Opinion ID: 2167051
Heading Depth: 1
Heading Rank: 4

Heading: kentucky case law.

Text: With respect to whether a self-insured is in the business of insurance, the case of Reeves v. Wright & Taylor, 310 Ky. 470, 220 S.W.2d 1007 (1949) is directly on point. Wright & Taylor owned a U-Drive-It business and had qualified as a self-insured under KRS 187.600. One of the issues in that case was whether or not a person in the U-Drive-It business, by complying with KRS 187.600, is engaged in the insurance business and required to comply with the insurance laws of Kentucky. 220 S.W.2d at 1010. The Court held as follows: Clearly, the owner of the leased automobiles is not engaged in the insurance business when he procures a certificate of self-insurance from the Department of Revenue in lieu of a liability insurance policy. The certificate merely shows that he has produced evidence of financial responsibility. Id. Appellants attempt to avoid this long-standing precedent both by characterizing it as old law and attempting to distinguish it on its facts. The operative fact in that case was that the person sought to be charged was self-insured. The issue was whether a person who is self-insured is engaged in the business of insurance so as to be subject to the insurance laws of Kentucky. The holding was that he was not. Old law which has stood the test of time is often the best law, especially when it is directly on point. But if new law is desired, we need to look no further than Wittmer v. Jones, Ky., 864 S.W.2d 885 (1993), the leading case on bad faith in Kentucky. As summarized in Motorists Mut. Ins. Co. v. Glass, Ky., 996 S.W.2d 437, 451-52 (1997), Justice Leibson's opinion in Wittmer was the culmination of the development of bad faith liability in our jurisprudence. In Manchester Ins. & Indem. Co. v. Grundy, Ky., 531 S.W.2d 493 (1975), cert. denied, 429 U.S. 821, 97 S.Ct. 70, 50 L.Ed.2d 82 (1976), we had recognized a cause of action premised upon an insurer's bad faith refusal to settle a third-party liability claim which resulted in a verdict in excess of the insured's policy limits. In Feathers v. State Farm Fire & Cas. Co., Ky.App., 667 S.W.2d 693 (1983), the Court of Appeals recognized a common law first-party bad faith claim premised upon an insurer's failure to settle a claim made by an insured under his/her own policy. Feathers was temporarily overruled by Federal Kemper Ins. Co. v. Hornback, Ky., 711 S.W.2d 844 (1986), but it was Justice Leibson's dissent in Federal Kemper which ultimately became the law as defined in Wittmer . When Federal Kemper was overruled in Curry v. Fireman's Fund Ins. Co., Ky., 784 S.W.2d 176 (1989), the Federal Kemper dissent was specifically incorporated into that opinion. 784 S.W.2d at 178. Meanwhile, we had also recognized two statutory bad faith causes of action, one a first-party action premised upon an insurer's violation of KRS 367.170, the Consumer Protection Act, Stevens v. Motorists Mut. Ins. Co., Ky., 759 S.W.2d 819 (1988); and the other a third-party action premised upon a violation of the UCSPA, State Farm Mut. Auto. Ins. Co. v. Reeder, supra . Since the UCSPA does not specifically create a cause of action for damages for violation of its provisions, [3] the holding in Reeder was premised solely upon the provisions of KRS 446.070, Reeder, supra, at 117-18, which provides as follows: A person injured by the violation of any statute may recover from the offender such damages as he sustained by reason of the violation, although a penalty or forfeiture is imposed for such violation. KRS 446.070 merely codifies the common law concept of negligence per se. It applies only if the alleged offender has violated a statute and the plaintiff was in the class of persons which that statute was intended to protect. Hackney v. Fordson Coal Co., 230 Ky. 362, 19 S.W.2d 989 (1929). It follows that if the defendant was not in the class of persons whose conduct was intended to be regulated by the statute, the defendant could not violate the statute and KRS 446.070 simply would not apply. The issue here is whether AFI was within the class of persons whose conduct the UCSPA was intended to regulate. If not, KRS 446.070 does not create a cause of action in this case. Wittmer v. Jones, supra , like Reeder , was a third-party claim premised upon a violation of the UCSPA. Writing for a unanimous Court in Wittmer , Justice Leibson gathered all of the bad faith liability theories under one roof and established a test applicable to all bad faith actions, whether brought by a first-party claimant or a third-party claimant, and whether premised upon common law theory or a statutory violation. Wittmer, supra, at 890. (As pointed out in Breen, supra, at 48, Wittmer thereby subsumed Reeder as precedent for third-party bad faith liability premised upon a violation of the UCSPA.) Quoting directly from his Federal Kemper dissent, Justice Leibson recited the three required elements of a cause of action for bad faith as follows: (1) [T]he insurer must be obligated to pay the claim under the terms of the policy; (2) the insurer must lack a reasonable basis in law or fact for denying the claim; and (3) it must be shown that the insurer either knew there was no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed. Wittmer, supra, at 890 (quoting Federal Kemper, supra, at 846-47 (Leibson, J., dissenting)) (emphasis added). As recognized in the Federal Kemper dissent, 711 S.W.2d at 847, this is essentially a restatement of the holding in Feathers v. State Farm Fire & Cas. Co., supra , that a cause of action for bad faith arises out of a breach of contract so great that it would constitute tortious conduct on the part of the insurance company. 667 S.W.2d at 696. The gravamen of the UCSPA is that an insurance company is required to deal in good faith with a claimant, whether an insured or a third-party, with respect to a claim which the insurance company is contractually obligated to pay. Absent a contractual obligation, there simply is no bad faith cause of action, either at common law or by statute. In the case at bar, AFI was under no contractual obligation to pay the Davidsons' claims; thus, there exists no statutory or common law basis for a bad faith claim against it. Just like the mom-and-pop store owner, AFI had the same rights as any American citizen to dispute the Davidsons' claims, even to the point of bullheadedness, and to take that dispute to court.