at
a given point in time. Johnson v. Vaughn, KY., 370 S.W.2d 591,
593 (1963); Howard v. Kentuckv Alcoholic Beverage Control Board,
294 Ky. 429, 172 S.W.2d 46 (1943); R. Lawson, The Kentuckv
Evidence Law Handbook, § 6.10, p. 281 (3rd ed. Michie 1993).
- 18 -
their versions of these negotiations, and Depp and three other
Farm Bureau employees testified to their handling of this claim.
Clinton
California,
Miller, an insurance consultant from San Jose,
testified on behalf of the Glasses that both
Motorists Mutual and Farm Bureau had acted in bad faith by not
immediately offering to pay their policy limits, including
Motorists Mutual's liability coverage for property damage and its
UIM
coverage, even though neither coverage applied to this
accident-l5
Miller was permitted to testify to his
interpretation of the UIM statute, even
though
his
interpretation
was contrary to the interpretation given to it by this Court in
LaFranffe v. United
S.W.2d
411 (1985).
Services
Automobile
Association,
Ky.,
700
He testified that Farm Bureau acted in bad
faith by not paying Jeffrey Glass's $1,975.00
property damage
claim under its liability coverage, even though payment of this
claim was never included in the settlement demands made either
before or after the commencement of this litigation or,
apparently,
at the time the liability claim against Shelburne was
finally settled.16
Miller was permitted to express his opinion
that the value of Jeffrey Glass's claim was between $900,000.00
15See text at footnotes 2 and 6, supra, and footnote 18,
infra.
16Since a specimen of the Farm Bureau policy is not found in
this record, its provisions are unknown; but if it contained the
same standard exclusion for property damage liability for damage
to property "used by" or "in the care of" the insured, as was
contained in Motorists Mutual's policies (see footnote 3, sunra),
there would be no property damage liability coverage applicable
to this accident and that would explain why no demand was ever
made that Farm Bureau pay that aspect of Jeffrey's claim.
- 19 -
and $1,250,000.00,
although he admitted that he had no knowledge
concerning jury verdicts in the community where this case was
tried, but rather had used a computer program based on jury
verdicts from all over the United States.
This was in direct
contravention of our holding in Manchester
Insurance
Co. v. Grundv, KY.,
821,
97 s.ct. 70,
531 S.W.2d
50 L.Ed.2d
82
493 (1975),
&
Indemnity
cert. denied, 429 U.S.
(1976).
We note that in the trial of this case the two
expert witnesses introduced by Grundy testified as to
what amount they would consider the case worth for
settlement purposes.
This is irrelevant.
The test of
this factor is what in the opinion of the expert a iurv
in the same communitv probably would have awarded at
the time of the trial on liability.
Id. at 501.
(Emphasis added.)
Compounding the prejudicial effect of this testimony,
defense counsel was not allowed to impeach Miller by showing that
Miller,
himself,
had filed nine lawsuits against various
insurance companies claiming millions of dollars for bad faith
and unfair claims settlement practices because of the failure of
the insurance companies to promptly pay relatively minor property
damage claims asserted by him.
On avowal, he admitted that each
case was settled by the insurer's payment of the underlying claim
and without payment of any compensatory or punitive damages for
his bad faith and UCSPA claims.
This evidence was relevant to
impeach Miller's credibility by showing his personal bias against
insurance companies and in favor of using bad faith and UCSPA
allegations to extort payment of underlying claims from insurers.
"Any proof that tends to expose a motivation to slant testimony
- 20 -
one way or another satisfies the requirement of relevancy.
The
range of possibilities is unlimited. . . .I' R. Lawson, The
Kentuckv
Evidence Law Handbook, § 4.15, p. 183 (3rd ed. Michie
1993).
The interest of a witness, either friendly or
unfriendly, in the prosecution or in a party is not
collateral and may always be proved to enable the jury
to estimate credibility.
It may be proved by the
witness' own testimony upon cross-examination or by
independent evidence.
Parslev v. Commonwealth, KY., 306 S.W.2d
284, 285 (1957).
See
also United States v. Spencer, 25 F.3d 1105 (D-C. Cir. 1994),
in
which the prosecutor in a criminal case was permitted to show for
impeachment purposes that a defense witness had pending charges
against her in conjunction with long-standing harassment of the
police.
The defendants presented the testimonies of John Berry,
an attorney from an adjoining county, and James E. Martain, a
retired
insurance
supervisor
from
Louisville,
who
expressed
their
opinions that the insurers had not acted in bad faith in their
dealings with the Glasses.
At the conclusion of the evidence, the trial judge
dismissed the claims of Brenda and Doyle Glass.
was injured in this accident.
Neither
parent
Jeffrey Glass was an adult; so any
expenses his parents incurred on his behalf were not reimbursable
directly from either Motorists Mutual or Farm Bureau, but were
owed to them by Jeffrey.
A parent does not have a personal cause
of action for mental anguish resulting from an injury to his or
her child. Michals v. William T. Watkins Memorial United
- 21 -
Methodist Church, Ky. App., 873 S.W.2d
216 (1994); Wilhoite v.
Cobb, Ky. App., 761 S.W.2d 625 (1988); cf. Hetrick v. Willis,
KY. r 439 S.W.2d
942 (1969).
The trial judge also dismissed Jeffrey's Consumer
Protection Act claim.
The Consumer Protection Act has no
application to third-party claims. Anderson v. National
Fire & Casualtv Co., Ky. App.,
870 S.W.2d
432 (1993).
Securitv
Under the
factual scenario of this case, Shelburne was the insured under
the liability coverage of Motorists Mutual's policy. Henderson v.
Selective Insurance Co., 242 F.Supp. 48 (W.D. Ky. 1965), aff'd,
369 F.2d 143 (6th Cir. 1966); Ocean Accident & Guaranty Co.. Ltd.
V.
Schmidt,
46 F.2d 269 (6th Cir. 1931).
Even
Clinton
Miller
admitted that Jeffrey Glass was a third-party claimant against
Motorists
Mutual's
liability
coverage.
The
only
first-party
claim in this case was Jeffrey's claim against Motorists Mutual's
UIM coverage.
As will be discussed infra, he had no valid claim
to the UIM coverage; thus, he had no valid claim under the
Consumer
Protection
Finally,
Act.
the trial judge granted Farm Bureau's motion
for a directed verdict on the issue of punitive damages, but
denied its motion for a directed verdict on its claimed violation
of the UCSPA.
These rulings are inconsistent with our holding in
Wittmer v. Jones, Ky., 864 S.W.2d
885, 890 (1993) that before a
cause of action for a violation of the UCSPA exists, there must
be evidence sufficient to warrant punitive damages.
- 22 -
(Wittmer v.
Jones was rendered two months after the conclusion of the trial
of this action.)
The jury was instructed on seven sections of the UCSPA
with respect to Motorists Mutual and three sections with respect
to Farm Bureau.
As to each insurer, the jury was instructed that
if they found a violation of any section, they could award
compensatory damages consisting of the reasonable costs and
expenses incurred in bringing this suit and "whatever
embarrassment,
humiliation
and
mental
anguish"
Jeffrey
Glass
suffered as a direct result of the failure to settle his claim.
The jury was also authorized to award punitive damages against
Motorists
Mutual.
Instruction No. 6 was as follows:
You are instructed the Court has ruled that the
Plaintiff, Jeffrey A. Glass, has available to him
insurance coverage under his policies in an amount not
to exceed $200,000.00.
What sum of money, if any, do you award the
Plaintiff, Jeffrey A. Glass, under this Instruction not
to exceed $200,000.00?
We now know this instruction pertained to the trial
judge's conclusion that there was $200,000.00
in stacked UIM
coverage available to Jeffrey for this accident.
However,
the
jury could well have believed from this instruction that
$200,000.00
was all that was available to pay the $928,208.12
which they had awarded Jeffrey for compensatory and punitive
damages under the UCSPA instructions.
awarded
the
entire $200,000.00
Not
surprisingly,
the
jury
authorized under this instruction.
- 23 -
The verdicts were as follows:
Against
Motorists
$
9,208.11
-O485,OOO.OO
200.000.00
$694,208.11
Mutual:
- Costs and expenses
- Embarrassment, humiliation, anguish
- Punitive damages
- Underinsured motorists coverage payments
Against Farm Bureau:
$ 9,208.12
434.000.00
$443,208.12
- Costs and expenses
- Embarrassment, humiliation,
anguish
The jury also found under an interrogatory instruction
that Motorists Mutual failed to make a good faith attempt to
settle Jeffrey's claim within thirty days from the date on which
it was furnished with notice or proof of loss.
