Court Opinion

ID: 4696387
Source: CourtListenerOpinion
Date Created: 2021-06-17 15:07:29.641156+00
Date Added: 2024-06-11T08:05:39.596448
License: Public Domain

RENDERED: JUNE 17, 2021
                                                           TO BE PUBLISHED

              Supreme Court of Kentucky
                              2018-SC-0586-DG

CRYSTAL LEE MOSLEY, INDIVIDUALLY                                  APPELLANTS
AND AS ADMINISTRATRIX OF THE ESTATE
OF RHETT LEE MOSLEY, DECEASED AND
RHETT MOSLEY, JR., A MINOR, BY AND
THROUGH HIS MOTHER AND NEXT
FRIEND, CRYSTAL LEE MOSLEY

                  ON REVIEW FROM COURT OF APPEALS
V.                        NO. 2017-CA-1252
                HARLAN CIRCUIT COURT NO. 2011-CI-00349

ARCH SPECIALTY INSURANCE COMPANY                                    APPELLEES
AND NATIONAL UNION FIRE INSURANCE
COMPANY

           OPINION OF THE COURT BY CHIEF JUSTICE MINTON

                                 AFFIRMING

      We accepted discretionary review in this third-party bad-faith case to

determine whether Arch Specialty Insurance Company and National Union Fire

Insurance Company acted in bad faith while mediating negligence and

wrongful death claims asserted by Crystal Lee Mosley against insureds of Arch

and National Union after her husband’s death in a coal mining accident. The

trial court summarily dismissed bad-faith claims against both companies, and

the Court of Appeals affirmed. We likewise affirm.
                 I. FACTUAL AND PROCEDURAL BACKGROUND

      While working the night shift at a surface mine, Rhett Mosley was killed

when the lube truck he was operating crashed and overturned, crushing him

underneath the truck. After the accident, a Mine Safety and Health

Administration (MHSA) investigation revealed the lube truck’s brakes were

improperly maintained and malfunctioned at the time of the accident. MSHA

also noted Rhett was not wearing a seatbelt. MSHA ultimately concluded that

these two circumstances—along with mine management’s failure to conduct

preoperational equipment checks—were the root causes of Rhett’s fatal

accident.

      Crystal Lee Mosley, in her individual and representative capacities,

brought a negligence and wrongful-death action against four companies

involved in the mining operation: (1) Rex Coal Company, owner of the mine; (2)

Jean Coal Company, operator of the mine; (3) Regional Contracting, Rhett’s

employer, an employee-leasing company that provided employees to Jean Coal;

and (4) Dixie Fuels, owner of the lube truck. Mosley also sued Terry Loving,

the owner and sole managing member of Regional Contracting and Dixie

Fuels.1 Loving, Jean Coal, and Regional Contracting were insured by Arch.

Rex Coal and Dixie Fuels were insured by National Union. Rex Coal and Dixie

Fuels were indemnitees under the Arch policy insuring Jean Coal, Regional

Contracting, and Loving.

      1  Loving and his family members own all the entities involved in this mining
operation. Rex Coal and Jean Coal are both owned by Karen Loving, Terry Loving’s
wife; Joe Bennett, Karen Loving’s brother; and several other relatives.

                                          2
      During the several years following the filing of Mosley’s complaint, the

parties undertook discovery, disputed liability, and filed summary judgment

motions. The litigation was complex and slow moving. Regional Contracting,

Rhett’s employer, argued that all claims against it were barred by the

exclusivity provisions of Kentucky’s Workers’ Compensation Act. Jean Coal,

the company that contracted with Regional Contracting for employees, asserted

it was entitled to up-the-ladder immunity under the Workers’ Compensation

Act. Dixie Fuels, owner of the lube truck, argued Mosley’s claims against it

were misplaced under the law of bailments because Jean Coal had possession

and control of the lube truck at the time of the accident, relieving it of any

obligation to maintain the truck. And Rex Coal argued it was not involved in

the mining operation at the time of the accident, so it owed no duty to Rhett.

All defendants asserted that they were entitled to an apportionment instruction

based on Rhett’s own negligence in failing to wear an available seat belt.

      The trial court dismissed Mosley’s claims against Regional Contracting,

finding its payment of workers’ compensation benefits on Rhett’s behalf barred

suit against it. The remaining parties were ordered to attempt mediation and

mediated on two separate occasions.

      At the first mediation, Arch offered its $1 million policy limits to settle all

claims against its insureds. Mosley refused to accept less than National

Union’s $6 million policy limits as well, which National Union was unwilling to

contribute because of its insureds’ available defenses. The first attempt at

mediation failed.

                                         3
      At the second mediation, an attorney representing all defendants and an

adjuster for National Union attended. Arch did not send an adjuster to

negotiate but again offered its full $1 million policy limits toward a global

settlement. Mosley demanded $1 million from Arch to settle the claims against

Jean Coal, but not the claims against Loving. Arch refused to settle, insisting

that it had an obligation to both of its insureds and could not exhaust its policy

limits to protect only one of its insureds, leaving the other exposed. Mosley

continued to demand National Union’s $6 million policy limits. So the second

mediation failed. But shortly after that, Mosley reached a settlement with

Arch, accepting the full $1 million policy limits to settle all claims against its

insureds, Jean Coal and Loving. Later, National Union settled its claims on

behalf of Rex Coal and Dixie Fuel for $2 million.

