Foster v. American Fire & Casualty Co.

Citations: 219 F. Supp. 3d 590; 2016 U.S. Dist. LEXIS 155984; 2016 WL 6662695Docket: Civil No. 13-426-GFVT

Court: District Court, E.D. Kentucky; November 9, 2016; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiff Ernest Foster filed a lawsuit against American Fire and Casualty Company after unsuccessful negotiations for underinsured motorist (UIM) benefits following a car accident in June 2008. The accident involved another driver, Gary Washabaugh, who had minimum liability insurance of $25,000. Foster, who had UIM coverage with both American Fire and Philadelphia Indemnity Insurance Company, sought additional compensation beyond this limit. After lengthy negotiations, Foster sued for UIM benefits in November 2013, leading to a bifurcation of the case, with bad faith claims being stayed until the UIM claims were resolved. By April 2015, Foster had settled with Philadelphia but continued litigation against American Fire, which culminated in a settlement just before a scheduled jury trial for the UIM claims. 

With the UIM claims settled, Foster focused on bad faith allegations against American Fire. The insurer subsequently filed a motion for summary judgment, but Foster argued that genuine issues of material fact exist, warranting a jury trial for the remaining claims. The court, applying federal summary judgment standards, denied American Fire’s motion, allowing the case to proceed to trial due to the presence of material factual disputes.

Credibility determinations and the weighing of evidence are functions reserved for juries, not judges, with the evidence of the non-movant being presumed credible and all reasonable inferences drawn in their favor. Kentucky law identifies four categories of bad faith claims against insurance companies: (1) common law third-party bad faith for failure to settle a tort claim; (2) common law first-party bad faith for refusal to pay a claim under a first-party policy; (3) first-party bad faith under the Kentucky Consumer Protection Act (KCPA); and (4) bad faith under the Kentucky Unfair Claims Settlement Practices Act (KUCSPA), which delineates specific unfair settlement practices. In this case, Plaintiff Ernest Foster asserts claims under three categories: common law first-party bad faith, first-party bad faith under the KUCSPA, and a KCPA violation, while American Fire seeks summary judgment on all claims.

The test for bad faith claims, established in Wittmer v. Jones, requires plaintiffs to demonstrate three elements: (1) the insurer's obligation to pay under the policy; (2) the absence of a reasonable basis for denying the claim; and (3) knowledge or reckless disregard by the insurer regarding the lack of a reasonable basis for denial. A private cause of action for KUCSPA violations cannot proceed without showing damages resulting from the violation. Evidence must support punitive damages for a bad faith claim to exist, reflecting a high threshold standard for proving intentional misconduct or reckless disregard by the insurer. American Fire argues for summary judgment on these claims based on these principles.

American Fire argues that Mr. Foster cannot pursue relief under the Wittmer standard because his claim was not formally denied, asserting that an actual denial is essential for establishing bad faith. However, recent applications of the Wittmer test indicate that bad faith claims can arise even when a disputed claim is settled. The key consideration is whether evidence exists to suggest the insurer acted unreasonably during the claim's investigation and processing, knowing or being aware of its unreasonable conduct. American Fire further contends that Mr. Foster has not demonstrated sufficient damages linked to the alleged bad faith, asserting that many damages stem from the original car accident rather than the insurer's actions. Kentucky law requires plaintiffs to show that insurer conduct was outrageous due to malicious intent or reckless disregard for rights, with mere delays not constituting such conduct without evidence of harassment or deception. Additionally, for claims of mental distress in a bad faith context, there must be clear evidence of anxiety or anguish, avoiding conjectural claims. American Fire cites federal cases where courts granted summary judgment for insurers due to inadequate evidence of emotional or financial damages that could be connected to bad faith, highlighting that prior damages were often linked to the accident or unrelated circumstances.

Mr. Foster references Adkins v. Shelter Mutual Insurance Company, where the court denied summary judgment based on a single deposition response indicating the plaintiff's emotional distress. The court acknowledged that while this testimony might not be strong evidence, it was sufficient to withstand the insurer's motion. The reliance on Indiana Ins. Co. v. Demetre established that emotional distress claims do not necessitate expert testimony; they can be supported by the plaintiff’s own testimony or circumstantial evidence. The Kentucky Supreme Court is currently reviewing the Demetre case, but its decisions, along with those from Minter, Smith, and Adkins, serve as persuasive rather than binding authority.

