Court Opinion

ID: 4958599
Source: CourtListenerOpinion
Date Created: 2021-09-24 14:12:57.767115+00
Date Added: 2024-06-11T08:15:43.079142
License: Public Domain

RENDERED: SEPTEMBER 17, 2021; 10:00 A.M.
                 NOT TO BE PUBLISHED

           Commonwealth of Kentucky
                  Court of Appeals

                    NO. 2019-CA-0015-MR

GREENWICH INSURANCE COMPANY                          APPELLANT

          APPEAL FROM MAGOFFIN CIRCUIT COURT
v.      HONORABLE JAMES W. CRAFT, II, SPECIAL JUDGE
                  ACTION NO. 07-CI-00006

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

                           AND

                    NO. 2019-CA-0207-MR

GREENWICH INSURANCE COMPANY                     APPELLANT

                            -2-
           APPEAL FROM MAGOFFIN CIRCUIT COURT
v.          HONORABLE JAMES W. CRAFT, II, JUDGE
                   ACTION NO. 07-CI-00006

MELYNDA HARTMAN COFFEE; AMELIA
CRAFT; JUDY DOWNS CROCKETT; BETTY
DOBSON; DOUG DOWNS; CAROLYN
DYKHUZIEN; GWENDONLYN R. FORGE;
MAXINE FRENCH; FREDERIC HARWELL,
ADMINISTRATOR OF THE ESTATE OF RONALD
HARWELL; GEMALEA SALYER HAVENS;
PAM HOWARD; MAYOLA HUMES; GAIL KAHLEY;
SANDY DOWNS ZIMMERMAN LYNCH;
KAREN J. LYON; CHRISTINE MADISON KELLEY,
ADMINISTRATOR OF THE ESTATE OF LILLY
MAY MADISON; ONEDA MARCHETTI; DAVID MARTIN;
LILLIAN MINIX; JAMES R. (JAMIE) PHARES;
JASON PHARES; CHERYL L. PIPER; MOLLIE W.
RICHARDSON; BILL SALYER; DAVID RON
SALYER; GARY SALYER; GLEN SALYER;
JAMES SALYER; LARRY KEITH SALYER;
LARRY R. SALYER; MARK STEVEN SALYER;
MARY E. SALYER; PATCHEL SALYER;
RAMEY SALYER, JR.; ROBERT E. SALYER;
ROY WARD SALYER; TIMMY ODELL
SALYER; WISEMOND SALYER; LAVINIA
WHITAKER SMITH; BARBARA STALBAUM;
GINGER ASHWORTH, EXECUTRIX OF THE
ESTATE OF ANNA M. STEPHENS; VANESSA EASON
VANHYNING; LAVARVIA BEDDINGFIELD
WEBIE; DANIEL E. WHITAKER; DARYL
LAWRENCE WHITAKER; JACK WHITAKER;
JAMIE WHITWORTH; DARRELL G. WILLIAMS;
GARY WILLIAMS; GREG WILLIAMS; RANDALL
WILLIAMS; AND KAREN WORTMAN                       APPELLEES

                           -3-
                                   OPINION
                           REVERSING AND REMANDING

                                        ** ** ** ** **

BEFORE: LAMBERT, McNEILL, AND TAYLOR, JUDGES.

LAMBERT, JUDGE: These appeals arise from a third-party bad faith action

relating to the denial of coverage by Greenwich Insurance Company of claims by

mineral property owners for trespass to minerals on their respective properties.

After a jury found that Greenwich had violated six parts of Kentucky’s Unfair

Claims Settlement Practices Act (UCSPA), Kentucky Revised Statutes (KRS)

304.12-230, and acted with gross negligence towards the owners, the Magoffin

Circuit Court awarded the landowners $15.1 million in damages. This included

$14.3 million in punitive damages and $834,000.00 in compensatory damages, and

the court ordered Greenwich to pay an additional $1.52 million based upon its

default of obligations under an earlier settlement agreement. We reverse and

remand.

               The underlying matter began with the filing of a complaint with the

Magoffin Circuit Court on January 9, 2007. The plaintiffs1 are individuals who

owned mineral property in the county. They are the heirs of Ben and Lillian

Salyer, who had owned, in whole or in part, tracts of mineral property on Stinson

1
 Many of the named plaintiffs were dismissed in 2018, either due to non-participation in the suit
or because they had passed away and their claims had not been revived.

