Court Opinion

ID: 9646208
Source: CourtListenerOpinion
Date Created: 2023-08-23 12:52:51.435441+00
Date Added: 2024-06-11T18:11:35.626734
License: Public Domain

COOPER, Justice,
concurring.
I concur in the result reached by the majority in this case, i.e., reversal of the decision of the Court of Appeals and reinstatement of the summary judgment entered by the Calloway Circuit Court. However, I would do so because the factual allegations in this case do not state a cause of action under any common law or statutory theory. The operative facts are these:
Guaranty National Insurance Company had issued a policy of insurance covering a 1988 Volvo truck owned by Appellees Albert George, Pearl George and Karen Miller. On August 21, 1991, a 1988 Volvo truck owned by the Georges and Miller and operated by their employee, Appellee Steven Jackson, was involved in a two-car collision in which the operator of the other vehicle was killed. The estate of the deceased driver subsequently filed a wrongful death action against the Appellees, who referred the case to Guaranty National for defense and payment under the liability coverage of the policy, if necessary. The George family owned two 1988 Volvo trucks. Unfortunately, the local independent agent who submitted the application to Guaranty National on behalf of Appellees entered the wrong Volvo’s vehicle identification (VIN) number on the application. When it realized that the VIN number of the vehicle involved in the accident was a different number from that on the policy, Guaranty National notified Appellees of its intent to defend under a reservation of rights and sought a declaratory judgment as to whether its policy provided coverage for the Volvo involved in the accident. Appellees responded with this action alleging “bad faith” on the part of Guaranty National and violation of the Unfair Claims Settlement Practices Act (UCSPA), KRS 304.12-230. Subsequently, the trial judge ruled that the improper VIN number was the result of a mutual mistake and reformed the insurance contract to reflect the correct VIN number. That decision was affirmed on appeal. Meanwhile, on November 4, 1992, two weeks after entry of the declaratory judgment and less than ten months after suit was filed, Guaranty National settled the tort claim of the deceased driver’s estate.
Four categories of “bad faith” claims against insurance companies have been recognized in this jurisdiction.
(1) A common law “third-party bad faith” claim occurs when a liability insurer’s failure to settle a tort claim against its insured results in a judgment in excess of the insured’s policy limits. Eskridge v. Educator and Executive Insurers, Inc., Ky., 677 S.W.2d 887 (1984); Manchester Insurance & Indemnity 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). The settlement by Guaranty National of the tort claim against Appellees prior to judgment ipso fac-to eliminated any cause of action based on common law “third-party bad faith.”
(2) A common law “first-party bad faith” claim arises when an insurer refuses to pay the claim of its own insured under a first-party coverage provision of its policy. Curry v. Fireman’s Fund Insurance Co., Ky., 784 S.W.2d 176 (1989). Since Appellees were not making a first-party claim for payment under the policy, this theory also has no application to this case.
(3) In Stevens v. Motorists Mutual Insurance Co., Ky., 759 S.W.2d 819 (1988), we recognized a cause of action against an insurer for an “unlawful act” as defined in the Consumer Protection Act. KRS 367.170. However, the policy in question here was a commercial liability policy and the Consumer Protection Act applies only to goods or services purchased primarily for personal, family or household purposes. KRS 367.220(1); cf. Cohen v. North Ridge Farms, Inc., 712 F.Supp. 1265 (E.D.Ky.1989).
(4) Lastly, we have recognized a statutory “bad faith” action against an insurance company for violation of the UCSPA. State Farm Mutual Automobile Insurance Co. v. Reeder, Ky., 763 S.W.2d 116 (1988). The UCSPA contains fourteen subsections specifying particular acts as unfair claims settlement practices. The statute is intended to *951benefit damage claimants by requiring insurance companies to act reasonably in negotiating settlements of their claims. The four subsections of KRS 304.12-230 relied upon by Appellees clearly apply to damage claimants, not liability insureds:
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(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. (Emphasis added.)
Nothing in these provisions could be interpreted to inhibit an insurer from seeking a declaratory judgment to determine whether coverage is provided for a particular vehicle involved in an accident.
Nor do I agree with the majority that this case might be the proper subject of a CR 11 motion. That rule does not provide substantive rights to litigants, but is a procedural rule designed to curb abusive conduct in the litigation process. Clark Equipment Co. v. Bowman, Ky.App., 762 S.W.2d 417 (1988). The damages permitted by the rule are in the nature of reasonable expenses including reasonable attorney fees. Good or bad faith is not the issue. Louisville Rent-A-Space v. Akai, Ky.App., 746 S.W.2d 85 (1988). The issue is whether the offending pleading or motion was reasonable under the circumstances. Clark Equipment Co. v. Bowman, supra, at 420.
Neither the filing of the declaratory judgment action nor the taking of the appeal could be characterized as a wrongful use of civil proceedings. Compare Prewitt v. Sexton, Ky., 777 S.W.2d 891 (1989); Mapother & Mapother, P.S.C. v. Douglas, Ky., 750 S.W.2d 430 (1988), cert. denied, 488 U.S. 854, 109 S.Ct. 142, 102 L.Ed.2d 114 (1988). Restatement (Second) of Torts, §§ 674-681B. Although most such actions appear to be prosecuted against attorneys, see also Raine v. Drasin, Ky, 621 S.W.2d 895 (1981), Hill v. Willmott, Ky.App., 561 S.W.2d 331 (1978), and Rose v. Davis, 288 Ky. 674, 157 S.W.2d 284 (1941), the cause of action is also maintainable against the client. Section 674 of the Restatement refers to the potential defendant of such an action as “One who takes an active part in the initiation, continuation or procurement of civil proceedings against another_” Cf. Williams v. Central Concrete Inc., Ky.App., 599 S.W.2d 460 (1980). However, to prevail in an action for wrongful use of civil proceedings, the plaintiff would have to prove both an absence of probable cause, Restatement, supra, § 675, and that the proceedings were initiated or continued primarily for a purpose other than that of securing the proper adjudication of the claim on which they are based. Id., § 676; cf. Raine v. Drasin, supra, at 902. Although Appellees claim lack of probable cause (a dubious assertion since the trial judge had to reform the contract in order to rule in then-favor), they make no claim that the declaratory judgment action was commenced for any purpose other than to adjudicate whether Guaranty National owed a defense and liability coverage for the claims arising out of this accident.
Finally, although the complaint appears to allege a breach of contract, the contract of insurance in this case only required Guaranty National to provide Appellees with a defense to the tort action and to pay any judgment up to its policy limits. A defense was provided and the tort claim was settled before judgment. Nothing in the contract precludes either party from seeking a judicial construction of its terms.
For these reasons, I deem it unnecessary to address the merits of Appellees’ “bad faith” claim and would simply reverse the Court of Appeals because Appellees’ claims against Guaranty National do not state a cause of action.
JOHNSTONE, J, concurs in so much of this opinion as it relates to CR 11.