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Kentucky case changes how courts look at insurance defense negotiations

by | Aug 9, 2021 | Bad Faith Claims Defense, Insurance Defense

Settlement negotiations are an important and mutually beneficial part of the insurance claims process, since reaching a settlement can prevent a lengthy and costly lawsuit – both for your company and for the party bringing the suit.

But sometimes, a plaintiff will accuse an insurance company of acting in bad faith during mediation. A recent case in Kentucky dealt with this situation, and the court’s ruling set a precedent for what qualifies – and doesn’t qualify – as bad faith negotiation for insurance companies and their insureds in that state.

The plaintiff’s assertion

A woman’s husband suffered fatal injuries due to an accident involving a lube truck at a surface mine. The crash was the result of brake failure on the truck, and the man’s death was partially caused by his failure to wear a seatbelt. The woman brought a lawsuit against the owner and operator of the mine, and against her husband’s employer.

The woman entered into negotiations with two insurance companies which ensured the defendants. The first mediation failed when one of the insurance companies refused to offer a settlement, because of valid defenses their insureds had.

During the second mediation, one of the insurance companies did not send a representative but merely repeated their offered settlement from the previous mediation. After negotiations, the woman accepted both insurance companies’ proposed settlements.

Following the second mediation, the woman filed a new claim against both insurance companies. She alleged that the companies negotiated in bad faith and violated the Kentucky Unfair Claims Settlement Practice Act (KUCSPA) by forcing a global settlement instead of settling each claim separately, among other things.

The court’s reaction

The Kentucky Supreme Court affirmed the two lower court’s holdings that the insurance companies did not act in bad faith by refusing to settle. The court determined that the woman did not satisfy the elements of her third-party bad faith claim against either company.

The woman failed to prove improper delay, leveraging or outrageous conduct by either company. The initial refusal to settle was also justifiable by the fact that neither company’s liability was beyond dispute – meaning that there were still untried issues of fact that might have exonerated both companies.

This case was important because it clarified the bounds that a successful third-party bad faith negotiation claim can take. It sent a clear message to insurance companies like yours about what is and is not permissible in settlement negotiations with plaintiffs in the state of Kentucky.