                                               -4-
Creek at Patton Fork and the Wardie Patrick Farm. They died intestate in 1946

and 1940, respectively, and the plaintiffs are their grandchildren or great-

grandchildren, as their eleven children who had inherited the properties had passed

away. The plaintiffs named J.D. Carty Resources, LLC, and Anaconda Drilling of

Kentucky, LLC, as the defendants. Anaconda Drilling is a third-party contractor

that was hired by J.D. Carty Resources to drill the wells at issue. The plaintiffs

alleged that, beginning in 1993, the defendants trespassed on their land without

permission or color of title and used heavy equipment to build roads and to drill

and produce natural gas wells. This caused damage to the plaintiffs’ land and

deprived them of the mineral and royalties. This, they alleged, constituted willful

trespass to their mineral and entitled them to damages for the full value of the

natural gas produced from the wells. The plaintiffs sought a declaration of rights

concerning their interest in the mineral property and the title and boundary line

locations. They also sought injunctive relief to enjoin the defendants from

continuing to drill and produce natural gas from their land.

             A first amended complaint was filed in July 2007, in which the

plaintiffs named various companies, estates, or individuals who also might claim

an interest in the mineral property. A second amended complaint was filed in

November 2007, naming Equitable Production Company as a successor in interest

to one of the parties added in the first amended complaint. Litigation proceeded as

                                         -5-
to the boundaries of the properties at issue. The circuit court entered a partial

summary judgment in March 2008, ruling that the plaintiffs were entitled to a

judgment as to liability for trespass to minerals against J.D. Carty Resources,

Anaconda Drilling, and Country Gas, LLC (the J.D. Carty companies). The court

specifically stated:

                    The J.D. Carty Companies’ expert and Licensed
             Land Surveyor conducted a survey of the Salyers heirs’
             mineral property that is the subject of this action, and
             prepared a survey plat which is filed in the record in this
             case (the “BoCook Survey”). The BoCook survey agrees
             with the Plaintiffs’ survey that the Claxton McCarty Well
             #2 was drilled on the Plaintiffs’ mineral tract and is
             essentially the same with regard to the area affected by
             the Claxton McCarty Well #2. In answers to Requests
             for Admissions, the J.D. Carty Companies admitted to
             the accuracy of the BoCook Survey. There being no
             genuine issue of material fact, Plaintiffs are entitled to
             judgment as a matter of law on the issue of liability
             against the J.D. Carty Companies.

A jury trial was to be assigned to decide the remaining matters, including the

amount of damages the plaintiffs could recover and apportionment of fault. A

third amended complaint was filed in July 2008, adding two additional defendants

(John D. Carty and Fast Flow Group, LLC, which were included with the J.D.

Carty companies) and a cause of action for fraud.

             In September 2008, the plaintiffs filed a motion for an evidentiary

hearing and to enforce a settlement agreement between them and the J.D. Carty

companies. In December 2008, the court entered an order and judgment setting

                                          -6-
forth the terms of the agreement reached between the parties (the Bramble

judgment). The court ordered J.D. Carty Resources and Country Gas to pay the

plaintiffs $628,000.00 to settle all claims related to the Claxton McCarty Well #2,

making those defendants jointly and severally liable to pay the judgment. The

Plaintiffs agreed to postpone execution of the judgment against the J.D. Carty

companies as long as those defendants complied with the order and paid each

payment when due as set forth in the order. An initial payment of $90,000.00 was

due on or before December 18, 2008, and the balance was to be paid in ten equal

installments of $50,000.00 each and a final payment of $38,000.00, with the first

$50,000.00 payment to be made on or before January 18, 2009, and on the 18th of

each month after that. Once all the payments had been made, the judgment would

be deemed satisfied, and the claims against the J.D. Carty companies would be

dismissed. If the defendants defaulted on one or more of the payments, they would

not be entitled to a credit or setoff of the amounts paid under the agreement against

any final judgment that was to be entered.

             In January 2009, the plaintiffs moved to enforce the settlement

agreement or to assign a trial date, stating that the J.D. Carty companies had

defaulted on the agreement to pay. The same month, they filed a renewed motion

for summary judgment, seeking the amount of $1,010,746.67 from the J.D. Carty

companies along with interest based upon the default. Anaconda Drilling objected

                                         -7-
to the motion, stating that it had fully complied with its obligation by tendering

$20,000.00 by check from its carrier to Carty’s personal counsel with a policy

release document. The release document was to be executed in exchange for the

check. In February, the plaintiffs moved to withdraw their motion to enforce the

settlement agreement so that the matter could proceed to trial the following month,

although that trial was later continued. On February 19, 2009, the circuit court

entered an agreed order memorializing a settlement agreement between the parties

related to held garnishment funds.

