Opinion ID: 2972980
Heading Depth: 3
Heading Rank: 1

Heading: Plaintiff’s Claim Under the UCSPA

Text: Plaintiff charges that Defendants violated § 1 of the UCSPA “in that these companies misrepresented pertinent facts or insurance policy provisions relating to coverages at issue,” and § 14 “in that these companies failed to promptly provide a reasonable explanation of the basis in the insurance policy for denial of claims or for the offer of a compromise settlement.”4 (Compl. ¶ 29.) These claims are apparently rooted in the allegation that Defendants first denied that there were any coverage defenses or coverage questions, only to raise such issues during the first attempt at mediation in March 2004, which caused that mediation session to be terminated. 2. The District Court’s Dismissal of Plaintiff’s UCSPA Claim 4 The language of the complaint tracks the language of the statute itself. The UCSPA states: 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; ... (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. Ky. Rev. Stat. Ann. § 304.12-230 (2004). 7 No. 04-6246 The district court agreed with Defendants’ argument that conduct occurring after the commencement of litigation could not form the basis of a UCSPA claim and therefore dismissed Plaintiff’s claim under the UCSPA . Torres, No. 04-191-KSF, at 9, 11. In reaching this conclusion, the district court recognized that “there is no published Kentucky decision directly on point,” but essentially adopted the reasoning of an unpublished Kentucky Court of Appeals decision, Knotts v. Zurich Insurance Co. Torres, No. 04-191-KSF, at 5-11 (analyzing Knotts v. Zurich Ins. Co., No.2002-CA-001846-MR, 2004 WL 221213 (Ky. Ct. App. Feb. 6, 2004) (as modified April 30, 2004)). The district court looked at the language of the UCSPA and determined that the statute’s repeated use of the word “claims” rather than litigation is unambiguous and demonstrates “that the General Assembly did not intend for the UCSPA to regulate anything but the conduct of insurance companies in the adjustment of claims prior to the commencement of litigation.” Id. at 9. The court also concluded that “if the legislature had intended for the UCSPA to apply to actions by insurance companies after the initiating of litigation, it would have so provided.” Id. The Supreme Court of Kentucky granted discretionary review in the Knotts case on February 9, 2005. See Knotts v. Zurich Ins. Co., No. 2004-SC-0400-DG (Ky. Feb. 9, 2005 (order granting discretionary review). The Court noted in the grant of discretionary review that “[i]ssues in this case include whether the Kentucky Unfair Claims Settlement Practices Act applies to conduct which occurs after the commencement of litigation or is limited to conduct during the claims adjustment period.” Supreme Court of Kentucky, Discretionary Review Granted (Pending Cases Only) 18, http://www.kycourts.net/Supreme/documents/discretionarygranted.pdf. As of this writing, the Supreme Court of Kentucky has not issued a decision in the case. 8 No. 04-6246 3. The District Court Correctly Concluded That the UCSPA Does Not Apply Once Litigation Begins. We agree with the district court’s analysis of the UCSPA. The district court properly looked to the statutory provision as a whole and understood the provision to make distinct use of the terms “litigation” and “claim.”5 This analysis comports with direction from the Supreme Court of 5 The UCSPA provision reads in full: 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; 9 No. 04-6246 Kentucky that courts “in construing an extant act may refer to prior acts or sections of the statute relating to the same subject in ascertaining the meaning of the law under consideration.” Burbank v. Sinclair Prairie Oil Co., 202 S.W.2d 420, 424 (Ky. 1946). Plaintiff helpfully instructs us to follow the clear language of the statute but then references Black’s Law Dictionary to come up with a definition of “claim” as a “cause of action.” (See Pl. Br. at 13.) Were this Court to follow Plaintiff’s advice to follow the clear language of the statute, we would not consult a specialized dictionary for the definition of a term used. Rather, we would reference a general dictionary to find that “claim” has several listed definitions. See Webster’s Third New International Dictionary 414 (1993). Because “claim” has multiple meanings, this Court must look to the context of the term’s usage to understand the drafter’s intent. UCSPA uses “claim” in the context of a law regulating the insurance industry. The common understanding of “claim” with reference to insurance is a demand for insurance payment under the terms of the insurance contract. Moreover, the statute uses “claim” as distinct from “litigation,” evidencing the Kentucky legislature’s intent to distinguish between the claims adjustment phase and a litigation phase. As further evidence, all the usages of “claim” in section 301.12-230 are (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; (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; or (15) Failing to comply with the decision of an independent review entity to provide coverage for a covered person as a result of an external review in accordance with KRS 304.17A-621, 304.17A-623, and 304.17A-625. Ky. Rev. Stat. Ann. § 304.12-230 (2004). 10 No. 04-6246 consistent with the common understanding of “insurance claim,” while not all usages are consistent with an understanding of “claim” to encompass a legal claim or cause of action, see, e.g., § 301.12230(10). Most persuasively, the Kentucky Court of Appeals has found that the UCSPA does not address litigation behavior. See Knotts v. Zurich Ins. Co., No. 2002-CA-001846-MR, 2004 Ky. App. LEXIS 22, at  (Ky. Ct. App. 2004). While Plaintiff correctly points out that while under a pending review by the Supreme Court of Kentucky the Knotts decision is not deemed final (see Pl. Br. at 5-7), that should not and does not deter this Court from taking that opinion into consideration when there are no published decisions on point, or, alternatively, from considering the court’s reasoning. The Knotts’ court points out that the impetus behind the UCSPA was not to exercise control over insurance litigation, but to exercise control over the claims adjustment process such that litigation occurred less frequently. Knotts, 2004 Ky. App. LEXIS 22, at -10. We find the Kentucky Court of Appeals’ reasoning persuasive. Plaintiff points to a prior Kentucky Court of Appeals decision which held that the UCSPA did apply during litigation. (Pl. Br. at 11, citing Am. Physicians Assur. Corp. v. Schmidt, No. 2002CA-001292-MR, 2003 WL 22927781 (Kt. Ct. App. Dec. 12, 2003). The court’s treatment in Schmidt, however, consisted entirely of a conclusory statement that the argument that the UCSPA did not apply in litigation was “without basis in fact and is clearly contradicted by the language of the law, and the relevant case law.” Id. This stands in direct contrast to the same court’s treatment in Knotts, which took several pages to analyze the statute, its policy, and the relevant law. Knotts, 11 No. 04-6246 2004 Ky. App. LEXIS 22, at -14. Moreover, as the district court correctly noted, one of the