      Following the second failed mediation, Mosley filed third-party bad-faith

claims against Arch and National Union. Mosley claimed that Arch and

National Union acted in violation of the Kentucky Unfair Claims Settlement

Practice Act (KUCSPA)2 and engaged in a civil conspiracy during the mediations

of the wrongful-death action. Arch and National Union contested these claims

and filed motions to dismiss. The trial court denied the motions, allowing the

bad-faith claims to proceed, however, discovery for the bad-faith action was

stayed until the underlying wrongful-death action was fully resolved.

      2   Kentucky Revised Statute (KRS) 304.39.12–230.

                                          4
      Upon settlement with National Union, Mosley moved for discovery on the

bad-faith claims. Arch responded with a motion for judgment on the pleadings,

and National Union moved for summary judgment. Mosley, in turn asked the

trial court for an opportunity for discovery on their bad-faith claims.

      The trial court granted Arch’s motion for judgment on the pleadings. The

trial court explained that accepting the face of Mosley’s complaint as true,

Arch’s alleged conduct was legally insufficient to prosecute a claim for bad-

faith because of violations of KUCSPA, civil conspiracy, and punitive damages.

The trial court later granted National Union’s summary judgment motion after

it found Mosley had failed to establish a cause of action for bad faith under

Kentucky law. Additionally, the trial court held that even if additional

discovery was granted, no genuine issue of material fact exists because

National Union’s insureds’ liability was never beyond dispute.3

      Mosley appealed both dismissals, arguing the trial court erred in denying

her discovery motion because a proper bad-faith cause of action had been

pleaded against Arch and that a genuine issue of fact did exist under the claim

against National Union.

      Mosley argues to this Court, as he did below, that Arch and National

Union acted in bad faith during the two mediations, both together and

separately. Mosley insists that the insurance companies leveraged claims by

forcing global settlements instead of negotiating each claim individually.

       3 “Beyond dispute” is a legal term use to describe one of the elements of a bad

faith cause of action in Kentucky.

                                           5
Mosley also contends that the companies acted in bad faith by sending only

one attorney to the second mediation to negotiate for both insurers and their

respective insureds. Finally, Mosley claims that Arch and National Union

would not settle unless she reduced their settlement request from National

Union. Overall, Mosley argues this conduct constituted bad faith and violated

the KUCSPA.

                                      II. ANALYSIS

   A. The trial court did not err in dismissing the third-party bad-faith
      claims.

      Under the KUCSPA, an insurance company must deal in good faith with

a claimant in determining whether the company is contractually obligated to

pay the claimant.4 This is true whether the claimant is the company’s own

insured, or the company insures the claimant’s tortfeasor. Kentucky, unlike

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

faith, and this Court explained the standard for such claims in Wittmer v.

Jones.5 The Court held that a plaintiff has a “steep burden” of satisfying three

requirements before a trial court should find the plaintiff to have brought a

viable bad-faith claim.6 Those requirements are:

      (1) the insurer must be obligated to pay the insured's claim under
      the terms of the policy;
      (2) the insurer must lack a reasonable basis in law or fact for
      denying the claim; and

      4   Davidson v. American Freightways, Inc., 25 S.W.3d 94, 100 (Ky. 2000).
      5   864 S.W.2d 885, 890 (Ky. 1993).
      6   Id. at 890.

                                            6
       (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.7 The failure to show
       any of these elements eliminates the bad-faith claim as a matter of
       law.8

   B. Standard of Review

       In response to Mosley’s complaint, Arch filed a motion for judgment on

the pleadings based on her failure to state a claim of bad faith under Kentucky

law, and the trial court granted the motion.9 A motion for judgment on the

pleadings “should be granted if it appears beyond doubt that the nonmoving

party cannot prove any set of facts that would entitle him/her to relief.”10

These motions are based purely on whether the plaintiff has stated a cause of

action as a matter of law and do not require or permit the trial court to make

any findings of fact.11 Because a trial court’s ruling on a motion for judgment

on the pleadings is a question of law, appellate review of a judgment on the

pleadings is de novo.12 So in this instance we will review the trial court’s

       7   Id. at 890.
       8   Id.
       Kentucky One Health, Inc. v. Reid, 522 S.W.3d 193, 194 (Ky. 2017) (“Under
       9

[Kentucky Rule of Civil Procedure (CR) 12.03], a judgment based on a motion for
judgment on the pleadings is reserved for those cases in which the pleadings
demonstrate that one party is conclusively entitled to judgment.”).
      10 City of Pioneer Vill. v. Bullitt Cnty. ex rel. Bullitt Fiscal Ct., 104 S.W.3d 757,

759 (Ky. 2003).
       11 James v. Wilson, 95 S.W.3d 875, 883–84 (Ky. App. 2002). CR 12.03 may be

treated as a motion for summary judgment, Schultz v. Gen. Elec. Healthcare Fin. Servs.
Inc., 360 S.W.3d 171, 177 (Ky. 2012).
       12   Scott v. Forcht Bank, NA, 521 S.W.3d 591, 594 (Ky. App. 2017).