This finding was
the basis for the award in the judgment of $231,402.70
attorney
in
fees.
VI.
THE
UNDERINSURED
MOTORIST
CLAIMS.
The trial judge concluded that Jeffrey could stack the
UIM coverages for the four vehicles described in the two
Motorists Mutual policies. See Allstate Insurance Co. v. Dicke,
KY.,
862 S.W.2d
327 (1993).
However,
since one of those vehicles
was added to the policy after the date of this accident, the
maximum
available
UIM
coverage
policies was $150,000.00.
under
both
Motorists
Mutual
In fact, none of that available
coverage was applicable to this accident.
- 24 -
On the date of this accident, KRS 304.39-320 contained
the
following
offset
provision:
[Tlhe insurance company agrees to pay its own insured
for such uncompensated damages as he may recover on
account of injury due to a motor vehicle accident
because the judgment recovered against the owner of the
other vehicle exceeds the policy limits thereon, to the
extent of the policy limits on the vehicle of the party
recovering less the amount paid by the liability
insurer of the party recovered against.
In LaFranse v. United
Services
Automobile
Association,
suora, we held that this statutory provision meant exactly what
it said, i.e., an insurance company is required to pay under its
UIM coverage only to the extent that the UIM coverage exceeds the
liability
policy
limits
of
the
tortfeasor's
insurance
policy.
In
that case, the limits of the injured insured's UIM coverage were
$25,000.00
and the limits of the tortfeasor's liability coverage
were also $25,000.00.
"When we offset $25,000 against $25,000,
the remainder is zero." Id. at 413.
The offset provision was deleted by a statutory
amendment effective July 15, 1988. Ky. Acts 1988, Ch. 180,
§ I.
Since the amendment was not expressly declared to be retroactive,
it does not affect claims arising out of injuries which occurred
prior to its effective date. KRS 446.080(3);
International
Armament
Corp.,
cf. Kochins v.
Ky., 772 S.W.2d
As also pointed out in LaFranse,
634 (1989).
suora, the insurance
contract could provide broader coverage than required by the
stat,ute.
However,
underinsured
motor
as noted earlier, the policy defines an
vehicle
as "a land motor vehicle . _ . to
which a bodily injury liability _ _ . policy applies at the time
- 25 -
of the accident but its limit for bodily injury liability is less
than the limit of liability for this coverage.t117
The UIM
portion of the policy further provides:
Any amounts otherwise payable for damages under this
coverage shall be reduced by all sums:
1.
Paid because of the bodily injury by or on behalf
of persons or organizations who may be legally
responsible.
This includes all sums paid under
part A.l*
Part A is the liability coverage under which Shelburne
was covered as an additional insured.
Thus, the
policy
mirrors
the statutory offset provision in effect at the time of this
accident.
Even if the offset provision did not apply in this
case, Jeffrey still could not recover under the UIM coverage of
these
policies.
of KRS 304.39-320
The language of the post-July 15, 1988 version
includes the following:
Every insurer shall make available upon request to its
insureds underinsured motorist coverage, whereby
subject to the terms and conditions of such coverage
not inconsistent with this section the insurance
company agrees to pay its own insured for such
uncompensated damages as he may recover on account of
injury due to a motor vehicle accident because the
judgment recovered against the owner of the other
vehicle exceeds the liability policy limits thereon, to
the extent of the underinsurance policy limits on the
vehicle of the partv recovering.
(Emphasis added.)
The
statute
contemplates
that
the
underinsured
tortfeasor will be operating a different vehicle than the vehicle
providing UIM coverage for the injured claimant.
17Policy
Conceptually,
Provision Amendments to Part C of the policy.
laPart C, Limit of Liability, paragraph Bl.
- 26 -
the purpose of the statute is to give the insured the right to
purchase additional liability coverage for the vehicle of a
prospective
underinsured
tortfeasor.
LaFrancre,
supra,
at
414.
The statute does not authorize recovery against both the
liability and UIM coverages of the same policy. Pridham v. State
Farm Mutual Insurance Co., Ky. App., 903 S.W.2d
Windham v. Cunningham, Ky. App.,
909 (1995);
902 S.W.2d 838 (1995).
The
issue then becomes whether the policy, itself, permits such
recovery;
and/or whether Jeffrey can recover under the UIM
coverage of his parents' Motorists Mutual policy, under which he
is not a liability claimant but is an additional insured for UIM
purposes.
Both policies exclude from the definition of an
underinsured
vehicle
any
vehicle "[olwned
by or furnished or
available for the regular use of you or any family member,111g
which clearly applies to the 1980 pickup truck involved in this
accident.
The validity of this exclusion was discussed at length
by the Court of Appeals in Windham
v. Cunningham, supra, at 841.
We agree with the Court of Appeals' analysis and with its
conclusion that the exclusion is not against public policy.
"The
purpose of UIM coverage is not to compensate the insured or his
additional insureds from his own failure to purchase sufficient
liability
insurance."
Id.
The Glasses argue that they paid a premium for UIM
coverage,
reasonable
thus the exclusion is void because of the "doctrine of
expectations."
That principle or doctrine, first
lgPart C, Insuring Agreement, paragraph C, exception 1.
- 27 -
enunciated by this Court in Ohio Casualtv Insurance Co. v.
Stanfield, Ky., 581 S.W.2d
555, 559 (1979),
does not pertain to
whether a premium was paid for coverage which is excluded, but
rather to the clarity of the exclusionary language.
As we
explained in Simon v. Continental Insurance Co., Ky., 724 S.W.2d
210,
212-13
(1986):
The gist of the doctrine is that the insured is
entitled to all the coverage he may reasonably expect
to be provided under the policy.
Only an unequivocally
conspicuous, plain and clear manifestation of the
company's intent to exclude coverage will defeat that
expectation.
. . .
The doctrine of reasonable expectations is used in
conjunction with the principle that ambiguities should
be resolved against the drafter in order to circumvent
the technical, legalistic and complex contract terms
which limit benefits to the insured.
(Quoting R. H. Long, The Law of Liabilitv Insurance, § 5.10B.)
There is nothing ambiguous about this exclusion.
A
vehicle
owned
by or furnished or available for the regular use of the named
insured or a family member is not an "underinsured vehicle."
The obvious reason for the exclusion is that the named insured
can avoid the fact of underinsurance by simply purchasing
additional
liability
insurance
coverage
The Glasses' Consumer
for
Protection
his
Act
vehicle.
claim
was
also
premised upon their perception that Motorists Mutual sold them
policies of insurance with UIM coverage that was illusory.
The
coverage was not illusory; it just did not apply to the facts of
this case.
If this had been a two-vehicle accident with
Shelburne operating his own vehicle, and
if
insurance coverage had been only $25,000.00,
- 28 -
Shelburne's
liability
then Jeffrey could
have recovered $25,000.00
in UIM payments for each of the three
vehicles to which the UIM coverage applied.
If the accident had
occurred after July 15, 1988, he could have recovered $50,000.00
for each of the three covered vehicles.
If there had been a valid UIM claim in this case, it
should have been presented to the jury in the same manner as the
liability claim against Shelburne would have been presented had
it not been settled, except that Motorists Mutual would have been
the only named defendant.
with the negligence (UIM)
The trial should have been bifurcated
claim tried first, followed by the bad
faith claim. Wittmer v. Jones, supra, at 891.
The
jury
should
have been instructed to apportion liability according to
comparative fault and to determine damages for the injuries
sustained.
(Civil),
See 2 Palmore, Kentuckv
Instructions to Juries
§ 16.55 (4th ed. Anderson 1989).
Only if the verdict
equaled or exceeded the sum of the applicable liability and UIM
coverages would Jeffrey have been entitled to the UIM policy
limits.
Thus, if there had been $200,000.00
UIM coverage
available in this case, Jeffrey would have been entitled to the
full amount only if the apportioned verdict of the jury equaled
or exceeded $350,000.00.
$l50,000.00
If the verdict did not exceed the
liability limits, he would have been entitled to none
of the UIM coverage.
Clearly,
it was improper to merely tell the
jurors how much coverage was available and ask them how much of
that coverage they wanted Jeffrey to receive.
- 29 -
VII.
THE UCSPA CLAIMS.
The common law cause of action premised upon an
insurance company's bad faith refusal to settle a claim arose
initially in the context of an insurer's failure to settle a
liability claim against its own insured, which resulted in a
verdict in excess of the insured's policy limits. E.g., State
Farm Mutual Automobile Insurance Co. v. Marcum, Ky., 420 S.W.2d
113 (19671,
overruled on other grounds, Manchester
Indemnitv Co. v. Grundv, supra, at 500.
