Court Opinion

ID: 9402181
Source: CourtListenerOpinion
Date Created: 2023-06-15 15:07:45.676484+00
Date Added: 2024-06-11T17:19:58.108765
License: Public Domain

RENDERED: JUNE 15, 2023
                                                  TO BE PUBLISHED

            Supreme Court of Kentucky
                         2022-SC-0043-DG

ESTATE OF LAHOMA SALYER BRAMBLE;                       APPELLANTS
JOAN ANGONESE; MICHAEL R. ANSLEM;
GINGER ASHWORTH; BERNICE BAILEY;
HENRIETTA BERRY; RUTH BROCK;
MELYNDA HARTMAN COFFEE; BEAUREDA
COLLEY; AMELIA CRAFT; CHARLES V.
CRAFT; CONROY CRAFT; JUDY DOWNS
CROCKETT; BETTY DOBSON; DOUG
DOWNS; CAROLYN DYKHUZIEN; ESTATE
OF EVALEE BLAYLOCK EDWARDS; MARY
FIFIELD; LILLIAN WHITAKER FLOYD;
GWENDONLYN R. FORGE; MAXINE
FRENCH; PAULINE FRITTS; JERRY B.
GIBBS; PAUL B. GIBBS; FREDERIC
HARWELL, ADMINISTRATOR OF THE
ESTATE OF RONALD HARWELL; GEMALEA
SALYER HAVENS; MYRTLE HOWARD; PAM
HOWARD; MAYOLA HUMES; GAIL
KAHLEY; CHRISTINE MADISON KELLEY;
LINDA KRONTZ; HAROLD LOVELY; NEVA
LOUISE LOVELY; SANDY DOWNS
ZIMMERMAN LYNCH; KAREN J. LYON;
MARK MANNING; ONEDA MARCHETTI;
DAVID MARTIN; KIMBERLY D. MCCORD;
AUDREY MINIX; EARNESTINE MINIX;
LILLIAN MINIX; JAMES PHARES; JAMES R.
(JAMIE) PHARES; JASON PHARES;
CHERYL L. PIPER; INA SALYER PYLES;
MOLLIE W. RICHARDSON; WANDA GAYE
ROKOSZ; RAMEY SALYER, JR.; BILL
SALYER; CHANDLER “HAPPY” SALYER;
DAVID RON SALYER; EMORY CAIN
SALYER; FORD SALYER; GARY SALYER;
GLEN SALYER; JAMES SALYER; KELLY
SALYER; LARRY KEITH SALYER; LARRY R.
SALYER; MARK STEVEN SALYER; MARY E.
SALYER; PATCHEL SALYER; ROBERT E.
SALYER; ROTHEL SALYER; ROY WARD
SALYER; TIMMY ODELL SALYER; VENA
SALYER; WISEMOND SALYER; LAVINIA
WHITAKER SMITH; BARBARA STALBAUM;
VANESS EASON VANHYNING; LAVARVIA
BEDDINGFIELD WEBIE; DANIEL E.
WHITAKER; DARYL LAWRENCE
WHITAKER; JACK WHITAKER; MARVIN
WHITAKER; JAMIE WHITWORTH;
DARRELL G. WILLIAMS; DEN DELBERT
WILLIAMS; GARY WILLIAMS; GERALDINE
WILLIAMS; GREG WILLIAMS; RANDALL
WILLIAMS; AND KAREN WORTMAN

                  ON REVIEW FROM COURT OF APPEALS
V.                 NOS. 2019-CA-0015 & 2019-CA-0207
                MAGOFFIN CIRCUIT COURT NO. 07-CI-00006

GREENWICH INSURANCE COMPANY                                          APPELLEE

         OPINION OF THE COURT BY CHIEF JUSTICE VANMETER

                       REVERSING AND REMANDING

      By statute and case law, insurance companies must deal fairly with both

their insureds and claimants under their policies. Failure to do so may result

in a bad faith action against the insurance company. By case law, however, a

bad faith action may not be maintained if a policy does not cover a claim. The

threshold issue we resolve in this case is whether the Court of Appeals erred in

holding that because an insurance company’s coverage under its policy had

never been finally adjudicated, a third-party claimant’s bad faith claim was

premature, in reliance on Pryor v. Colony Insurance Co., 414 S.W.3d 424, 427

(Ky. App. 2013). We hold that the Court of Appeals did err and therefore

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reverse its opinion and remand to that court for determination of the other

issues raised in Greenwich Insurance Company’s appeal.