                                              7
decision that Mosley’s claim failed to state a claim without deference to the

lower courts.

      Like Arch’s motion, the trial court granted National Union’s motion for

summary judgment on Mosley’s bad-faith claim. We review such grants de

novo as “[t]he standard of review on appeal of summary judgment is whether

the trial court correctly found there are no genuine issues of material fact and

the moving party is entitled to judgment as a matter of law.”13 We therefore

review for whether there was a genuine issue of fact bearing on National

Union’s alleged bad faith conduct under the analysis established in Wittmer.

   C. Wittmer Analysis

      The three elements for a third-party bad-faith cause of action under

Wittmer are determinative for determining if granting both National Union’s and

Arch’s dispositive motions was appropriate. The bad faith conduct must go

beyond a technical violation of KUCSPA, and the plaintiff must allege she

suffered actual damage that was outrageous because of the insurance carrier’s

conduct.14 Further, the plaintiff’s complaint must sufficiently allege that the

insurance company acted outrageously towards her.15 Unless all these factors

      13 Carter v. Smith, 366 S.W.3d 414, 419 (Ky. 2012) (citing Blankenship v. Collier,

302 S.W.3d 665, 668 (Ky. 2010)).
       14 Motorists Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 452 (Ky. 1997), as modified

(Feb. 18, 1999), and holding modified by Hollaway v. Direct Gen. Ins.Co. of Miss., Inc.,
497 S.W.3d 733 (Ky. 2016).
      15   Holloway v. Direct Gen. Ins. Co. of Miss., 497 S.W.3d 733, 738 (Ky. 2016).

                                             8
are present, a trial court may not allow a third party’s bad faith claim to

proceed to the jury.16

   1. Plaintiff must show an obligation to pay under the contract’s
      policy.

       The first element Mosley must establish is the insurance company’s

obligation to pay under the policy. It appears from the arguments raised the

existing case law is unclear about what must be shown under Wittmer’s first

prong. To be clear, an obligation to pay requires proof that the insured’s policy

requires the insurer to pay, not that there is liability under the contract, which

is analyzed under Wittmer’s second requirement.17

       Here, as the Court of Appeals stated, Arch had no duty to pay Mosley

because of express exclusionary language in the policy.18 As Arch averred in

its response to Mosley’s amended complaint, and later again in its motion for a

judgment on the pleadings, Arch had no contractual duty to pay the claims

against Jean Coal and Loving because Arch’s policy expressly excluded “bodily

injury to an employee of the insured arising out of and in the course of

employment by the insured; or (b) performing duties related to the conduct of

the insured’s business.” Under the policy, the term employee included leased

       16Id. (“Absent such evidence of egregious behavior, the tort claim predicated on
bad faith may not proceed to a jury.” (citing United Services Auto. Ass'n v. Bult, 183
S.W.3d 181, 186 (Ky. App. 2003), as modified (June 27, 2003)).
       17 Id. (“Beginning with liability under the policy, we think it is important to
clarify that realistically there are two distinct questions of law in assessing Direct
General's duty to compensate Hollaway.”).
       18 The policy’s exclusion did not require Arch to cover bodily injury sustained by

a leased employee.

                                             9
employees like Rhett. The trial court had already determined that Rhett was a

leased employee, or an employee who suffered bodily injury. Thus, Arch did

not have a contractual obligation to pay under its policy.

      National Union conflates the first two prongs of Wittmer, and instead

focuses most of its argument on persuading the Court that its liability was not

beyond dispute, which will be discussed below. But, for purposes of analyzing

Mosley’s claim against National Union under the entire Wittmer test, Mosley

has satisfied the first prong of a third-party-bad-faith claim against National

Union, as even the insurer states it never denied Mosley’s claim.

      Additionally, it should be noted that Mosley’s bad faith claim against

Arch fails completely at this juncture because Mosley’s claim cannot satisfy the

first prong of this analysis. Because of the paucity of guidance in our

third-party-bad-faith precedent, we will analyze Mosley’s claim against both

Arch and National Union under all Wittmer elements.

   2. Plaintiff must show that the insured’s liability was beyond dispute.

      After the plaintiff has shown that the insurance company has an

obligation to pay, the plaintiff must establish that the insured’s liability is

beyond dispute.19 An insurer has an obligation to make a good-faith effort in

effectuating “prompt, fair and equitable settlements of claims in which [its

insured's] liability has become reasonably clear[.]”20 This Court has interpreted

      19   Wittmer, 864 S.W.2d at 890.
      20   KRS 304.12–230(6).

                                         10
“reasonably clear” to mean “beyond dispute[.]”21 But when an insured’s

liability is unclear, bad-faith claims fail as a matter of law because the insurer

has a reasonable basis for challenging the claim.22 So, in this instance, unless

liability of the parties insured by Arch and National Union was beyond dispute,

Mosley’s claim must also fail the second prong of the Wittmer test.

