Dailey v. American Growers Insurance, Ky., 103 S.W.3d 60 (2003)—Bad Faith Claims

A Kentucky tobacco farmer made a claim under two insurance policies issued by defendant insurers when his crop sustained severe damage from a hail storm. The insurance agent issued the first policy in the farmer’s name using his personal social security number and issued the second policy under the name “Dayland Farms,” his unincorporated business entity, using an employer identification number as the identification number for the policy. The adjuster determined Dayland Farms was not an insurable entity and voided the second policy. The insurer then issued payment based upon the level of coverage provided by the first policy. This significantly reduced the insurance payment. Plaintiff filed a civil action for breach of contract and bad faith violation of K.R.S. 304.12-230, Kentucky’s Unfair Claims Settlement Practices Act (UCSPA). The circuit court granted summary judgment in favor of the insurer holding multi-peril crop insurance (MPCI) policies are subject to the regulations of the Federal Crop Insurance Act (FCIA) and Federal Crop Insurance Corporation (FCIC) and not subject to state rules or regulations such as the UCSPA. A split panel of the Court of Appeals adopted the circuit court’s findings. Plaintiff requested discretionary review. The Supreme Court was required to consider whether the FCIA and FCIC (Federal law) regulations preempted state law preventing plaintiff from asserting his bad faith claim under the UCSPA. The Supreme Court held the FCIA and FCIC regulations (Federal law) did not preempt the state law bad faith claim under the UCSPA and plaintiff could assert the bad faith claim.

Grange Mutual Insurance Company v. Trude, Ky., 151 S.W.3d 803 (2004) – Bad Faith/Discovery of Insurer’s Records

Plaintiff was involved in an automobile accident and alleged Grange’s insured was liable.  He attempted for six month to negotiate his personal injury claim with Grange and after becoming dissatisfied, filed suit in Circuit Court including causes of action for personal injury against Grange’s insured and bad faith against Grange. The trial court bifurcated the claims, holding the bad faith claim in abeyance until the trial on the personal injury claim concluded. On the personal injury claim, the jury returned a verdict for the plaintiff in the amount of $26,000.00.  The bad faith claim alleged Grange’s adjuster under-valued the claim during negotiations and repeatedly delayed communications with plaintiff’s attorney. During discovery plaintiff propounded extensive discovery requests on Grange. Grange objected to some of those requests citing concerns about relevancy, privacy, improper motive, trade secret privileges, and the overall burdensome nature of the requests. The trial court overruled all of Grange’s objections, denied a subsequent motion for protective order, and also denied a request for in camera review of the materials prior to production. Grange filed a petition for writ of prohibition. The Court of Appeals denied the petition even though it found Grange would not have an adequate remedy on appeal determining Grange had failed to prove the element of irreparable harm. 

The Supreme Court considered whether a writ of prohibition should automatically issue to prevent discovery of potentially proprietary information of a defendant insurance company in a bad faith lawsuit. The Supreme Court held the following types are documents are not sufficiently relevant to a bad faith claim to be automatically discoverable: Advertising material for the sale of insurance policies; personal aspects of the insurance company’s personnel records, including original job applications, marital information, tax information, medical information, health insurance data, Worker’s Compensation claims, and retirement data; and documents demonstrating average amounts paid on other claims where the degree of damages or injury is not comparable to the subject claim. The Supreme Court issued a writ of prohibition with respect to these three areas of discovery only. The writ of prohibition was denied with respect to all of the other discovery requests because defendant did not establish irreparable harm.

Kentucky Farm Bureau v. Rodgers, Ky., 179 S.W. 3d 815 (2005) - Bad Faith

Rodgers filed an action against Kentucky Farm Bureau alleging bad faith in negotiating her underinsured motorist claim in violation of the UCSPA.  Rodgers claimed Farm Bureau acted in bad faith because it had offered only $10,000.00 of its UM coverage to settle her claim notwithstanding a $50,000.00 limit.  In the bad faith lawsuit, Farm Bureau filed a motion in limine to suppress evidence of negotiations by a Farm Bureau representative in another case, the Mabel Raines case. Raines complained Farm Bureau had offered (in a separate action) only $14,000.00 then increased its offer to $31,000.00 prior to trial but eventually paid its policy limits only after her trial testimony.  Farm Bureau was the liability insurer of the tort defendant in the Raines case providing primary coverage, but was only the underinsured motorist carrier in the Rodgers case.  The claims were negotiated by different adjusters working out of different claim offices.  The Supreme Court had to decide whether evidence of the settlement negotiations in a completely separate negligence lawsuit negotiated by the same insurance company were admissible at trial in Rodgers’ bad faith lawsuit against Farm Bureau.  The Supreme Court held the testimony was admissible to impeach the credibility of expert testimony by Raines’ attorney regarding how demand letters aid insurance companies to process claims in a more timely and fair manner.  However, it was not admissible for the purpose of proving Farm Bureau’s alleged bad faith.