Case Name: Billy J. CURRY and Ethel M. Curry, d/b/a Bill & Mae's Jeans, Appellants, v. FIREMAN'S FUND INSURANCE COMPANY, Appellee
Court: Supreme Court of Kentucky
Jurisdiction: Kentucky
Decision Date: 1989-12-21
Citations: 784 S.W.2d 176
Docket Number: No. 88-SC-495-DG
Parties: Billy J. CURRY and Ethel M. Curry, d/b/a Bill & Mae’s Jeans, Appellants, v. FIREMAN’S FUND INSURANCE COMPANY, Appellee.
Judges: STEPHENS, C.J., and COMBS, LEIBSON and WINTERSHEIMER, JJ., concur.
Reporter: South Western Reporter Second Series
Volume: 784
Pages: 176–179

Head Matter:
Billy J. CURRY and Ethel M. Curry, d/b/a Bill & Mae’s Jeans, Appellants, v. FIREMAN’S FUND INSURANCE COMPANY, Appellee.
No. 88-SC-495-DG.
Supreme Court of Kentucky.
Dec. 21, 1989.
Joe B. Campbell, Thomas N. Kerrick, Campbell, Kerrick & Grise, Bowling Green, Robert L. Milby, London, for appellee.
Joel R. Smith, Robert L. Wilson, Wilson & Smith Law Offices, Jamestown, for appellants.

Opinion:
LAMBERT, Justice.
Upon a jury verdict, appellants recovered judgment against appellee for consequential and punitive damages for the bad faith breach of a business insurance policy. At the time of trial, the law which prevailed and defined the allowable recovery for the bad faith breach of a first party insurance contract was set forth in Feathers v. State Farm Fire and Casualty Company, Ky.App., 667 S.W.2d 693 (1983). On appeal, the Court of Appeals reversed the judgment of the trial court and disallowed the recovery. Relying on this Court's decision in Federal Kemper Insurance Company v. Hornback, Ky., 711 S.W.2d 844 (1986), an opinion rendered subsequent to entry of judgment in the trial court, the Court of Appeals held that "there is no [legal] basis for recovery of consequential or punitive damages in a case such as this.... " We granted discretionary review to reconsider our holding in Federal Kemper and now reverse the Court of Appeals.
At the time of commencement of a retail merchandising business, appellants contacted Nancy R. Day, a partner in the Barger Insurance Agency, and sought a "full coverage" insurance policy. Ms. Day completed the application on a form provided by appellee, submitted the application to appel-lee, and in due course, a policy was issued to appellants. Upon receipt of the policy, neither Ms. Day nor appellants reviewed it to determine whether it provided the coverage sought.
Shortly after the policy was issued, appellants' store was burglarized and $13,500 worth of merchandise was stolen. Appellants made a claim against appellee for the loss and payment was refused. At that time it was discovered that appellee had issued a standard business owner's policy which did not include theft coverage rather than an "all risks" policy which was available from appellee and would have included theft coverage as requested by appellants.
After making repeated demands and unsuccessfully seeking payment from appel-lee for the amount of the burglary loss, appellants brought an action against Bar-ger Insurance Agency and appellee for the value of the stolen merchandise, consequential damages for lost profits caused by the failure to timely pay the claim and punitive damages.
Evidence developed during pre-trial proceedings convincingly established two important facts which significantly influenced the future course of the litigation. First, the trial court held that at all relevant times, Nancy Day, the insurance agent with whom appellants had dealt, was appel-lee's agent for the purpose of binding and writing the insurance policy in question. Second, the trial court held that omission of theft coverage from the policy was as a result of a mutual mistake and that the insurance policy should be reformed to reflect the intention of the parties. See Spratt v. Carroll, Ky., 399 S.W.2d 291 (1966).
The case proceeded to trial and the trial court reaffirmed its earlier ruling by granting a directed verdict in appellant's favor for the value of the stolen merchandise. Submitted to the jury for its determination was whether appellants were entitled to recovery in the form of consequential damages for lost profits and punitive damages for bad faith refusal to pay the underlying claim. A verdict was returned and appellants were awarded the sum of $50,000 for consequential damages and the sum of $15,000 for punitive damages. Judgment was entered for these sums plus the amount insured under the policy for a total judgment in their favor of $78,500.
