In Nichols v. Zurich Am. Ins. Co., ___ S.W.3d ___, No. 2020-SC-0284-DG, 2021 WL 4487529 (Ky. September 30, 2021)(stated not final and not yet to be cited as authority in Kentucky courts), the Kentucky Supreme Court laid out the elements of a bad-faith cause of action or claim under Kentucky State law.
This was an uninsured motorist (UIM) case. The carrier denied all UIM coverage under Nichols's employer's policy. On this record and with the history of this particular case, the Kentucky Court previously reached a decision that Nichols's UIM claim was covered here.
In the present iteration of this case, the Court declared the elements of proving bad faith in Kentucky:
In an insurance bad-faith cause of action, the claimant must prove the insurer (1) was obligated to pay the claim under the terms of the policy; (2) lacked a reasonable basis in law or fact for denying the claim; and (3) either knew it had no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed.
Nichols, 2021 WL 4487529, at *1.
With this declaration of elements, the Kentucky Supreme Court joined a number of courts which essentially require the party claiming bad faith to prove that the carrier had no reasonable basis to contest coverage or liability, i.e., that the carrier "lacked a reasonable basis in law or fact for denying the claim," not simply that the claim was covered or that the carrier lacked any basis for denying the claim.
In our next article, we will address an even more significant aspect of the Kentucky Court's decision: The Court's decision on the potentially devastating consequences to an insurance carrier of the carrier's failure even to initiate settlement negotiations.
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