Opinion ID: 2167051
Heading Depth: 1
Heading Rank: 2

Heading: kentucky statutory scheme.

Text: Regardless of the impact of Section 51, the UCSPA was clearly intended to regulate the conduct of insurance companies. KRS 304.12-230 is not a unique creature of Kentucky statutory law. It is an almost verbatim adoption of the 1971 version of the model act formulated by the National Association of Insurance Commissioners (NAIC) entitled An Act Relating to Unfair Methods of Competition and Unfair and Deceptive Acts and Practices in the Business of Insurance.  (Emphasis added.) See State Farm Mut. Auto. Ins. Co. v. Reeder, Ky., 763 S.W.2d 116, 118 (1988); M. Breen, Bad Faith in Kentucky: A Primer, at 37 (The Kentucky Academy of Trial Attorneys [undated]). The NAIC model act has been adopted in one form or another in all fifty states and all territories of the United States. M. McFadden, Insurance Benefits Under the ADA: Discrimination or Business as Usual?, 28 Tort & Ins. L.J. 480, ___, n. 67 (1993). KRS 304.12-230 provides as follows: It is an unfair claims settlement practice for any person to commit or perform any of the following acts or omissions: (1) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue; (2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies; (3) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies; (4) Refusing to pay claims without conducting a reasonable investigation based upon all available information; (5) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed; (6) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear; (7) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds; (8) Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application; (9) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of the insured; (10) Making claims payments to insureds or beneficiaries not accompanied by statement setting forth the coverage under which the payments are being made; (11) Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration; (12) Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information; (13) Failing to promptly settle claims, where liability has become reasonably clear, under one (1) portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage; or (14) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement. (Emphasis added.) Thus, of the fourteen sections of the UCSPA, only two, sections (4) and (6), do not contain specific language referring to insurance policies, applications therefor, insureds, coverages, and/or proof of loss forms. It would be absurd to suggest that the legislature intended that twelve of the fourteen sections of this statute would apply only to claims against insurance companies, but that the other two would apply to everyman. Appellants, however, assert that the phrase any person contained in the first sentence of the statute relates back to the definition of person set forth in KRS 304.1-020, which they interpret to include every person except an insured person. KRS chapter 304 is entitled Insurance Code. KRS 304.1-020 defines person as an individual, insurer, company, association, organization, Lloyd's insurer, society, reciprocal insurer or inter-insurance exchange, partnership, syndicate, business trust or corporation, and every other related legal entity.  (Emphasis added.) Obviously, this definition was intended to apply only to an individual, etc. who is engaged in the business of insurance; otherwise, the last clause of the definition would be superfluous. The broad nature of the definition anticipates that even an individual who is not a licensed insurer might enter into a contract whereby one undertakes to pay or indemnify another as to loss from certain specified contingencies or perils called `risks,' KRS 304.1-030 (definition of insurance) (emphasis added), and thereby engage in the business of entering into contracts of insurance.  KRS 304.1-040 (definition of insurer) (emphasis added). Nothing in any of these statutes evidences a legislative intent that the Kentucky Insurance Code was designed to regulate persons who are neither insured nor engaged in the business of entering into contracts of insurance. The introductory section to the Insurance Code, KRS 304.1-010, provides that [t]he General Assembly intends that each subtitle retain its separate identification within Chapter 304 of the Kentucky Revised Statutes. The UCSPA is in subtitle 12 of the Code, which is entitled Trade Practices and Frauds. The introductory section to that subtitle, KRS 304.12-010, provides as follows: No person shall engage in this state in any practice which is prohibited in this subtitle, or which is defined therein as, or determined pursuant thereto to be, an unfair method of competition or any unfair or deceptive act or practice in the business of insurance. (Emphasis added.) Although this section also uses the word person, it is clear that the entire subtitle deals with unfair or deceptive trade practices in the business of insurance. Virtually every section in subtitle 12 uses the word person; and in each instance that term is used to refer to either someone engaged in the business of insurance or someone attempting to undermine the business of insurance by means of defamation or restraint of trade. Nothing in subtitle 12 supports a conclusion that the legislature intended any of its provisions to apply to persons who are not engaged in or attempting to undermine the business of insurance.