At the time this case was tried the prevailing law in Kentucky was Feathers v. State Farm Fire and Casualty Co., supra. Not until 1986 did we overrule Feathers by our decision in Federal Kemper Insurance Co. v. Hornback, supra. Thus, in the absence of proper preservation, as discussed in Hilen v. Hays, Ky., 673 S.W.2d 713 (1984), it would be improper to consider the applicability of Federal Kemper. However, our examination of the record reveals that appellee objected to submitting the case under Feathers and insisted that Feathers should not be followed. The issue was thus preserved and the Court of Appeals properly entertained it on the merits.
As shown by the evidence, the insurance policy as written contained a mutual mistake. Available coverage requested by appellants was omitted by appellee's agent. Shortly after the loss the mistake was discovered and appellants demanded compensation pursuant to the coverage provision which should have been included. Despite appellants' demand for payment and insistence that they could not resume business operations without the insurance proceeds, all such demands were refused. Thereafter appellants commenced litigation. Documents produced and the testimony of Nancy Day established the agency relationship and the agent's mistake beyond any reasonable dispute. Nevertheless, appellee continued to refuse payment. On two occasions the trial court determined that coverage existed. This was affirmed by the Court of Appeals and review of its determination was not sought in this Court.
From the foregoing we are persuaded that the verdict of the jury was based upon compelling evidence. Upon initial presentation of appellants' claim appellee may have legitimately believed coverage was not present. Further investigation, however, rendered such a view untenable. Nevertheless, appellee maintained its denial and permitted appellants to incur additional financial loss.
It is unnecessary to engage in a presumptuous analysis of the prior authorities of the courts of Kentucky and other jurisdictions on this issue. For detailed discussions of the issues involved we refer to the Court of Appeals decision in Feathers v. State Farm and this Court's majority and dissenting opinions in Federal Kemper v. Hornback and the authorities cited therein. The issue of the bad faith breach of a first party insurance contract has been fully considered by our courts. Although we are reluctant to abandon settled precedent, a majority of this Court is now convinced that our decision in Federal Kemper was improvident and should be overruled.
The facts of this case well illustrate the desirability of permitting recovery in tort when an insurance company acts in bad faith in dealing with its own insured. Nothing in Feathers suggested that an insurance carrier must pay bogus claims or abandon legitimate defenses. Tort liability was allowed only when "there is no substantial or credible evidence that the policyholder directly or indirectly" caused or contributed to the loss. "[T]he proceeds of the policy may not be withheld unless there is a substantial breach of the contract by the policyholder." Feathers, 667 S.W.2d at 696. The essence of a claim for first party bad faith is exposure of the insurance carrier to damages recoverable in tort. Such a claim should not be lightly entertained in view of the contractual nature of the parties' original relationship. Justice Leib-son's dissenting opinion in Federal Kem-per contains an excellent statement of the applicable principles involved herein and we incorporate those views in this opinion. See Federal Kemper Insurance Co. v. Hornback, Ky., 711 S.W.2d 844, 846 (Leibson, J., dissenting).
Our decision in Federal Kemper abolished tort liability to a policyholder, regardless of the conduct of the insurance carrier. Such a rule permitted an insurance carrier to deny payment without any justification, attempt unfair compromise by exploiting the policyholder's economic circumstance, and delay payment by litigation with no greater possible detriment than payment of the amount justly owed plus interest.
In this society, first party insurance coverage against a host of risks is recognized as essential. From cradle to grave individuals willingly pay premiums to insurance companies to obtain financial protection against property and personal loss. Without a reasonable means to assure prompt and bargained-for compensation when disaster strikes, the peace of mind bought and paid for is illusory. The rule in Federal Kemper is unjust and, despite its recency, should not be perpetuated.
Throughout the history of Anglo-American law, the most important decisions societies have made have been entrusted to duly empaneled and properly instructed juries. Decisions as to human life, liberty and public and private property have been routinely made by jurors and extraordinary confidence has been placed in this decision-making process. We are confident that jurors deciding issues of bad faith will act responsibly and refrain from awarding damages in tort except in those circumstances where such is clearly warranted and then only in appropriate amounts.
For the foregoing reasons, the opinion of the Court of Appeals is reversed and the judgment of the trial court reinstated.
STEPHENS, C.J., and COMBS, LEIBSON and WINTERSHEIMER, JJ., concur.
STEPHENS, C.J., files a separate concurring opinion in which LEIBSON, J., joins.
VANCE, J., dissents by separate opinion in which GANT, J., joins.