Insurance
&
In Manchester, we
recognized that under the principle of privity of contract, the
cause of action belonged only to the liability insured; but that
the insured could assign it to the liability plaintiff in
consideration for a release of the insured from any liability in
excess of the policy limits.
As assignee of the insured, the
successful plaintiff could then bring the "bad faith" action in a
derivative capacity against the insurer to recover the excess
amount of the verdict.
Punitive damages were not recoverable,
because the action was considered to be one for breach of
contract.
This type of action is referred to as a "third-party
bad faith" action.
Mere negligent failure to settle within the
policy limits or errors of judgment are insufficient to
constitute bad faith. Harvin v. United
co., KY-,
V.
428 S.W.2d
States
Fidelitv
&
Guarantv
213, 215 (1968); American Suretv Co. of N.Y.
J. F. Schneider & Son, Inc., Ky.,
307 S.W.2d
overruled on other grounds, Manchester,
- 30 -
supra,
192, 195 (1957),
at
500.
In
Manchester,
sunra,
the test for bad faith in a third-party action
was stated as follows:
Did the insurer's failure to settle expose the insured
to an unreasonable risk of having a judgment rendered
against him in excess of the policy limits?
If the
question is answered rlyes" by the trial court after
weighing and evaluating the various factors, then the
insurer is guilty of "bad faith."
Id. at 501.
The "various factors" to be considered in
determining the existence of bad faith are (1) whether the
plaintiff offered to settle for the policy limits or less, (2)
whether the insured made a demand for settlement on the insurer,
and (3) the probability of recovery and of a jury verdict which
would exceed the policy limits. Id. at 500.
In Kentucky, the common law tort of "first-party bad
faith" had its genesis in Feathers v. State Farm Fire & Casualtv
CO
A,
K
Y
.
AFT.,
667 S.W.2d
693 (19831,
homeowner's policy for a fire loss.
which was a claim against a
Prior
to
Feathers,
damages
for breach of a first-party insurance contract were limited to
the amount due under the contract. Deaton v. Allstate Insurance
co
A, KY. APP.,
548 S.W.2d 162 (1977); General
Life Assurance Corn. v. Judd, KY.,
400 S.W.2d
Accident
Fire &
685 (1966).
Punitive damages could not be awarded because "punitive damages
ordinarily are not recoverable for a breach of contract." Judd,
supra, at 688.
In Feathers, supra, the Court of Appeals viewed
the failure of an insurance company to settle a first-party claim
in good faith as a tort, not a breach of contract.
[Tlhe proceeds of the policy may not be withheld unless
there is a substantial breach of the contract by the
policyholder.
Whether or not State Farm was justified
- 31 -
in withholding and denying the payment of the losses
will be resolved by trial. We simply say that if State
Farm was not justified in its actions, then its conduct
was tortious against the policyholder for which
consequential and punitive damages may be presented to
the fact finder.
Id. at 696-97.
Feathers
Kemoer Insurance Co. v.
subsequently
Hornback, KY.,
was
overruled
711 S.W.2d
by
Federal
844 (1986),
which in turn was overruled by Currv v. Fireman's Fund Insurance
co., KY.,
784 S.W.2d
176 (1989).
In Currv, we
incorporated
by
reference the dissenting opinion of Justice Leibson in Federal
Kemoer. Currv, supra, at 178.
In addition to common law third-party and first-party
bad faith claims, we have recognized two "statutory bad faith"
causes of action, both predicated upon KRS 446.070, which states:
A person injured by the violation of any statute may
recover from the offender such damages as he sustained
by reason of the violation, . . .
In Stevens v. Motorists Mutual Insurance Co., Ky., 759
S.W.2d
819 (1988),
we held that the Consumer Protection Act
provides an insured under a homeowner's policy with a remedy
against the conduct of his insurance company, if such conduct
constitutes an unlawful act as defined in KRS 367.170.
case,
In that
a claim that the insurance company misrepresented the
contents of an engineering report and terminated settlement when
there apparently were reasonable grounds for a compromise was
held to state a cause of action under the statute.
specifically,
co. v. Reeder,
More
we held in State Farm Mutual Automobile Insurance
KY.,
763 S.W.2d
116 (19881,
that a violation of
the UCSPA could create a private cause of action for a third- 32 -
party claimant damaged as a result of the violation of one or
more of its provisions.
Reeder did not address the degree of
proof necessary to prevail on such a claim.
That
issue
awaited
our decision in Wittmer v. Jones, sunra.
In Wittmer, we
returned
opinion in Federal Kemner, sunra,
to
Justice
Leibson's
dissenting
to determine what degree of
proof was necessary to sustain a claim of bad faith.
Of course,
both Federal Kemper and Currv were common law first-party bad
faith claims, whereas Wittmer was a statutory third-party bad
faith claim.
We held in Wittmer that the same principles apply
to third-party claims as to first-party claims. Wittmer, suz>ra,
at 890.
Those principles were enunciated as follows:
[Aln 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. . . . [Aln insurer is . . . entitled to
challenge a claim and litigate it if the claim is
debatable on the law or the facts.
Id.
at 890 (quoting Justice Leibson's
Federal Kemner, sunra,
dissenting opinion in
at 846-47).
Again quoting from the Federal Kemner
dissent, we held
in Wittmer that in order to justify an award of punitive damages,
there must be proof of bad faith sufficient for the jury to
conclude that there was conduct that was outrageous, because of
the defendant's evil motive, or his reckless indifference to the
rights of others.
If the evidence suffices to justify punitive
- 33 -
damages under this standard, a cause of action for statutory bad
faith premised on a violation of the UCSPA may be maintained.
not,
If
the cause of action cannot be maintained. Wittmer, supra, at
890-91.
Finally, we held in Wittmer that there can be no private
cause of action for a mere "technical violation" of the UCSPA.
Id. at 890.
As required by KRS 446.070, a condition precedent to
bringing a statutory bad faith action is that the claimant was
damaged by reason of the violation of the statute.
Although the jury in this case was instructed on seven
separate sections of the UCSPA, the
allegations
against
Motorists
Mutual and Farm Bureau boil down to a claim that they did not
promptly offer to pay Jeffrey Glass what his claim was reasonably
worth.
Pursuant to Wittmer, to prevail on this claim, Jeffrey
needed to prove that the conduct of the insurers was outrageous,
because of an evil motive or reckless indifference to his rights.
In applying that standard to the evidence in this case, it must
be kept in mind that mere delay in payment does not amount to
outrageous conduct absent some affirmative act of harassment or
deception.
Cf. Zurich Insurance Co. v. Mitchell, Ky., 712 S.W.2d
340 (1986).
In other words, there must be proof or evidence
supporting a reasonable inference that the purpose of the delay
was to extort a more favorable settlement or to deceive the
insured with respect to the applicable coverage.
In addition to the duties owed to Jeffrey Glass, both
insurers owed a duty to their liability insured, Shelburne, to
protect him from a potential excess judgment. Manchester
- 34 -
Insurance & Indemnitv Co. v. Grundv, supra.
That
would
include
obtaining from the Glasses a release of all claims against him in
exchange for the payment of a liability settlement. Coots v.
Allstate Insurance Co., Ky., 853 S.W.2d
895, 901 (1993). If
Motorists Mutual had paid its policy limits to Glass before Farm
Bureau arrived on the scene, and obtained a release in favor of
Shelburne in exchange for its payment, the Glasses would have
lost access to Farm Bureau's liability coverage.
Since
Motorists
Mutual and Farm Bureau were insuring the same tortfeasor, the
principle enunciated in Richardson v. Eastland. Inc., Ky., 660
S.W.2d
7 (1983),
that the release of one tortfeasor does not
discharge another, would not apply.
$25,000.00
Even
if
Gillahan's
initial
offer could be interpreted as a violation of the
UCSPA, the Glasses were not damaged by that violation.
They
would have been damaged if Gillahan had offered his policy
limits, the offer had been accepted, and the Glasses had executed
a release in favor of Shelburne.
After August 17, 1988, the date
Farm Bureau was first notified of this accident, Motorists Mutual
never offered to pay less than the equivalent of its full policy
limits to settle the case.
The fact that it offered a structured
settlement as opposed to a lump sum cash payment cannot be
characterized as outrageous conduct, an evil motive, or reckless
indifference to the rights of the Glasses.
To the contrary, it
would have been much simpler for Motorists Mutual to have paid
its limits in a lump sum and obtained a release.
