Cincinnati Insurance Co. dodged a $4.6 million judgment last week when the Kentucky Supreme Court found that a trial judge should have preempted a jury and granted a directed verdict in a bad-faith claim.
If the injured third-party plaintiff failed to produce sufficient evidence to persuade a reasonable jury on any one of three elements laid down in a guidepost 1993 court decision, “the trial court was required to grant a directed verdict” in Cincinnati’s favor, dismissing the suit, the Supreme Court majority decided.
In a lengthy dissenting opinion, three justices said the decision takes away a jury’s deliberated award, seeming to suggest that insurers will now have new impetus to ask for directed verdicts.
The case also involved the rather unusual assignment, of an insured’s right to a bad-faith claim, to the injured third party who was not named on the insurance policy.
The injury happened in 2011. Chuck and Melissa Kersnick owned the successful K-2 Catering in Louisville. The business had a commercial liability policy through Cincinnati Insurance and a homeowners’ policy through Employers Mutual Casualty.
At an employee party at the Kersnick’s home, the couple’s teenage son was allowed to give rides to guests on a just-purchased utility terrain vehicle, a four-wheel, off-road ATV fitted out for farming or hunting. With several people on board, including Haley Belt, the teen crashed the vehicle, causing permanent and disfiguring injuries to Belt, the court opinion explained.
A week later, the Kersnicks filed claims with Cincinnati Insurance and Employers Mutual. Cincinnati then asked a trial court to determine if coverage existed under the business’ liability policy. Questions had arisen because the couple said they had purchased the UTV for business use, but had bought it as individuals, Cincinnati attorneys said.
In 2012, the injured Belt sued the Kersnicks and K-2 Catering, alleging negligence. Meanwhile, the trial court in Bullitt County found in 2014 that coverage was required by both policies. Cincinnati and Employers did not appeal and paid the policy limits to Belt.
Belt also settled with the Kersnicks. As part of the settlement, though, the family and their business assigned to Belt their potential bad-faith claims and unfair practices claims against their insurers, something allowed under Kentucky contract law, the justices explained.
In 2015, Belt took up the bad-faith action against Cincinnati, and the case went to a jury trial. Cincinnati lawyers asked the judge for a directed verdict, but he declined. The jury awarded Belt $1 million for mental anguish, $43,000 in litigation costs and $3.5 million in punitive damages.
On appeal, the Kentucky Court of Appeals found that the trial judge had erred by not granting the directed verdict. The standard for determining directed verdicts was spelled out in the Kentucky Supreme Court’s 1993 decision in Wittmer vs. Jones. That opinion set up a three-part test: The insurer must be obligated to pay the claim under the terms of the policy; the insurer must lack a reasonable basis for denying the claim; and it must be shown that the carrier knew it had no reasonable basis to deny the claim or acted with reckless disregard on that question.
The appeals court found that coverage requirements were not established until the trial court had determined as much, and Cincinnati then promptly paid the claim.
The Supreme Court’s majority opinion upheld the appeals court decision, but for slightly different reasons. The justices found that coverage was, in fact, obligated under the policy, but Belt had failed to prove the other two elements required by the Wittmer decision: The insurer had a reasonable basis to deny the claim, and there was no evidence that Cincinnati had acted with reckless disregard.
“A claimant bringing a bad-faith claim must provide evidence of ‘intentional misconduct or reckless disregard of the rights of an insured or claimant to warrant submitting the right to award punitive damages to the jury,’” Chief Justice John Minton wrote, quoting from Wittmer. “Because Belt provided insufficient evidence for a reasonable jury to find two of the three Wittmer elements to be satisfied, the trial court should have granted CIC’s motion for a directed verdict on all Belt’s bad-faith claims, statutory and common law.”
The case was remanded to the trial court, to be dismissed.
Justice Michelle Keller was joined by Justices Robert Conley and Christopher Nickell in her dissent. They noted that Belt’s attorneys had shown that Cincinnati had all the necessary information it needed, yet waited on making a coverage decision; that the insurer failed to fully investigate the claim; that it filed its declaratory judgment action only to force a lower settlement; and that CIC had misrepresented material information.
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