                     I.     Facts and Procedural Background

      In early 2007, the heirs of Ben and Lillian Salyer (collectively “Salyer

Heirs”), filed this action against J. D. Carty Resources, LLC, and Anaconda

Drilling of Kentucky, LLC alleging that these defendants had trespassed on

their land, drilled natural gas wells, and thereby damaged their land and

deprived the heirs of mineral royalties. The alleged trespass began in 1993. In

March 2008, based on surveys, Carty admitted that its wells had drawn

natural gas from under the Salyer Heirs property and, subsequently, the trial

court entered a partial summary judgment as to liability. In December 2008,

Carty entered an agreed judgment with the Salyer Heirs to pay $628,000, with

payments to be made in monthly installments over the course of 2009. Carty

defaulted almost immediately.

      Greenwich, insurer of Carty during two policy years, July 2005 to July

2007, had defended Carty under a reservation of rights and without admitting

its policy covered the conversion of the natural gas, offered to contribute

$20,000 to Carty towards payment of Carty’s agreed judgment with the Salyer

Heirs.1 In negotiating this payment with the Salyer Heirs’ counsel, Carty’s

counsel, who had been retained by Greenwich to represent Carty, advised the

Salyer Heirs’ counsel of Carty’s release in favor of Greenwich.

       1 The record discloses that Greenwich was notified of this claim and litigation in

early 2007.

                                            3
      Following Carty’s default, the Salyer Heirs sought payment by Greenwich

of their agreed judgment with Carty and sought and were granted leave to file

their fourth amended complaint to assert claims against Greenwich and

Bituminous Casualty Company, insurers, respectively, of Carty and Anaconda.

The claims were for violation of the UCSPA and common law bad faith.

Greenwich was aware of the litigation when it was filed in early 2007. In

August 2010, Greenwich filed a motion to sever the claims against it from the

remaining issues in the case. It reaffirmed that it had been defending the

underlying case under a reservation of rights and that before a bad faith claim

could proceed, coverage and an obligation to pay had to be established.

Thereafter, the parties filed cross motions for summary judgment with respect

to whether the policy covered the Salyer Heirs’ claims

      In early 2011, the trial court entered an Order granting the Salyer Heirs’

motion for partial summary judgment, holding Greenwich’s policies covered

Carty’s actions which formed the basis of the Salyer Heirs’ complaint and

subsequent judgment. In so ruling, the trial court stated that the Salyer Heirs

had established the first element of Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky.

1993). The trial court made this Order final and appealable. CR2 54.02.

Greenwich timely appealed this determination, but on its review, the Court of

Appeals granted the Salyer Heirs’ motion to dismiss the appeal as

interlocutory. Bituminous Cas. Corp. v. Est. of Bramble, 2011-CA-0542-MR,

      2   Kentucky Rules of Civil Procedure.

                                               4
2011-CA-0643-MR, 2014 WL 685453 (Ky. App. Feb. 21, 2014) disc. rev. denied

and ordered not to be published, 2014-SC-0150-D (Ky. Feb. 11, 2015).3 As a

result, no final determination was made as to whether the insurance policies

cover Carty’s actions and the Salyer Heirs’ claims. This lack of final decision

remains true to this point.

       On remand, litigation as to the bad faith claims resumed. In November

2017, Greenwich again moved to dismiss the fourth amended complaint on the

grounds that Kentucky case law prohibits a third party from pursuing a claim

under the UCSPA for the purposes of determining coverage, and that a third

party may not pursue a common law bad faith claim. The Salyer Heirs filed a

motion to file a fifth amended complaint to assert a declaration of rights that

the insurance policies covered their claims. The trial court granted the Salyer

Heirs’ motion in April 2018, and also scheduled a jury trial to begin that

September.