      Holloway v. Direct General Insurance Company of Mississippi discussed

the beyond-dispute-liability requirement of Wittmer.23 We found in Holloway

that because the insurer was not willing to concede liability of its insured, the

liability insurer was under no absolute duty to pay the plaintiff’s claim.24 As

stated in Holloway, a liability dispute entitles the insurance carrier to forgo any

effort to settle and to take a dispute about liability to a jury.25 Additionally, the

Court in Holloway concluded that “settlements are not evidence of legal

liability, nor do they qualify as admissions of fault[,]” under Kentucky law.26

      Arch insured Jean Coal and Loving. Under the Workers’ Compensation

Act, Jean Coal could claim immunity from tort liability. Jean Coal’s motion for

summary judgment arguing its entitlement to immunity in the wrongful death

action was pending at the time Arch and Mosley settled. So it cannot be said

      21   Coomer v. Phelps, 172 S.W.3d 389, 395 (Ky. 2005).
      22   Holloway, 497 S.W.3d at 739.
      23 Id. (“Because Direct General's absolute duty to pay her claim is not clearly
established, this alone would be enough to deny her bad-faith claim under Wittmer.”).
      24   Id.
      25   Id.
      26   Id.

                                          11
that Arch’s liability was reasonably clear because its insured may have been

immune from Mosley’s claims. Further, because Arch’s policy excluded bodily-

injury coverage for employees, both Jean Coal and Loving had a legitimate

basis to contest liability. And while Jean Coal and Loving’s liability was not

beyond dispute, Arch offered $1 million in settlement consistently throughout

the litigation. The only connection to “liability” Arch had was because of its

settlement, and as stated, settlements are not evidence of legal liability.

      We similarly find that National Union’s insureds’ liability was not beyond

dispute. National Union provided coverage for Dixie Fuel and Rex Coal.

National Union’s motion for summary judgment contended the liability of its

insureds was disputed because of the potential allocation of fault among the

parties, including the potential for fault apportioned to Rhett himself. For

example, Rex Coal was potentially entitled to immunity. Dixie Coal maintained

that it was merely the bailor of the truck Rhett was driving when the accident

occurred, and that Jean Coal was liable for its maintenance and use. Finally,

because most of the issues in the underlying wrongful-death action had yet to

be resolved, it was possible a jury would not apportion fault to Rex Coal and

Dixie but instead to other defendants. Dixie Fuel’s or Rex Coal’s liability was

debatable.

      In Messer v. Universal Underwriters Insurance Company, a panel of the

Court of Appeals explained that “before an insurer can be liable for bad faith,

                                        12
the underlying liability must be established.”27 In Messer, the plaintiff’s bad-

faith claim failed to survive summary judgment because the plaintiff was

unable to show the insured’s liability was beyond dispute. While the plaintiff

offered evidence that the insured might be liable, the plaintiff “never eliminated

the reasonable possibility that a jury could find [the plaintiff] 100% at fault for

colliding with Mountain Ford's vehicle.” Because of uncertainty over the

insured’s liability, no bad-faith claim could stand as a matter of law against the

insurance company. As National Union argues, it would not be legally

obligated to pay Mosley until a jury ultimately determined liability on the part

of Dixie Fuel or Rex Coal. We find the facts as recited in National Union’s

summary judgment motion make it reasonable for it to challenge liability under

Mosley’s claim because National Union’s insureds’ liability was contested, and

therefore, Mosley failed to meet the second prong of Wittmer.

      Mosley argues that Farmland Mut. Ins. Co. v. Johnson28 allows for a bad-

faith claim to proceed even where the underlying claim was “fairly debatable.”29

We disagree. Farmland involved a first-party bad faith claim where the

insurance company’s liability was undisputed and the only issue litigated was

the amount owed to the plaintiff.30 In fact, the “fairly debatable” language

relied on by Mosley refers to the amount of coverage owed to the plaintiff and

      27   598 S.W.3d 578 (Ky. App. 2019).
      28   36 S.W.3d 368, 374-75 (Ky. 2000).
      29   Id. at 376.
      30   Id. at 374–75.

                                        13
not the liability of the insurance company.31 As the Court of Appeals in the

present case stated, “When liability is clear or ‘beyond dispute,’ a claim must

be paid . . . . But when liability is not clear or disputed, an insurer may pursue

its defense and contested liability until its duty under KUCSPA is triggered.”

We find the circumstances here to be unlike those in Farmland because

liability and the amount of coverage were uncertain. Until Arch and National

Union’s insureds’ liability became reasonably clear, the insurers had the right

to contest liability. So no bad-faith claim can succeed as a matter of law.

      As the Court of Appeals in Messer stated, the “tall burden” of bringing a

third-party bad-faith claim:

      requires a claimant to demonstrate it was unreasonable for
      the insurer to argue the insured's conduct was not a
      substantial factor in causing the accident. Kentucky courts
      will not allow a jury to apportion fault to persons whose
      conduct was not a substantial factor in causing an accident.
      The insurer can challenge the claimant's ability to meet that
      burden by filing a motion for summary judgment.32

We find that Arch and National Union properly challenged Mosley’s ability to

meet her burden of proof. Arch did not act unreasonably in challenging the

claimant’s ability to meet that burden because its policy provided an exclusion

for injury caused by its insureds. And it was not unreasonable for National

Union to contest liability where its insureds’ fault was unclear because of the

      31   Id. at 376.
      32   Messer, 598 S.W.3d at 588.

                                        14
complex relationships among the parties and the potential defenses asserted by

each.