- 35 -
It was the Glasses, not Motorists Mutual, who were
unwilling to settle this claim, because of their concern that all
of the settlement money would be claimed by Humana
satisfaction of its subrogation claim.
in
For a discussion of the
respective rights of an injured claimant and his subrogee to a
limited fund of money, see Wine v. Globe American Casualty Co.,
KY. I
917 S.W.2d
558 (1996).
Regardless,
Motorists
Mutual
owed
no
duty to Jeffrey Glass to settle a liability claim which Jeffrey,
himself,
had assigned by contract to Humana.
The remainder of
Jeffrey's claim of bad faith against Motorists Mutual was
premised
on
Motorists' refusal to pay its UIM coverage and its
property
damage
liability
coverage.
Since neither of those
coverages applied to this accident, that
argument
necessarily
fails as well.
Farm Bureau did not receive notice of this accident
until August 17, 1988.
any
coverage
exhausted.
until
As the "excess1
Motorists
Mutual's
insurer, it did not owe
primary
coverage
Ohio Casualtv Insurance Co. v. State
Automobile Insurance Co., KY.,
511 S.W.2d
Farm
was
Mutual
671, 674 (1974)
(quoting Appleman, Insurance Law & Practice, § 4914).
Upon
receipt of proof of Motorists Mutual's intent to pay its
liability
limits, Farm
Bureau
responded
positively
request for authority received from Hackney.
to
every
It is not bad faith
per se for an insurance company to offer to settle for less than
its policy limits.
That is particularly true where, as here, the
claimants never demanded oavment
of the oolicv limits or anv
- 36 -
other sum prior to retaining an attorney. Davis v. Home Indemnitv
co., KY., 659 S.W.2d
185, 189 (1983); Manchester
Indemnitv Co. v. Grundv, sunra, at 500.
Insurance
&
Nor is it bad faith to
refuse a demand to settle for a sum in excess of the policy
limits,
such as the demands made of both insurers by the Glasses'
attorney. Cooper v. Automobile Club Insurance Co., Ky. App., 638
S.W.2d
280, 282 (1981).
The Glasses assert that Joel Depp, on behalf of Farm
Bureau,
acted in bad faith either in evaluating Jeffrey's claim
too low, or in not evaluating it at all.*O
Depp's
claimed
evaluation was based upon the documentation available at the time
the evaluation was made, long prior to the time when Farm
Bureau's
liability
as
excess
insurer
ripened.
That did not occur
until Farm Bureau was notified of Motorists Mutual's intent to
pay its policy limits.
evaluation,
Even if Depp made an incorrect
or no evaluation at all, such would not constitute
conduct that was lVoutrageous,
because of the defendant's evil
motive or his reckless indifference to the rights of others."
Wittmer, supra, at 890.
be
The UCSPA does not require that a claim
evaluated, or that it be evaluated correctly.
It only
requires that payment of a claim not be refused without
conducting
a
information,
reasonable
KRS
investigation
304.12-230(4),
based
on
all
available
and that a good faith attempt be
200n petition for rehearing, the Glasses asserted for the
first time that since Depp's file does not contain a written
notation of his claimed evaluation, the jury could have
reasonably concluded that he never made an evaluation of this
claim.
- 37 -
made to effectuate a prompt, fair
304.12.230(6).
Furthermore,
and
equitable
settlement,
KRS
since Depp never received a
settlement demand from the Glasses and never refused a request
from Hackney for additional authority with which to increase the
settlement
offer, his action or inaction with respect to
evaluating this claim resulted in no damage to the Glasses.
Absent
resultant
damage, there can be no cause of action premised
upon the violation of a statute, i.e., the UCSPA. KRS 446.070.
The Glasses also assert that Farm Bureau's reliance on
the purported May 27, 1989
settlement
constituted
bad
faith.
In
view of Hackney's deposition testimony and existing law as
expressed in Barr v. Gilmour, supra,
fairly
debatable,
that defense not only was
it had substantial merit.
The Glasses'
contention that Farm Bureau's payment of its policy limits after
rendition of the partial summary judgment was a "judicial
admission"
is
that the settlement defense was not fairly debatable
preposterous.
If Farm Bureau had not offered its policy
limits after losing on the settlement issue, the Glasses would
now be claiming that it was bad faith for Farm Bureau to withhold
its policy limits after it had been judicially determined that it
had no valid defense.
We reiterate what Justice Leibson said in
his dissenting opinion in Federal Kemoer
Hornback,
Mutual
Insurance Co. v.
incorporated by reference in Currv v. Fireman's Fund
Insurance
Co., and quoted verbatim in Wittmer v. Jones,
that an insurer is entitled to challenge a claim and litigate it
if the claim is debatable on the law or the facts.
- 38 -
As in Wittmer
V.
Jones, sunra,
the trial judge correctly recognized that there
was insufficient evidence for a claim of punitive damages against
Farm Bureau, but failed to recognize that by the same token Farm
Bureau was entitled to a directed verdict on the claim of
statutory bad faith.
Before leaving this issue, we deem it necessary to
address those instructions which permitted the jury to assess
damages
mental
for
Jeffrey
Glass's
"embarrassment,
humiliation
and
anguish" suffered as a result of the failure of the
insurers to settle his claim.
While damages for anxiety and
mental anguish are recoverable in an action for statutory bad
faith, FB Insurance Co. v. Jones, Ky. App., 864 S.W.2d 926
entitlement to such damages requires either direct or
(19931,
circumstantial evidence from which the jury could infer that
anxiety or mental anguish in fact occurred.
clear
and
The proof must be
satisfactory; and evidence based on conjecture will not
support a recovery for such damages. 25A C.J.S. Damages, §
162(7);
cf. Mountain Clay.
Inc. v. Commonwealth.
Human Rights, Ky. App., 830 S.W.2d
Commission
395, 397 (1992);
Kentuckv
Commission on Human Rights v. Fraser, Ky., 625 S.W.2d
(1981).
on
852, 856
In the absence of any evidence that Jeffrey suffered any
embarrassment,
settlement
humiliation or mental anguish as a result of the
negotiations, it was error to submit that element of
damages to the jury.
- 39 -
VIII.
ATTORNEY
FEES.
The attorney fees were awarded pursuant to KRS 304.12235(3), which provides as follows:
If an insurer fails to settle a claim within the time
prescribed in subsection (1) of this section and the
delay was without reasonable foundation, the insured
person or health care provider shall be entitled to be
reimbursed for his reasonable attorney's fees incurred.
No part of the fee for representing the claimant in
connection with this claim shall be charged against
benefits otherwise due the claimant. (Emphasis added.)
This section applies only to an insurer's negotiations
with its own policyholder or the policyholder's health care
provider.
Thus, the trial judge correctly held that Farm Bureau
could not be liable for attorney fees.
jury
found
under
an
interrogatory
As noted earlier, the
instruction
that
Motorists
Mutual did not make a good faith effort to settle Jeffrey's claim
within thirty days of receipt of notice or proof of loss. In
fact,
the version of KRS 304.12-235(l)
in effect at the time of
this accident required a good faith attempt to settle the claim
within sixty days, not thirty days.
Furthermore,
the
interrogatory instruction did not require the jury to determine
whether the failure to settle within the specified time period
was "without
reasonable
foundation."
Regardless,
Motorists
Mutual was entitled to a directed verdict on this issue as well.
Farm Bureau was not put on notice of its excess liability
exposure until more than sixty days after notice was given to
Motorists
Mutual.
Certainly,
the claim could not and should not
have been settled without Farm Bureau's participation.
Also,
simple logic dictates that a condition precedent to liability for
- 40 -
failure to settle must be the claimant's willingness to accept a
Even after Motorists Mutual offered its policy
settlement.
limits, the Glasses refused to settle because of their concern
about Humana's
a "reasonable
subrogation claim.
As a matter of law, there was
foundation" for Motorists Mutual's failure to
settle this claim within sixty days of its receipt of notice.
Therefore,
KRS 304.12-235
award of attorney fees.
authorizing
was not available as authority for an
Absent a written agreement or
statute, a party to an action may not recover
attorney fees from the adverse party. Louisville Label, Inc. v.
Hildesheim, KY., 843 S.W.2d
321, 326 (1992).
The Glasses assert that because their attorney was not
named as a party in Motorists Mutual's notice of appeal from the
final
judgment,
it is precluded from now contesting that issue.
Citizens Fidelitv Bank and Trust Co. v. Fenton Rissina Co., KY.,
522 S.W.2d
862 (1975).
However,
since the judgment did not award
the fee directly to the attorney, there was no reason for the
attorney to be named as a party to the appeal. Knott v. Crown
Colonv Farm, Inc., Ky., 865 S.W.2d 326, 331 (1993).
IX.