       Following the trial, the jury awarded the Salyer Heirs $834,000 in

compensatory damages and $14,300,000 in punitive damages, and the trial

court entered a judgment accordingly. This judgment was in addition to the

       3 As way of explanation, both Bituminous and Greenwich filed motions for
summary judgment on the coverage issue. The trial court ruled in favor of the Salyer
Heirs, and, at the request of the insurance companies, made the Order final and
appealable. Following filing of notices of appeal, the Salyer Heirs filed a motion to
dismiss as an appeal from an interlocutory order. Although this motion was denied by
a Court of Appeals motion panel and the parties thereafter briefed the merits of the
issue, it seems slightly disingenuous to claim, as the Salyer Heirs state in their brief to
this Court, that the merits panel sua sponte dismissed the appeal as interlocutory.
       Anaconda and Bituminous were dismissed from the action in May 2018.

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trial court’s order that Greenwich was liable on the original agreed judgment

between the Salyer Heirs and Carty, which, including interest, totaled in excess

of $1,500,000 by November 2018. Greenwich then filed two notices of appeal,

which the Court of Appeals consolidated.

      The Court of Appeals issued an opinion summarizing the procedural

history of the case from inception through the 2018 jury trial. In a plurality

decision, in which one authoring judge concurred, one judge concurred in

result only without opinion and one judge dissented without opinion, the Court

of Appeals, relying on Pryor, held that “the circuit court improperly permitted

the [Salyer Heirs] to pursue their bad faith claims against it in violation

of Pryor because coverage had not been established when they filed their third-

party bad faith complaint.” Greenwich, at *9.4 The Court of Appeals did not

address any issues relating to policy coverage or the Magoffin Circuit Court

trial. The Salyer Heirs filed a motion for discretionary review, which we

granted.

                             II.    Standard of Review

      For purposes of this review, and the posture of the case before us, we are

confronted with a pure question of law, i.e., whether a third-party may pursue

a bad faith claim against an insurance company prior to a coverage

determination being made. In all such cases, our review is de novo. See, e.g.,

       4 Greenwich Ins. Co. v. Est. of Bramble, No. 2019-CA-0015-MR, 2021 WL

4228335, at *9 (Ky. App. Sept. 17, 2021), rev. granted (June 8, 2022), not to be
published.

                                           6
Ford Motor Co. v. Jobe, 544 S.W.3d 628, 631 (Ky. 2018) (de novo review of

questions of law). We, thus, afford no deference to the decisions of the lower

courts. Commonwealth v. B.H., 548 S.W.3d 238, 242 (Ky. 2018).

                                 III.   Analysis

      For over thirty-five years, our case law has recognized the ability of a

third-party claimant to file a bad faith action against an insurance company.

See State Farm Mut. Ins. Co. v. Reeder, 763 S.W.2d 116, 118 (Ky. 1988)

(holding that “private citizens are not specifically excluded by the statute from

maintaining a private right of action against an insurer by third-party

claimants. KRS 446.070 and KRS 304.12–230 read together create a statutory

bad faith cause of action[]”). Our seminal case defining the cause of action,

Wittmer v. Jones, was a third-party bad faith action. The elements of bad faith

were set out in Wittmer, as follows:

      (1) the 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.

864 S.W.2d at 890.

      In Davidson v. American Freightways, Inc., 25 S.W.3d 94 (Ky. 2000), a

case involving a bad faith claim against a self-insured transportation company,

we summarized the development of our bad faith jurisprudence to that point.

While we held that a self-insured company was not subject to the UCSPA, we

stated,

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      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.

Id. at 100; see also Ky. Nat’l Ins. Co. v. Shaffer, 155 S.W.3d 738, 742 (Ky. App.

2004) (holding “in absence of a contractual obligation in an insurance policy for

coverage, there can be no claim for bad faith[]”).