   3. The plaintiff must show that the insurer’s conduct resulted in
      actual damage and was outrageous.

        Mosley’s claim against Arch and National Union also fails because the

alleged bad-faith conduct was not outrageous, and no proof of actual damage

has been shown. The final requirement under Wittmer for a third-party bad-

faith claim is that the plaintiff show that the insurance company’s conduct was

outrageous and caused the plaintiff actual damage.33 The alleged conduct

must go beyond negligence and justify the imposition of punitive damages.34 In

Holloway, we stated that “absent evidence of punitive conduct, an insurer is

entitled to a directed-verdict for any bad faith claims levied against it.”35

        We find the plaintiffs have failed to show they suffered actual damage

and that the alleged conduct by the insurance companies was outrageous.

Mosley has not stated any damage amount owed because of the alleged bad

faith conduct by Arch or National Union. The allegations of bad faith include

Arch’s refusal to pay its $1 million policy limit. But a mere two weeks after the

last mediation, the parties settled, and Mosley received the amount. Arch

offered its policy limits in two mediations, but Mosley refused. Additionally,

National Union later settled the claims against its insureds for $2 million.

Mosley’s amended complaint does not allege any damage caused by Arch and

        33   Id. at 592; Zurich Ins. Co. v. Mitchell, 712 S.W.2d 340 (Ky. 1986).
        34   Wittmer, 864 S.W.2d at 890.
        35   Messer, 598 S.W.3d at 592 (quoting Holloway, 497 S.W.3d. at 739).

                                            15
National Union’s conduct. At most, their conduct caused a delay in settlement,

but we have held that mere delay in settlement does not rise to bad-faith

conduct.36

      Further, the alleged conduct does not appear outrageous or in reckless

indifference to Mosley’s rights. KUCSPA requires the insurers to act reasonably

in negotiating claims.37 To find bad faith, the evidence of bad faith must be

sufficient to establish that a tort has occurred.38 Mosley specifically argues

that Arch and National Union unfairly leveraged claims by making only global

offers of settlement and that Arch acted in bad faith by offering only global

offers of settlement because it would only pay its policy limit for Jean Coal if

Loving was released. We find though, as did the courts below, this conduct is

not prohibited by the KUCSPA.

      KRS 304.12-230(13) defines prohibited leveraging as a situation when an

insurance company, when liability is clear, attempts to force settlement under

one portion of the policy to influence settlement under another portion of the

policy. Here, however, Arch was not conditioning the settlement of its $1

million policy limit to avoid another portion of the policy. Instead, because

Jean Coal and Loving were both defendants insured by Arch, both of which

Arch owed a duty to indemnify, it only conditioned a settlement of a sum that

would exhaust policy limits on the condition that both insureds receive a full

      36   Zurich Ins. Co. v. Mitchell, 712 S.W.2d 340 (Ky. 1986).
      37   Holloway, 497 S.W.3d at 739.
      38   Guaranty Nat. Ins. Co. v. George, 953 S.W.2d 946, 949 (Ky. 1997).

                                          16
release of liability in exchange for such payment. This does not constitute

leveraging. Of course, KRS 304.12-230(13) only applies if the insurer’s liability

is reasonably clear, which, as discussed above, was not the case for either Arch

or National Union.39

      Further, we do not find it that it was outrageous or improper for one

attorney to represent Arch and National Union at the second mediation. As the

Court of Appeals explained, the impropriety of the conduct Mosley argues is a

conflict of interest, but when all parties had agreed to joint representation, as

was the case here, no issue exists. Such conduct does not rise to a level of bad

faith. Arch and National Union tried to settle at both mediations. Mosley

refused, which she had the right to do. She cannot now complain of the delay

in settlement when she refused to budge from her settlement demand.

   D. The Court of Appeals did not err in affirming the trial court’s denial
      of Mosley’s discovery motion.

      Mosley argues the Court of Appeals erred in affirming the trial court’s

denial of her discovery motion because the denial prevented her from proving

her bad-faith claim. The trial court stayed discovery on the bad-faith claims

until the underlying wrongful-death action was resolved. When the trial court

granted Arch and National Union’s dispositive motions against the third-party

bad-faith claim, the court also denied Mosley’s discovery motion.

      39  KRS 304.12-230(13) (“Failing promptly to 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”).

                                          17
      The trial court denied Mosley’s discovery motion on the grounds that the

discovery Mosely sought in the motion could only lead to evidence of the

insurer’s mediation conduct which is classed as confidential litigation conduct

and is inadmissible under Kentucky Rule of Evidence (KRE) 408. Further, the

trial court reasoned that even if mediation conduct were admissible, the

evidence plaintiff sought would not save her failed bad-faith claims because

she had not met the threshold requirement of pleading the existence of a

genuine issue of material fact to support her bad-faith allegations. Finally, the

trial court concluded, given the length of time this litigation had been pending,

Mosley had ample opportunity to conduct discovery. The Court of Appeals

accepted the trial court’s reasoning and affirmed.