COSTS AND EXPENSES.
The jury was permitted.to
expenses" in the sum of $18,416.23,
and did award "costs and
which
between Motorists Mutual and Farm Bureau.
they
divided
Clearly,
the
equally
Glasses
are entitled to their costs, since they prevailed on their
liability claims against Shelburne. KRS 453.040(l)
V.
(a); Cheatham
Harmon, 182 Ky. 35, 206 S.W. 16 (1918); Harrodsburs Water Co.
- 41 -
V.
Citv of Harrodsburg, KY., 89 S.W. 729 (1905).
In fact, the
Glasses filed a statement of costs after entry of the judgment in
the sum of $1,712.50,
the only objection to which was that the
same costs had been included in the verdict as damages for "costs
and
expenses."
There is no basis for an award of any costs or
expenses incurred by the Glasses in this litigation except those
authorized by KRS 453.040(l) (a).
For the reasons stated in this opinion, we reverse the
Court of Appeals and vacate the judgment of the Shelby Circuit
Court, except insofar as the judgment awards Jeffrey Glass those
costs set forth in his statement of costs filed pursuant to KRS
453.040(l) (a),
in which respect the judgment is affirmed.
Graves, Johnstone,
and Stephens, JJ., concur.
Lambert,
C.J., dissents by separate opinion along with a supplemental
dissenting
the
opinion, with
dissenting
and
Stumbo
supplemental
and
Wintersheimer,
dissenting
- 42 -
JJ.,
opinions.
joining
ATTORNEY
FOR
MOTORISTS
MUTUAL
INSURANCE
COMPANY:
Perry Adanick
327 Guthrie Green
Louisville, KY 40202
ATTORNEY FOR JEFFREY GLASS, GARNETT DOYLE GLASS, BRENDA GLASS and
GREGG Y. NEAL:
Gregg Neal
Neal & Davis
931 Main Street
P.O. Box 40
Shelby-ville, KY
ATTORNEYS
FOR
40066-0040
KENTUCKY
FARM
BUREAU
Wayne J. Carroll
Edward H. Bartenstein
MacKenzie & Peden, PSC
Suite 650, Starks Bldg.
455 South Fourth Avenue
Louisville, KY 40202
- 43 -
MUTUAL
INSURANCE
COMPANY:
-
RENDERED:
OCTOBER 30, 1997
AS MODIFIED: FEBRUARY 18, 1999
TO BE PUBLISHED
95-SC-972-DG
MOTORISTS
V.
MUTUAL
INSURANCE
COMPANY
ON REVIEW FROM COURT OF APPEALS
93-CA-2137, 93-CA-2198 & 93-CA-2235
SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
90-CI-136
JEFFREY GLASS; GARNETT DOYLE GLASS;
BRENDA GLASS; GREGG Y. NEAL, Attorney;
and KENTUCKY FARM BUREAU MUTUAL INSURANCE
COMPANY
and
APPELLEES
95-SC-980-DG
KENTUCKY FARM BUREAU
INSURANCE COMPANY
V.
APPELLANT
MUTUAL
ON REVIEW FROM COURT OF APPEALS
93-CA-2137, 93-CA-2198 & 93-CA-2235
SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
90-CI-136
APPELLANT
JEFFREY GLASS; and
INSURANCE COMPANY
MOTORISTS
MUTUAL
APPELLEES
96-SC-800-DG
JEFFREY GLASS; GARNETT DOYLE GLASS;
BRENDA GLASS; and GREGG Y. NEAL
V.
CROSS-APPELLANTS
ON REVIEW FROM COURT OF APPEALS
93-CA-2137, 93-CA-2198 & 93-CA-2235
SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
90-CI-136
MOTORISTS MUTUAL INSURANCE COMPANY;
and KENTUCKY FARM BUREAU MUTUAL
INSURANCE COMPANY
CROSS-APPELLEES
DISSENTING OPINION BY JUSTICE LAMBERT
I dissent from the majority opinion.
There are
substantial aspects of that opinion with which I disagree and
others which exceed the analysis required for resolution of the
-2
-
issues.
Portions of the majority opinion are laden with obiter
dictum which may modify Kentucky law in future cases in ways
wholly
beyond
our
present
contemplation.
The majority opinion in the Court of Appeals by Judge
Miller, with Judge Combs concurring and Judge Wilhoit dissenting,
appropriately addresses and resolves the issues presented and
gives due regard to trial court discretion regarding the
admission and exclusion of evidence and proper regard for the
jury
verdict.
Accordingly,
I file herewith the majority opinion
in the Court of Appeals as my dissenting opinion in this case.
On May 13, 1988, appellee/cross-appellant,
Jeffrey
A. Glass, received injuries and ultimate loss of his
right arm, the result of a one-car accident. He was a
passenger in his 1980 Ford pickup truck which, at the
time of the accident, was being operated by one Stephen
Shelburne.
Jeffrey's truck was insured by appellant/crossappellee, Motorists Mutual Insurance Company (Motorists
or Motorists Mutual). His policy contained a bodily
injury liability limit of $SO,OOO.OO
and $50,000.00
"underinsured motoristl' (UIM) coverage. Jeffrey, a
teenager, lived with his parents, cross-appellants/
Garnett Doyle Glass and Brenda Glass (the Glasses). At
the time the Glasses had two other vehicles insured
UIM c1ause.l
with Motorists, each with a $50,000.00
'The record reveals that the Glasses had two insurance
policies with Motorists Mutual. Policy Number 5342-06-224865-OOA
will be referred to in the course of this opinion as "Policy A."
This policy covered two motor vehicles and insured Garnett Doyle
- 3 -
Shelburne, the driver, was insured by appellant/crossappellee, Kentucky Farm Bureau Mutual Insurance Company
(Farm Bureau) with a bodily injury liability limit of
$100,000.00.
After the accident a Motorists Mutual claims
representative contacted Jeffrey and commenced
settlement negotiations within the $50,000.00
limit
provided on the pickup. It was then realized there
might be excess insurance available from Farm Bureau,
Shelburne's
insurer. Thereafter Motorists and Farm
Bureau commenced negotiations with the Glass family to
settle all claims within the $50,000.00
limit on the
pickup and the $100,000.00
limit on Shelburne.
With the aid of an expert employed by Motorists
Mutual, a structured settlement was explored. The
settlement was intended to be funded by annuities
purchased by Motorists ($485,000.00)
and Farm Bureau
($434,000.00)
over Jeffrey's life. At some point after
discussion of the structured settlement to be funded by
the annuities, negotiations came to an impasse and
Jeffrey sought advice of counsel. On May 3, 1990, the
Glasses filed suit against Motorists Mutual and Farm
Bureau alleging, inter alia, bad faith settlement
practices.2
In 1993 an extensive jury trial resulted in the
following awards:
will be
Glass and Brenda Glass. Policy Number 5342-04-224866-11D
referred to as "Policy D." At the time of the accident, this
policy covered Jeffrey's truck and, after the accident, also
covered another motor vehicle. Policy D insured Garnett, Brenda,
and Jeffrey. Collectively, we will sometimes refer to Policy A
and Policy D as "the Glasses' policies." Policies A and D
substantively contained identical language.
'The suit named Stephen Shelburne as a tortfeasor/defendant.
Shelburne was dismissed from the proceedings on May 6, 1993, when
Motorists Mutual and Farm Bureau paid their respective bodily
injury policy limits.
-4
-
1.
2.
3.
4.
punitive damages
liability on UIM coverage
reasonable costs
attorney fees
$925.610.81
TOTAL
$ 9,208.12
434.000.00
reasonable costs
mental anguish, etc.
$443.208.12
1.
2.
$485,000.00
200,000.00
9,208.11
231.402.70
TOTAL
Judgment was entered upon the
thus precipitating these appeals.
MOtOriStS
Mutual’s
foregoing
awards,
ADDeal
We first address the issue of Jeffrey's UIM
coverage.
The circuit court concluded that Jeffrey was
entitled to $200,000.00
of UIM coverage. Conversely,
Motorists contends that no such coverage was available
to Jeffrey and that a directed verdict was mandated
upon this issue. Ky. R. Civ. P. (CR) 50.01. Motorists
contends that UIM coverage is unavailable to Jeffrey
because KRS 304.39-320 contemplates such coverage only
in multi-vehicle accidents. However, we are reminded
of the following:
"Underinsured motorist coverKRS 304.39-320,
age," is part of the Motor Vehicle
Reparations Act (MVRA), and, as such, is
remedial legislation which should be
generally construed to accomplish its stated
- 5 -
cf. Bishon v. Allstate Ins. Co.,
purposes.