In Mr. Foster's case, he alleges multiple damages, including attorneys’ fees, emotional distress, inconvenience, and financial uncertainty. Specifically, he itemizes his financial losses, detailing $3,406.69 in litigation costs, $260.76 in filing fees, and $36,600 in attorneys’ fees. He also describes substantial emotional distress stemming from years of dealing with the claim and litigation processes, including feelings of embarrassment, stress from uncertainty about his financial future, and the impact of his physical injuries. The court will base its decision on binding Sixth Circuit and Kentucky Supreme Court precedents, along with the Federal Rules of Civil Procedure, while considering the arguments presented regarding these cases.

Mr. Foster's bad faith claims against American Fire withstand the summary judgment motion due to the specific financial damages he has alleged, which differentiate his situation from those in the cited Minter and Smith cases, where plaintiffs did not demonstrate similar financial losses. His claims are supported by sufficient evidence of emotional distress, even if expert testimony were deemed necessary, as the Kentucky Supreme Court's review would not negate the current standing of the case. Furthermore, American Fire's argument that there is insufficient evidence of outrageous conduct to justify a jury verdict of bad faith is countered by Mr. Foster's demonstrated seven-year delay in claim resolution, along with additional evidence of poor claims handling practices, such as failure to schedule medical exams and repeated requests for information. While mere delays do not constitute bad faith, the prolonged duration of the delay and questionable claims practices could suggest bad faith, warranting a jury trial. Additionally, American Fire's summary judgment motion regarding Mr. Foster's Kentucky Consumer Protection Act claim is mentioned, noting that to succeed, evidence of unfair or deceptive acts must be shown alongside any evidence of intentional or grossly negligent conduct.

In Capitol Cadillac Olds, Inc. v. Roberts, Kentucky courts treat the determination of whether an insurer's actions constitute unlawful conduct under the Kentucky Consumer Protection Act (KCPA) as a factual question. The KCPA permits an insured to initiate action only if they have "suffered any ascertainable loss of money or property" due to the insurer's illegal practices. The purchase of an insurance policy is considered a service under KCPA. Plaintiffs must provide evidence for factfinders to conclude they experienced actual loss. American Fire seeks summary judgment on Mr. Foster's KCPA claim, arguing he has not shown a compensable injury under KRS 367.220. Foster claims a loss of money due to American Fire's actions, citing inconvenience and emotional distress, while American Fire contends his primary financial loss is attorney fees, which they argue do not qualify as ascertainable loss under KRS 367.220. The court has not ruled on whether attorney fees incurred from voluntarily filed lawsuits against insurers constitute an ascertainable loss. Foster references Indiana Insurance Company v. Demetre, which suggests attorney fees can be considered an ascertainable loss when incurred to defend against an insurer's actions, but this case is not binding and is factually distinct. The KCPA aims to provide broad consumer protection and a recent appellate decision emphasizes that "ascertainable loss" does not necessitate evidence of specific out-of-pocket expenses. Plaintiffs need only prove they received a product or service differing from what was bargained for to satisfy the ascertainable loss requirement.

The Capps plaintiff successfully demonstrated that he received an inoperable and damaged truck instead of a functioning vehicle needing minor repairs due to unfair or deceptive trade practices. As a result, the court upheld the trial court's finding of an ascertainable loss under the Kentucky Consumer Protection Act (KCPA). Although Foster’s claimed attorneys’ fees may not qualify as an ascertainable loss, case law indicates he has provided sufficient evidence for a factfinder to infer an actual loss. A jury could find that a UIM benefits policy requiring nearly seven years for recovery is inferior to what Foster originally bargained for. Therefore, in alignment with the Kentucky Supreme Court's broad interpretation of the KCPA, Foster's claim, along with his common law and statutory bad faith claims, survives American Fire’s motion for summary judgment. The court ordered that American Fire's motion for summary judgment be denied, noting that this decision stands even if Foster's expert testimony is excluded, as there is enough evidence to proceed to trial. The court will address the admissibility of the expert testimony in a separate order.