      More recently, we stated “an insurance company must deal in good faith

with a claimant in determining whether the company is contractually obligated

to pay the claimant.” Mosley v. Arch Specialty Ins. Co., 626 S.W.3d 579, 584

(Ky. 2021) (citing Davidson, 25 S.W.3d at 100). We acknowledged that this

obligation of good faith holds “whether the claimant is the company’s own

insured, or the company insures the claimant’s tortfeasor[, because] Kentucky,

unlike many states, allows a third-party to bring a cause of action for claims

of bad-faith.” Mosley, 626 S.W.3d at 584.

      In Pryor, Ms. Pryor brought a wrongful death action against a logging

contractor and other parties, who, she claimed, were allegedly responsible for

her deceased husband’s injury and death. In addition, Colony Insurance

Company, the contractor’s commercial general liability insurer, was joined

seeking to recover under a policy and for bad faith. The trial court entered

summary judgment in favor of the insurer ruling the policy did not cover the

incident. 414 S.W.3d at 427. On appeal, the Court of Appeals affirmed,

reviewing in detail the exclusionary language in the policy and endorsements

                                         8
and holding that the policy did not cover the incident. Id. at 428-32. At this

point, the Court might have ended its efforts and affirmed the trial court, but

decided it needed to address the issues of whether Ms. Pryor could bring a

direct action against the insurer, and whether Ms. Pryor was authorized to sue

as a third-party claimant under the UCSPA.

      As to this latter issue, the Court correctly recognized “an insurance

company’s violation of the UCSPA creates a private cause of action both for the

named insured and for those who have claims against the named insured, and

the same standards govern both types of cases.” Id. at 433 (citing Motorists

Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 452 (Ky. 1997)). So far, so good. The

problematic language, however, arises in the Court’s next statements:

      But a third-party claimant may only sue the insurance company
      under USCPA when coverage is not contested or already
      established. Knotts v. Zurich Ins. Co., 197 S.W.3d 512, 516
      (Ky.2006). And, as stated by Chief Justice Robert Stephens in his
      concurring opinion in Curry v. Fireman’s Fund Ins. Co., 784 S.W.2d
      176, 178 (Ky.1989):
            An insured does not avail himself of this cause of
            action by merely alleging bad faith due to an insurance
            company’s disputing or delaying payment on a claim.
            An insured must prove that the insurer is obligated to
            pay under the policy, that the insurer lacks a
            reasonable basis for denying the claim, and that the
            insurer either knew there was no reasonable basis to
            deny the claim or acted with reckless disregard for
            whether such a basis existed. An insurer’s refusal to
            pay on a claim, alone, should not be sufficient to
            trigger the firing of this new tort.
      Therefore, a third party cannot make a claim under UCSPA for the
      purpose of establishing coverage. Therefore, Pryor cannot avail
      herself of a bad faith action in order to establish that insurance
      coverage was available.

Id.

                                        9
      To the extent it may be construed as requiring a final appellate

determination of coverage in a third party claim, the holding in Pryor

misapplies our bad faith case law, as no case establishes a hard and fast rule

for when a third-party claimant can bring a bad faith case. Two general factual

situations giving rise to the filing of a bad faith action are that either (i) policy

coverage is not contested, or (ii) the tortfeasor’s liability to the claimant has

been reasonably established and the tortfeasor has an insurance policy that

ostensibly covers the incident in question.5 The Pryor Court cited Knotts for its

holding, but we do not read Knotts to be so limiting. In fact, in Knotts, we

stated that “‘claim’ as used in [KRS 304.12-230] means an assertion of a right

to renumeration under an insurance policy once liability has reasonably been

established.” 197 S.W.3d at 516.