K Y ., 623 S.W.2d 865 (1981).
v. United Serv. Auto. AssIn,
411, 413 (1985).
LaFranse
KY., 700 S.W.2d
The stated purposes of the MVRA are enunciated in
KRS 304.39-010. One such purpose found in subsection
(3) reads as follows:
To encourage prompt medical treatment and
rehabilitation of motor vehicle accident
victim by providing for prompt payment of
needed medical care and rehabilitation.
If KRS 304.39-320 is construed to effect the
above-stated purpose, we believe it cannot be so
narrowly interpreted as to'encompass only multi-vehicle
accidents.
We think such construction repugnant to KRS
304.39-320
and to the very pith of the MVRA.
Motorists Mutual also avers that Jeffrey is not
entitled to UIM coverage because such coverage is
specifically excluded from an Itinsured vehicle." In
support of same, Motorists relies upon the following
policy language:
When the term uninsured motor vehicle is used
in Part C, it shall also include underinsured
motor vehicle . . . .
PART
.
.
C--UNINSURED
MOTORISTS
COVERAGE
I
C. Tninsured motor vehicle"
means a land motor vehicle or
trailer of any type:
1. To which no bodily
injury liability bond
or policy applies at
- 6 -
the time of the
accident.
2. To
which a bodily
injury liability bond
or policy applies at
the time of the
accident.
In this case
its limit for bodily
injury liability must
be less than the
minimum limit for
bodily injury liability
specified by the
financial responsibility law of the
state in which your
covered auto is
principally garaged.
. . f
However,
uninsured
motor
does not include any
vehicle or equipment:
vehicle
1. Owned by or furnished
or available for the
regular use of you or
any family member.
f
.
.
Upon close scrutiny the terms "uninsured
motor vehicle" and l'underinsured motor vehicleI' may be
used interchangeably throughout Part C - Uninsured
Motor Coverage, except in relation to Part C,
subsection c. Subsection c attempts to define the term
"uninsured motor vehicle;" thus, we think it
perspicuous that "underinsured motor vehiclel' cannot
therein be used interchangeably. Because the llownedll
vehicle exclusion is set forth in subsection c, we are
of the opinion that the exclusion can be applied only
to an uninsured motor vehicle. Thus we believe no
- 7 -
llownedV1
vehicle exclusion exists regarding UIM
Finally, upon the following perlustration of
coverage.
the Glasses' policies, we believe Jeffrey was protected
by $150,000.00
of UIM coverage.
as
The policy language states in relevant part
follows:
"Underinsured motor vehicle" means
a land mt~:?Z ~&hlele;! or trailer of
any type tQ Q&l& ;a bo&i$w i.n-iuZy
li&i%iQf r&3.& 'or gY&%ie?u* &3m&ies Bk
t&e ~$XN? ~3% the aeai&nt but its
limit for bodily injury liability
is less than the limit of liability
(Emphasis
for this coverage.
added.)
We view this definition--"underinsured motor
vehicle"--as
ambiguous. The phrase "motor vehicle . .
. to which a bodily injury liability . . . policy
applies at the time of the accident . . . I1 may be
susceptible to inconsistent interpretations. One
interpretation is that only the bodily injury policy
covering the motor vehicle at the time of the accident
is applicable; the other interpretation is that the
bodily injury policy covering the vehicle and,
likewise, any such policy covering the driver are
We recognize that such interpretations are
applicable.
inconsistent only when the owner of the vehicle and the
driver of the vehicle are not the same, as in the case
at hand. Because the definition of an "underinsured
motor vehicle" is subject to inconsistent interpretations, we are bound to resolve the ambiguity in favor
of the insured, Jeffrey. & Transoort Ins. Co. v.
Ford, KY. Am., 886 S.W.2d 901 (1994), and Davis v.
American States Ins. Co., Ky. App., 562 S.W.2d 653
(1977) .
There is little doubt that
interpretation to the insured/Jeffrey
motor vehicle's bodily injury policy
consideration and not any additional
- 8 -
the most favorable
is that only the
needs
policy on the
As a result, only Policy D's bodily
tortfeasor/driver.
injury liability on Jeffrey's truck at the time of the
accident must be weighed when determining whether the
vehicle was, in fact, underinsured.
The Glasses' policies clearly and
unambiguously state that a vehicle is underinsured when
"its limit for bodily injury liability is less than the
limit of liability for this coverage." The bodily
injury liability limit on Jeffrey's vehicle was
and we believe that the limit of liability
$50,000.00,
for "this coverage" (underinsured) should be
We arrive at this figure by stacking the
$150,000.00.
UIM coverage applicable to each of the Glasses' three
insured vehicles at the time of the accident. Each
vehicle had $50,000.00
UIM coverage. We do not believe
the fourth car--added to Policy D after the accident-should be considered. We think it appropriate to stack
UIM coverage when initially determining whether Jeffrey
Hence, we believe Jeffrey's vehicle
was underinsured.3
"underinsured motor vehicle," as
was, indeed, an
defined by the Glasses' policies.
More succinctly, we view the applicable sum
under Policy D
of bodily injury liability as $50,000.00
and the applicable sum of UIM coverage of Policies A
Because the limit for bodily
and D as $150,080.00.
injury liability ($50,000.00) is less than the limit of
liability for UIM coverage ($150,000.00),
we believe
that Jeffrey's vehicle was underinsured, as defined by
Having so concluded, we now examine
Glasses' policies.
the Glasses' policies to determine the exact amount of
UIM coverage to which Jeffrey is entitled.
3We are persuaded by the reasoning in Wickline v. United
States Fidelitv & Guarantv Co., 530 So.2d 708, 712-713 (Miss.
19881, wherein the Mississippi Supreme Court held that the
stacking of an injured's uninsured motorist coverage is acceptable for "the purpose of meeting the 'uninsured motor vehicle'
definition."
- 9 -
as
The
follows:
Glasses' policies state in relevant part
We will pay under this coverage
only after the limits of liability
under any applicable bodily injury
liability bonds or policies have
been exhausted by payment of
judgments or settlements.
We believe this sentence susceptible to
inconsistent interpretations and therefore ambiguous.
One possible interpretation is that Motorists would pay
UIM benefits (1) only after exhaustion of applicable
bodily injury policy/policies and (2) only in the
amount remaining uncompensated after such policies have
been exhausted. Consequently, the UIM payment would be
reduced by applicable bodily injury payments. Another
possible interpretation is that Motorists would pay UIM
benefits (1) only after exhaustion of applicable bodily
injury policy/policies, but (2) in the full amount of
damages incurred irrespective of any applicable bodily
injury payments. Consequently, the UIM payment would
not be reduced by any applicable bodily injury
payments.
We are compelled to adopt the latter interpretation, it being more favorable to the inSee Transnort
Ins. Co., sunra, and
sured/Jeffrey.
Because the UIM payment ($150,000.00)
Davis, sunra.
should not be reduced by "any applicable bodily injury"
payments, we are of the opinion Jeffrey is entitled to
the full $150,000.00
of UIM coverage.
A controversy exists over the effect of KRS
304.39-320
(UIM coverage) as it applies to this case.
On July 15, 1988, the statute was amended to remove
Prior to that time the UIM
certain lloffsetll language.4
was originally enacted in
4Ky. Rev. Stat. (KRS) 304.39-320
1974, with an effective date of July 1, 1975. Thereafter, it was
- 10 -
benefits were diminished by the amount paid by the
liability insurer for the tortfeasor. See coots v.
Allstate Ins. Co., Ky., 853 S.W.2d 895 (1993). Because
the accident giving rise to this litigation occurred on
May 13, 1988, before the amendment, Motorists Mutual
argues that any UIM benefit recovery should be subject
to offset. While we do not necessarily agree that the
date of the accident is the triggering event, we are
not bound to decide the question. We are of the
opinion that the amendment of the statute is a nonissue. As we read Motorists' policies, they do not
state with specificity that an offset should be
T
o
effected, as was the situation in LaFranse, suora.
read into the policies the right of an offset requires
a ratiocination that we are not inclined to afford.
Without a llsetoffV1 provision, as authorized by statute
before amendment, we interpret the Glasses' policies as
providing more coverage than required by the preamended version of KRS 304.39-320. At a minimum an
insurance contract must include rights and obligations
as required by statute; however, it is axiomatic that
an insurance contract may l'provide broader coverage
than that required by statute." LaFranse at 413. We
interpret the Glasses' policies as providing more UIM
coverage, and thus the rights and liabilities so
afforded are controlling.
In concluding this issue, there being only
three insured vehicles in the Glass household at the
time of the accident, Jeffrey was entitled to
awarded.