      Mosley argues here that the trial court erred when it granted National

Union’s summary judgment motion and that the trial court abused its

discretion by denying discovery because the bad-faith conduct evidence she

sought was not rendered inadmissible by KRE 408. We review a trial court’s

evidentiary rulings for abuse of discretion.40 We will reverse the ruling if it was

arbitrary, unfounded in law, or unreasonable.41

      The matter before us invites examination of the complex interplay

between KRE 408 and bad-faith claims. KRE 408 reads:

      Evidence of: (1) Furnishing or offering or promising to furnish; or
      (2) Accepting or offering or promising to accept a valuable
      consideration in compromising or attempting to compromise a
      claim which was disputed as to either validity or amount, is not

      40   Goodyear Tire and Rubber Co. v. Thompson, 11 S.W.3d 575, 581 (Ky. 2000).
      41   Id. at 581.

                                          18
       admissible to prove liability for or invalidity of the claim or its
       amount. Evidence of conduct or statements made in compromise
       negotiations is likewise not admissible. This rule does not require
       the exclusion of any evidence otherwise discoverable merely
       because it is presented in the course of compromise negotiations.
       This rule also does not require exclusion when the evidence is
       offered for another purpose, such as proving bias or prejudice of a
       witness, negativing a contention of undue delay, or proving an effort
       to obstruct a criminal investigation or prosecution.”42

       This Court in Knotts v. Zurich Ins. Co.,43 addressed admissible evidence

in bad-faith cases.44 Knotts involved potential bad-faith litigation conduct by

an insurance company as compared to the insurers’ pre-litigation conduct at

issue in the present case.45 The insurer in Knotts argued that because the

alleged conduct occurred after litigation had commenced, the KUSCPA’s

protections against bad-faith conduct did not apply.46 But a majority of this

Court found that both evidence of the insurance company’s settlement

behavior and evidence of the litigation tactics deployed by the insurance

company were admissible as an exception to the general rule that evidence of

settlement negotiations is excluded.47 We reasoned that KRS 304.12–230 did

       42   (Emphasis added.)
       43   197 S.W.3d 512 (Ky. 2006).
       44   Id. at 514.
       45   Id. at 515.
       46   Id. at 516.
       47 Id. at 518 (“Recognizing the existence of a continuing duty of good faith,

however, is not the end of our inquiry. We must also address the further question of
what sorts of post-filing conduct by an insurer will be admissible in a bad faith action.
This is truly an issue of first impression in this state, so we turn to other jurisdictions
for guidance. Treatment of this issue can be divided broadly into two camps: (1)
allowing only evidence of the insurance company's settlement behavior and (2)
allowing that evidence plus evidence of the litigation tactics, strategies, and
techniques employed on behalf of the insurance company.”).

                                            19
not confine its applicability to pre-litigation conduct, and because the statute

applies to claims, the duty of good faith applies to an insurer so long as a claim

is in play.48 So evidence of an insurer's settlement behavior “throughout the

litigation may be examined and presented in order to establish an insurer's bad

faith to encourage good faith and fair dealing on behalf of all parties.”49

      Even more relevant to the present case is our discussion in Knotts

concerning the type of conduct admissible to prove that a party was acting in

bad faith.50 As we explained, two different classes of potentially admissible

evidence arise in bad-faith litigation.51 The first class consists of evidence of

the insurance company’s settlement behavior, and the second class includes

evidence of the litigation tactics, strategies, and techniques employed on behalf

of the insurance company.52

      We held in Knotts that public policy forbids admitting evidence of the

second class because admission would disrupt the judicial process and impede

the insurer’s vigorous advocacy on behalf of the insured.53 Our opinion stated:

                 The most serious policy consideration in allowing evidence of
                 the insurer's post-filing conduct is that it punishes insurers
                 for pursuing legitimate lines of defense and obstructs their
                 right to contest coverage of dubious claims . . . . [I]f
                 defending a questionable claim were actionable as bad faith,

      48   Id.
      49 Id. (see Hamilton Mut. Ins. Co. of Cincinnati v. Buttery,220 S.W.3d 287 (Ky.

App. 2007).
      50   Knotts, at 518.
      51   Id.
      52   Id. at 519.
      53   Id.

                                           20
               it would impair the insurer's right to a zealous defense and
               even its right of access to the courts.54

We explained that the difference in the two classes of evidence is that the Rules

of Civil Procedure provide remedies for discovery abuses in matters that fall

into the second-class conduct, but no formal procedural rules govern the first

class.55 For example, when a party refuses to turn over certain evidence under

a claim of privilege, the party seeking to discover the evidence at issue may

seek the intervention of the trial court for procedural relief. Because of the

availability of trial court intervention and procedural relief for the alleged

offensive conduct, the Knotts court would treat the above conduct as

inadmissible evidence in the bad-faith context because only offensive conduct

for which there is no available procedural relief can support a bad-faith claim.