      To be clear, we do not retreat from longstanding case law in this

Commonwealth that tort victims do not have direct causes of actions against

       5 In this case, the Salyer Heirs obtained an agreed judgment against Carty with

respect to Carty’s trespass/conversion of the Salyer Heirs’ mineral resources. Thus,
Carty’s liability to the Salyers Heirs was established and, without deciding, the
Greenwich policy ostensibly provided coverage for this occurrence.
       The Court of Appeals held that the Salyer Heirs did not have standing to enforce
this judgment against Greenwich. This holding seems to the inconsistent with our
decision in State Auto Mut. Ins. Co. v. Empire Fire & Marine Ins. Co., 808 S.W.2d 805
807-08 (Ky. 1991) holding that after obtaining judgment against an insured, the
injured party may “then seek enforcement of the judgment rendered in an action
against the defendant's indemnitor.” See also Chambers v Ideal Pure Milk Co., 245
S.W.2d 589, 591 (Ky. 1952) (suit against insurance carrier would be proper after
judgment had been obtained against the insured), overruled on other grounds by
Gonzalez v. Johnson, 581 S.W.3d 529 (Ky. 2019); Ky. Hosp. Ass’n Tr. v. Chi. Ins. Co.,
978 S.W.2d 754 755-56 (Ky. App. 1998) (holding similarly).

                                          10
their tortfeasors’ insurance companies. State Auto. Mut. Ins. Co. v. Empire Fire

& Marine Ins. Co., 808 S.W.2d 805, 808 (Ky. 1991) (stating “[i]n ordinary

circumstances, an injured party must first obtain judgment against the

opposing party defendant and then seek enforcement of the judgment rendered

in an action against the defendant’s indemnitor[]”); Cuppy v. Gen. Accident Fire

& Life Assur. Co., 378 S.W.2d 629, 632 (Ky. 1964) (stating “[t]he rule is (with

the possible exception in case of insolvency or bankruptcy, neither of which is

pleaded or proved here) that an injured person cannot sue the insurance

company in his original action against the insured[]”); Chambers v. Ideal Pure

Milk Co., 245 S.W.2d 589, 591 (Ky.1952) (holding “[n]o action could be

maintained on the policy of insurance until judgment had been obtained

against the insured policemen[]”), overruled on other grounds by Gonzalez v.

Johnson, 581 S.W.3d 529 (Ky. 2019); N.Y. Indem. Co. v. Ewen, 221 Ky. 114,

298 S.W. 182, 185 (1927) (holding plaintiff “had no direct cause of action

against the insurance company until she had obtained a judgment against the

assured[]”). The Salyer Heirs’ claim against Greenwich is their own tort claim,

in which they have the burden of proving 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) knew it had no reasonable basis for denying

the claim or acted with reckless disregard for whether such a basis existed.

Wittmer, 864 S.W.2d at 890. If, as held by the Court of Appeals, as seeming

held in Pryor, or as argued by Greenwich, the obligation to pay under the policy

                                       11
must be finally and conclusively determined prior to a third party bringing its

bad faith claim, then the first element of Wittmer is rendered superfluous.

      In sum, this Court finds that Pryor and Knotts should not be construed

as requiring a final judicial determination of coverage prior to filing a third-

party tort claim against an insurer. Instead, we continue to apply the

longstanding requirements of Wittmer v. Jones, which specifically state that

plaintiffs must fully shoulder the burden of proving the insurer is obligated to

pay in order to prevail in a bad faith claim. Here, the first step towards

satisfying the first prong of Wittmer was the trial court’s finding that

Greenwich’s policies covered Carty’s actions.6 The Court of Appeals erred in

requiring more.

                                  IV.   Conclusion

      The Court of Appeals opinion is reversed, and this matter is remanded to

that court to address the remaining issues raised by the parties related to the

coverage provided by the Greenwich policy and the Magoffin Circuit’s trial in

this matter.

      VanMeter, C.J.; Bisig, Conley, Keller, Lambert, and Nickell, JJ., sitting.

All concur. Thompson, J., not sitting

      6 To be clear, this issue remains on appeal and is to be resolved by the Court of

Appeals on remand.

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COUNSEL FOR APPELLANTS:

Philip Gray Fairbanks
Mendel Austin Mehr
Mehr Fairbanks Trial Lawyers, PLLC

COUNSEL FOR APPELLEE:

Mindy Barfield
Shadette Page Johnson
Dinsmore & Shohl, LLP

Susan L. Maines
Casey Bailey & Maines, PLLC

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