$150,000.00
UIM benefits, not the $200,000.00
Upon remand the court shall adjust the judgment
accordingly.
We next turn to issues faced by Motorists
regarding the application of various provisions of the
Kentucky Unfair Claims Settlement Practices Act
Motorists claims entitlement
(UCSPA). KFS 304.12-230.
to a directed verdict because of insufficient evidence
amended, effective July 15, 1988, and again, effective December
1, 1990.
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regarding the claims of bad faith, violation of the
UCSPA, and punitive damages.
Before addressing these issues we consider
the question of whether a third party may pursue a bad
faith claim under the UCSPA. Motorists contends that
the UCSPA does not apply to third party claimants such
as Jeffrey. We believe State Farm Mut. Auto. Ins. Co.
116 (19881, negates
V . Reeder, KY., 763 S.W.2d
Motorists' argument and is controlling. We would be
remiss, however, if we did not observe that the statute
is not specifically designed to accommodate third party
claims. This, of course, makes trial nearly impossible
and appellate review most difficult.
As to sufficiency of evidence, a directed
verdict is precluded "unless there is a complete
absence of proof on a material issue in the action or
if no disputed issue of fact exists upon which
reasonable minds could differ." Taylor v. Kennedv, Ky.
APP-1 700 S.W.2d 415, 416 (1985). Motorists Mutual
denies any bad faith in its adjustment of Jeffrey's
claim. Based upon the requirements for a bad faith
claim under the UCSPA (see Wittmer v. Jones, KY., 864
S.W.2d 885 (1993)), we conclude there was sufficient
evidence supporting the issue's submissibility.
Approximately a month and a half after the accident,
Motorists' adjuster was authorized to pay the
$50,000.00
policy liability limit; yet, Motorists did
not tender same until years later and initially failed
to advise Jeffrey of his potential UIM coverage.
During the interim, astronomical medical bills
emanating from the insured tort were mounting. Because
reasonable minds could differ on the issue of
Motorists' bad faith and because there was sufficient
evidence to support the claim, we believe the circuit
court properly submitted the matter to the jury.
Motorists also contends there was
insufficient evidence supporting the jury's findings of
a UCSPA violation and of Jeffrey's right to punitive
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damages.5
For reasons similar to those given on the
issue of bad faith, we conclude that the court did not
err in submitting these issues to the jury.
Concerning the issue of attorney fees,
Motorists argues four specific points. First, it
submits that KRS 304.12-235
does not apply to third
party claimants. We disagree. Having already held
that the UCSPA (KRS 304.12-230) applies to third party
claimants, we perceive no logical basis for granting to
such insured claimants the right to pursue a bad faith
cause of action under KRS 304.12-230,
but not under KRS
304.12-235.
KRS 304.12-230 sets forth prohibited
settlement practices of an insurer. KRS 304.12-235
stipulates the time allotted for payment of claims and
the effect of failure to promulgate a settlement. Both
statutes were enacted to protect the rights of an
insured against unfair settlement practices. KRS
As such, they must be applied consistently
304.12-010.
to effectuate the purposes of both statutes. To do
otherwise seems contrary to legislative intent.
Dispute also arises as to which version of
KRS 304.12-235 is applicable. The controverted portion
of the statute was amended July 13, 1990, and reads as
follows:
All claims arising under the terms
of any contract of insurance shall
be paid to the named insured person
or health care provider not more
than thirty (30) days from the date
upon which notice and proof of
claim, in the substance and form
required by the terms of the
policy, are furnished the insurer.
5As to any controversy existing over which standard should
be applied in the determination of punitive damages under KRS
411.184 (applied by the circuit court) or Wittmer v. Jones, KY.,
864 S.W.2d 885 (19931, we are of the opinion that any difference
is illusory.
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Although this version was applied by the circuit court,
Motorists observes that at the time of the accident,
statute--allowing for sixty days of
the pre-amended
payment on the claim--was in effect. In both versions
the time period applies to subsections (2) and (3)
regarding the time for settlement before interest or
attorney fees can be awarded for failure to settle.
We believe that Motorists' protracted delay
in payment renders the dispute inconsequential as to
the stipulation of thirty or sixty days. Thus, if any
error existed in application of the statute, we
perceive no resulting prejudice. CR 61.01
Motorists also objects to the jury
instruction given to create liability under KRS 304.12Specifically, Motorists contends the
235(3).
instruction excluded an element of the subsection and
should have incorporated language that a delay in
payment must be llwithout reasonable foundation." KRS
Motorists also maintains error on the
304.12-235(3).
basis that no evidence was presented on the reasonableness of the claimed fee. The circuit court
rendered the following interrogatory to the jury:
Do you believe from the evidence
that the Defendant, Motorist Mutual
Insurance Company, failed to make a
good faith attempt to settle the
Plaintiff's, Jeffrey A. Glass,
claim within 30 days from the date
on which notice or proof of loss in
the substance and form required by
the terms of the policy was furnished the Defendant, Motorist
Mutual Insurance Company?[6l
The jury responded in the affirmative to this question,
and Glass made a post-trial motion for one-third of
attorney fees against Motorists and Farm Bureau. The
6No similar instruction was given regarding Farm Bureau.
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motion was granted only against Motorists. The court
then fixed the amount of attorney fees in an amount
equal to one-third of the total recovery against
Motorists.
We believe both the instruction and the
amount fixed by the court to be appropriate.
Finally, Motorists argues that the court
erred in calculating interest on the award from the
date of verdict rather than from date of judgment. We
believe this indeed erroneous. KRS 360.040 provides
for interest upon a judgment. We know of no authority
for commencing interest from the date of verdict.
There may be special circumstances that would justify
same, but they are not here present.
Motorists argues that the cumulative effect
of various other errors deprived it of a fair trial.
We have examined these alleged errors and find no
merit.
In conclusion, we reverse and remand the
judgment against Motorists as to the amount of UIM
coverage and the award of interest prior to judgment;
in all other respects, the judgment is affirmed.
Farm Bureau's
ADDeal
Farm Bureau proffers an assortment of reasons
why it should not be held liable as a violator of the
UCSPA. Additionally, Farm Bureau contends that during
the course of settlement negotiations, an oral
agreement as to settlement was, in fact, reached and
that this settlement should have been enforced. We
shall discuss what we deem significant claims by Farm
Bureau.
Farm Bureau first contends that the UCSPA is
not a strict liability enactment and, therefore, for a
claimant to prevail under the statute, he must prove
intentional or outrageous conduct. While we are
inclined to agree with this interpretation (see
Wittmer, sunra), we think there was sufficient evidence
in the case m judice to submit the matter to the
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jury. Farm Bureau maintains that it was in a peculiar
position in that it was a third party insurer and had
an obligation to its insured. Perforce, Farm Bureau
argues in a roundabout manner that its actions could
not be elevated to the level of violating the UCSPA.
Here again we are unable to agree with Farm Bureau's
contention and think the matter was one for jury
determination.
Farm Bureau makes a strong argument that it
should be shielded from liability because it had a
right to rely upon the belief that an oral settlement
of the claim asserted by Jeffrey had been effected.
The circuit court entered summary judgment denying the
claim of settlement. Nevertheless, Farm Bureau
contends that its reliance upon the settlement was
reasonable and therefore precluded its violation of the
UCSPA. We do not agree with this contention. We
believe the circuit court was correct in summarily
concluding that a binding settlement of this matter had
not been effected. As to Farm Bureau's reliance upon
same, we think it only a scrap of evidence to have been
considered in its overall conduct in handling this
claim. We cannot assign merit to Farm Bureau's
contention that it should be excused from liability in
its handling of the claim based upon the assumption of
Moreover, we cannot ascribe credence to
settlement.
Farm Bureau's argument that the Glasses made no demand
for settlement of the action and, thus, there is no
condition for violation of the act.
Farm Bureau contends that the testimony of
Clinton Miller, a claims settlement expert offered by
the Glasses, was not competent to support a bad faith
settlement practice. During the course of the trial,
Farm Bureau sought to impeach Miller by offering into
evidence derogatory information concerning his past.
The court excluded the evidence which was proffered by
avowal.
The avowal evidence demonstrated that Miller
was a three-time failure of the California bar and had
been a plaintiff in several questionable lawsuits
against insurance companies. Miller, however, was
subjected to rigorous and skillful cross-examination
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revealing him to be a paid professional witness who
frequently testified against the insurance industry.