In contrast, Knotts points out, “If a litigant refuses to settle or makes low offers,

his adversary cannot avail himself of motions to compel, argument, or cross-

examination to correct his failure.”56

      Because there is no recognized process for trial court intervention or

procedural relief available for bad-faith settlement conduct, evidence of such

conduct may be admitted as proof in a bad-faith claim. But even then, the trial

      54   Id. at 520.
      55 Id. (“The Rules of Civil Procedure provide remedies for the latter. To permit
      the jury to pass judgment on the defense counsel's trial tactics and to premise a
      finding of bad faith on counsel's conduct places an unfair burden on the
      insurer's counsel, potentially inhibiting the defense of the insurer. An insurer's
      settlement offers, on the other hand, are not a separate abuse of the litigation
      process itself.”).
      56   Id. at 523.

                                          21
court must be chary of the admission of proper settlement conduct as evidence

of bad faith. The Knotts court worried that admitting proper settlement

conduct in a bad-faith claim would create the same policy problem that

requires litigation conduct to be inadmissible because the jury would be able to

scrutinize the insurer’s acts and then, “without the assistance of insight into

litigation techniques, could second guess the defendant's rationales for taking

a particular course.”57 So only evidence of improper settlement behavior is

admissible. Like Knotts, we caution future litigants and courts alike that even

if the proof is of the first class and the conduct is purely settlement conduct, it

is not automatically admissible.58 In bad-faith actions, there is a heightened

concern about the potential of prejudice to the insurer.59 The trial court—the

gatekeeper charged with excluding prejudicial evidence under KRE 403—

should be on high alert when deciding what evidence may be admitted.60

      In summary, Knotts established that for evidence of bad faith to be

introduced it must be evidence of the insurer’s settlement behavior that

occurred throughout the litigation and the proffered evidence must be more

highly probative than prejudicial, and, even then, the courts must cautiously

      57   Id. at 520.
      58  Id. at 523 (“Such evidence is not automatically admissible. Evidence of post-
filing conduct may often be of limited relevance to a claim of bad faith and raises
distinct concerns about prejudice to the insurance company.”).
      59 Id. (“While resolution of the tension between the competing considerations of
probative value and prejudice is an unquestioned requirement of the law of
evidence, see KRE 403, we note that there has been heightened concern about this
issue, as it applies to post-filing conduct, since courts began considering such
evidence of bad faith.”).
      60   Id.

                                          22
admit it. We find the trial court in the present case properly denied Mosley’s

discovery motion because the evidence Mosely sought from Arch and National

Union, if any was produced, would not be admissible to prove her bad-faith

claim. We, too, find the evidence inadmissible but for different reasons than

the lower courts. The lower courts reasoned that the discovery motions would

only produce evidence of inadmissible litigation conduct and therefore

discovery should be denied. We find, though, that Mosley sought to discover

evidence of settlement conduct, not litigation conduct, but because she has

alleged only that the discovery will uncover evidence of proper settlement

conduct, her motion was properly denied. We will explain our reasoning using

the Knotts rubric.

      To begin, we note the evidence sought was evidence of conduct that

occurred throughout the litigation, a time when both insurers had a duty to act

in good faith. The conduct Mosley sought to discover occurred long after the

commencement of the wrongful-death litigation, and no party disputes that the

insurers were then under an obligation to deal in good faith.

      Next, we are to decide if the evidence Mosley sought to discover would be

probative of Arch’s and National Union’s litigation techniques, which are not

discoverable, or settlement conduct, which is discoverable. We find that

Mosley sought to discover evidence of both classes. For example, Mosley

sought to obtain the claim file compiled by National Union. Any information in

National Union’s claim file would potentially be privileged—either as work-

product or attorney-client—and, if the trial court had ruled it discoverable,

                                       23
Mosley would have had a potential remedy through trial court intervention if

National Union refused production for any reason. Because of the availability

of trial court oversight, under Knotts the production of the claim file would be

classed as part of the litigation process and off limits to prove Mosley’s bad-

faith claim.

      Significantly, though, we find that the discovery sought of the specific

interactions between the parties at the settlement conversations to be of the

first-class of evidence discussed in Knotts. Kentucky’s Model Mediation Rules

state that “[m]ediation should be regarded as settlement negotiations for

purposes of [KRE] 408.”61 There is no procedural device under the law to

remedy National Union’s and Arch’s potential bad-faith conduct that occurred

at these mediations. For example, if the companies had been unfairly

leveraging claims in the mediation process, as Mosley asserts, the only way to

show this would be through evidence about the actual mediations. So Arch’s

and National Union’s mediation conduct is considered settlement conduct

under Knotts for purposes of evidence available to prove Mosley’s bad faith

claim and is potentially admissible.

      While some of the evidence Mosley seeks is of the first-class, we find it is

ultimately inadmissible because it has no probative value. As instructed by

Knotts, even if the evidence is of the first-class and not litigation conduct, it is

      61Rule 12.B. Model Mediation Rules were adopted by the Supreme Court of
Kentucky in the “Order Amending Rules of the Supreme Court,” 99-1, effective
February 1, 2000.