While we think the court might not have so severely
limited cross-examination of Miller, we are unable to
ascribe reversible error. CR 61.01. The jury was
sufficiently advised of Miller's nature and purpose i.1 1
his appearance as a paid professional witness, and we
think it was able to appropriately weigh and evaluate
his testimony. Upon the record as whole we conclude
there was sufficient basis to support the jury's
determination that Farm Bureau violated provisions of
the UCSPA.
Farm Bureau argues that damages in the form
of emotional injuries were not justified in this case.
We think this contention without merit. In view of the
mounting medical expenses, failure to promptly settle
this claim created a submissible issue as to whether
there was outrageous conduct on the part of Farm Bureau
Farm Bureau
within the context of Wittmer, sunra.
contends that it was prejudiced by the court's allowing
the evidence of Jeffrey's injuries, as if this were a
tort claim against Jeffrey. This action, Farm Bureau
contends, is in the nature of those allowed under KRS
446.070 for violation of a statute, namely, KRS 304.12230. Additionally, Farm Bureau argues that the
cumulative effect of evidentiary errors entitles it to
a new trial. We ascribe no merit to these contentions.
Finally, Farm Bureau maintains that the court
erred in including interest on the award from the date
of verdict rather than from date of judgment. For the
reasons herein stated in Motorists' appeal, we agree
that the court indeed erred.
In conclusion we affirm all aspects of Farm
Bureau's appeal, except the award of interest prior to
The circuit court is reversed on this issue
judgment.
and, on remand, shall impose interest from the date of
judgment.
The Glasses'
Cross-ADDeal
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We now address those issues raised in the
Jeffrey contends that the jury
Glasses' cross-appeal.
should have been given an instruction on punitive
damages against Farm Bureau. In Wittmer, supra, at
890, the Supreme Court set forth the following precept:
Before [a bad faith
the UCSPA] cause of
in the first place,
evidence sufficient
punitive damages.
violation of
action exists
there must be
to warrant
The circuit court, in the case at hand, correctly
concluded that sufficient evidence of bad faith was
presented for the issue to be submissible, but failed
to submit on punitive damages.
damages,
Interpreting the standard for punitive
the Wittmer Court states:
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.
If there is such evidence, the jury
should award consequential damages
and may award punitive damages.
Id. at 890.
In light of Wittmer it may seem contrary for
the circuit court to give an instruction on
compensatory damages, yet preclude the jury from
considering punitive damages. Nevertheless, we do not
interpret Wittmer as mandating that a punitive damage
instruction be given in all cases. Because Farm Bureau
was an excess carrier and in view of the compensatory
award against it, as well as the punitive damage award
against Motorists, we are disinclined to reverse on
this issue. We are of the opinion that the
instructions rendered were sufficient to permit the
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jury to properly characterize the conduct of the
respective carriers. Upon this line of reasoning, we
also reject the Glasses' argument that an award of
attorney fees should have been placed against Farm
Bureau.
Finally, we reject the contention of Garnett
Doyle and Brenda Glass as to their claim for a damage
award.
CR 8.01.
Summarv
We affirm the judgment of the Shelby Circuit
Court as it pertains to Motorists Mutual in every respect except as to the award of UIM benefits and the
award of interest prior to judgment, which, upon
remand, shall be adjusted in accordance with this
opinion.
The judgment against Farm Bureau is affirmed
in all respects with the exception of the interest
award prior to judgment, which shall likewise be
adjusted upon remand.
The
cross-appeal
is
affirmed
in
all
respects.
For the foregoing reasons, Appeal No. 93-CAare affirmed in part,
2137-MR and No. 93-CA-2235-MR
reversed in part, and remanded for proceedings
consistent with this opinion. The cross-appeal, No.
93-CA-2198-MR,
is affirmed.
For the reasons set forth hereinabove, I respectfully
dissent.
Stumbo and Wintersheimer, JJ., join this dissenting
opinion.
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RENDERED:
FEBRUARY 18, 1999
TO BE PUBLISHED
95-SC-972-DG
MOTORISTS
v.
MUTUAL
INSURANCE
COMPANY
APPELLANT
ON REVIEW FROM COURT OF APPEALS
93-CA-2137, 93-CA-2198 & 93-CA-2235
SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
90-CI-136
JEFFREY GLASS; GARNETT DOYLE GLASS;
BRENDA GLASS; GREGG Y. NEAL, Attorney;
and KENTUCKY FARM BUREAU MUTUAL INSURANCE
COMPANY
APPELLEES
95-SC-980-DG
KENTUCKY FARM BUREAU
INSURANCE COMPANY
V.
MUTUAL
ON REVIEW FROM COURT OF APPEALS
93-CA-2137, 93-CA-2198 & 93-CA-2235
SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
90-CI-136
APPELLANT
JEFFREY GLASS; and
INSURANCE COMPANY
MOTORISTS
MUTUAL
APPELLEES
96-SC-800-DG
JEFFREY GLASS; GARNETT DOYLE GLASS;
BRENDA GLASS; and GREGG Y. NEAL
V.
CROSS-APPELLANTS
ON REVIEW FROM COURT OF APPEALS
93-CA-2137, 93-CA-2198 & 93-CA-2235
SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
90-CI-136
MOTORISTS MUTUAL INSURANCE COMPANY;
and KENTUCKY FARM BUREAU MUTUAL
INSURANCE COMPANY
CROSS-APPELLEES
SUPPLEMENTAL DISSENTING OPINION
BY CHIEF JUSTICE LAMBERT IN ADDITION
TO ORIGINAL DISSENTING OPINION
Rehearing was granted herein on certain issues and the
case was re-argued.
Thereafter,
the majority opinion was
modified and this supplemental dissenting opinion is filed in
-2
-
response to modifications contained in the majority opinion. In
all
other
respects, I reiterate the views expressed in my
dissenting
opinion
filed
herein
on
October
30,
1997.
In my view, the evidence presented at trial was
decidedly conflicting on the issue of Joel Depp's
faith
the
evaluation
of
the
Jeffrey
Glass
claim.
informed, good
After hearing all
evidence, the trial court believed the case should be
submitted to the jury for its verdict on this issue, and the jury
returned a verdict for Glass on the belief that Depp had violated
warranting
the UCSPA, KRS 304.12-230,
Court
of
Appeals
compensatory
damages.
The
Despite the foregoing and despite our
affirmed.
duty to review the evidence in the light most favorable to the
party who prevailed at trial (Lewis v. Bledsoe Surface Mininq
co., KY.,
798 S.W.2d
754 S.W.2d
459, 461 (1990), and NCAA v. Hornunq, KY.,
855, 860 (1988)),
this Court has reconsidered the
evidence and concluded that neither the facts nor the law allow
Glass
to
prevail.
demonstrate
the
From
error
in
this
the
view, I dissent and will endeavor to
majority
opinion.
The crucial factual question was whether Depp
evaluated,
settlement.
properly
or
at
all,
the
Glass
claim,
for
purposes
of
Depp testified that he made such an evaluation but
acknowledged that it was not recorded in the claim file. In
- 3 -
deposition
testimony
and
trial, Depp also admitted that his
at
claimed evaluation was based on woefully inadequate medical
records and that vast sums of additional medical expenses had
been incurred since his file had been updated.
Moreover,
there
was no written analysis of comparative fault and after admitting
that company policy required a written evaluation, Depp
acknowledged
testimony
his
of
Joel
violation
of
Depp, a
jury
and indeed did believe, the
Bureau,
such
policy.
could
theory
have
that
Based on the
reasonably
believed,
Depp, on behalf of Farm
had simply handed the claim over to Hackney, a structured
settlement
salesman, and had therefore abrogated his
responsibility
to
evaluate
the
claim.
The UCSPA denounces as unfair claims settlement
practices "Refusing to pay claims without conducting a reasonable
investigation based upon all available information" and "Not
attempting in good faith to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably
clear."
KRS 304.12-230(4),
(6).
Despite this language and the
mandate of KRS 446.080 that statutes of this state be liberally
construed to carry out the intent of the Legislature, the
majority has held that the statute does not require an
evaluation:
"The UCSPA does not require that a claim be evaluated
-4-
or
that
it
be
evaluated
correctly."
Slip op. 37.
While it is
true that the exact text of the statute does not use the term
1'evaluation,1' any reasonable construction of the statute would
imply the necessity of an informal evaluation prior to any
possible
compliance
with
the
literal
statutory
requirements.
In my view the revised analysis on page 38 of the
majority opinion amounts to a concession that the facts were in
dispute, but shifts the focus to the law and concludes that
whether or not Depp failed to evaluate the claim, there could be
no violation of the Act.
Such a strict construction eviscerates
the Act.
Stumbo and Wintersheimer, JJ., join this supplemental
dissenting
opinion.
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-
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