                                         24
not to be automatically admitted. Instead the trial court is to look closely at

what the evidence will show if admitted and carefully assess if it is probative of

a bad-faith claim.62 As the trial court stated, Mosley only alleges proper claim

negotiation techniques, not improper leveraging of claims. So even if the

evidence was admitted, it would not be probative that the insurers acted in bad

faith because Mosley’s discovery motion only sought more evidence of

permissible settlement negotiation techniques, which cannot be probative of

bad faith in a disputable underlying claim. In contrast, if Mosley’s discovery

motion had alleged that the evidence would show, for example, that National

Union and Arch conspired against Mosley or that they ever denied Mosley’s

underlying bad-faith claim, then discovery would be permitted because this

would be improper settlement conduct that potentially rises to bad-faith

conduct. But because Mosley only alleges that discovery will provide more

evidence of proper settlement conduct, the discovery motion was properly

denied.

      Mosley relies on several cases where settlement conduct was admitted,

but that evidence arises in the context of a trial, the trial court having denied a

defense motion for summary judgment in which the trial court had analyzed

the sufficiency of evidence as a matter of law. For example, in Hamilton Mut.

Ins. Co. of Cincinnati v. Buttery,63 the admitted evidence included proof that the

insurer had tried to find ways to evade the plaintiff’s claims, that it monitored

      62   Knotts, 197 S.W.3d at 523.
      63   220 S.W.3d 287.

                                        25
the plaintiff’s financial situation in order to leverage its own bargaining

position, and that the company intended to refuse to satisfy the claim until the

plaintiff released the company from liability.64

      The evidence Mosley sought was neither relevant or probative of bad faith

because she only sought discovery of proper settlement conduct. Therefore,

any evidence sought would be insufficient to support her claim as a matter of

law. For this reason, Mosley’s discovery motion was properly denied as it

would not produce anything relevant to Mosley’s bad-faith claim.65

   E. Mosley’s Civil-Conspiracy Claim was properly dismissed.

      Mosley’s amended complaint also alleged a claim of civil conspiracy

against Arch and National Union. Although appellees argues this was not

preserved, we disagree, as the trial court’s grant of Arch’s motion for judgment

on the pleadings and National Union’s motion for summary judgment were also

dispositive of Mosley’s civil-conspiracy claim. A civil-conspiracy claim requires

the plaintiff to show “a corrupt or unlawful combination or agreement between

two or more persons to do by concert of action an unlawful act, or to do a

      64   Id. at 293 (“Proof indicating that Hamilton Mutual's entire investigation was
focused on finding a way to evade satisfying his claim . . . the company monitored his
financial struggles closely so as to leverage its bargaining position; and that Hamilton
Mutual intended to refuse to satisfy the claim until Buttery released the company from
liability arising from its misconduct.”).
       65 Hamilton Mut. Ins. Co. of Cincinnati v. Barnett, Nos. 2007-CA-000029-MR &

2007-CA-000064-MR, 2008 WL 3162321, at *3 (Ky. App. Aug. 8, 2008) (“Hamilton
Mutual attempts to define all its settlement discussions as litigation conduct. We,
however, agree with the trial court's sound reasoning that most of the alleged litigation
conduct was actually settlement discussions, and is therefore admissible both before
and after the December 6, 1996, order.”).

                                           26
lawful act by unlawful means.”66 The burden lies with the plaintiff to prove

every element of conspiracy.67 We find Mosley was unable to meet the high

burden of proof as a matter of law.

      For her civil-conspiracy claim, she only alleges that Arch and National

Union used one attorney during a mediation session. This alone does not

establish conspiracy. And, as the Court of Appeals states, “Mosley did not

establish a scintilla of evidence of an unlawful agreement to perform an

unlawful act” and failed to “provide a factual basis of an agreement to act

overtly unlawful in furtherance of the agreement.” Because Mosley did not

provide the trial court with any evidence that Arch and National Union had

agreed to act against her in a tortious manner, Arch and National Union’s

dispositive motions were appropriately granted. Finally, as the trial court

stated, Plaintiff’s civil-conspiracy claim is predicated on her ability properly to

assert bad-faith claims, which she has failed to do.68

                                 III.     CONCLUSION

      For the reasons discussed above, we affirm the decision of the Court of

   Appeals.

      All sitting. All concur.

      66Peoples Bank of N. Kentucky, Inc. v. Crowe Chizek and Co. LLC, 277 S.W.3d
255, 261 (Ky. App. 2008) (quoting Smith v. Bd. of Edu. of Ludlow, 264 Ky. 150, 94
S.W.2d 321, 325 (1936)).
      67   James v. Wilson, 95 S.W.3d 875, 896–902 (Ky. App. 2002).
      68   James, 95 S.W.3d at 896.

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COUNSEL FOR APPELLANTS:

Kellie Marie Collins
J. Dale Golden
Golden Law Office, PLLC

Kenneth R. Friedman
Friedman Rubin

Jeffrey Reed Morgan
Jeffrey R. Morgan & Assoc PLLC

COUNSEL FOR APPELLEE, ARCH SPECIALTY FIRE INSURANCE COMPANY:

Mindy Barfield
Shadette Page Johnson
Dinsmore & Shohl LLP

COUNSEL FOR APPELLEE, NATIONAL UNION FIRE INSURANCE COMPANY:

Christopher S. Burnside
Christopher Glade Johnson
Griffin Terry Sumner
Frost Brown Todd LLC

COUNSEL FOR AMICUS CURIAE, INSURANCE INSTITUTE OF KENTUCKY:

Ronald Lee Green
Green Chesnut & Hughes PLLC

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