             As the matter proceeded, the circuit court permitted several parties to

intervene in order to determine their respective rights, and it substituted others due

to death. By order entered June 1, 2009, the court dissolved and set aside the

temporary restraining order and injunction enjoining the plaintiffs from executing

on the judgment. In the same order, the court denied a motion to intervene by four

individuals, which was appealed. That order was affirmed in an opinion rendered

in October 2010. Another defendant, Country Gas, appealed from an order entered

in April 2010 related to the court’s order for a judgment of sale against its assets.

Country Gas’s appeal was dismissed on November 9, 2010.

             In April 2010, the plaintiffs moved for leave to file a fourth amended

complaint. In this amended complaint, the plaintiffs sought to join Bituminous

                                          -8-
Casualty Corporation2 (the insurer for Anaconda Drilling) and Greenwich

Insurance Company (the insurer for J.D. Carty Resources) in order to assert claims

for violations of Kentucky’s UCSPA or common law bad faith. Both Greenwich

and Bituminous had been notified of the plaintiffs’ claims no later than January

2007, when the litigation began. Neither insurance company made an offer of

settlement until January 2009, when the companies offered to pay $20,000.00 to

settle the claims against their respective insured entity. The plaintiffs alleged that

the companies lacked a reasonable basis to refuse or delay payment of the

insurance claims once they were notified and had received information to

document the claims. They also alleged the companies acted and continued to act

with reckless disregard as to whether there was a reasonable basis to deny paying

the claims or to negotiate a good faith settlement. As a result, the plaintiffs

suffered inconvenience from these delays and the failure of the insurance

companies to pay under the policies or attempt to settle and pay their claims in

good faith. The plaintiffs went on to allege that the companies had ulterior motives

for refusing to pay in good faith based upon the existence of self-serving programs

and/or rewards programs, which would reward adjusters for underpaying claims.

They alleged that this conduct constituted gross negligence and a reckless

2
  Bituminous changed its name to BITCO General Insurance Corporation during the course of
the proceedings. In the interest of clarity, we shall refer to this defendant as Bituminous
throughout this opinion.

                                             -9-
disregard to whether any reasonable basis existed for denying or delaying payment

of their claims. Therefore, the plaintiffs sought punitive damages. The plaintiffs

also sought to recover attorney’s fees, costs, and pre-claim and pre-judgment

interest. The motion was granted, and the fourth amended complaint was filed.

             In May 2010, Bituminous filed a notice of removal with the United

States District Court for the Eastern District of Kentucky, Southern Division at

Pikeville, based upon diversity jurisdiction. However, the matter was remanded to

state court shortly thereafter because it could not be determined at that time

whether complete diversity existed.

             In June of that year, the plaintiffs moved to clarify the scheduled trial

date and to bifurcate certain defendants. They also indicated that they were not

waiving their right to a jury trial on their bad faith claims against Bituminous and

Greenwich. In August, Greenwich also filed a motion to sever the claims made in

the fourth amended complaint against it from the remaining issues in the case. It

indicated that it had been defending the underlying case under a reservation of

rights and that, before a bad faith claim may proceed, coverage and an obligation

to pay must be established. Bituminous also filed a motion to sever. Both parties

filed motions seeking a protective order and to stay discovery. In its motion,

Greenwich stated that it had contributed $20,000.00 to the total amount of the

agreed upon settlement between the plaintiffs and its insured, J.D. Carty

                                         -10-
Resources. For that contribution, J.D. Carty Resources signed a policy holder’s

release in which it agreed that it was not entitled to any further coverage or defense

under its policy with Greenwich. J.D. Carty Resources and the plaintiffs accepted

the funds and acknowledged the release. The remainder of the settlement was to

be paid by J.D. Carty Resources pursuant to a set schedule. When J.D. Carty

Resources defaulted on its payments, the plaintiffs demanded payment from

Greenwich. They filed a fourth amended complaint against Greenwich and

Bituminous when reminded about the substance of the settlement agreement and

release. The court denied the motions to sever and for a protective order.

               In November 2010, the Salyer heirs plaintiffs3 filed a motion for

partial summary judgment against Greenwich and Bituminous, asking the court to

declare that the insurance companies were obligated to pay their claims under the

terms of the respective insurance policies. They argued that a review of the

companies’ policies established that they provided coverage for the claims.

Greenwich responded with a cross-motion for partial summary judgment on the

issue of coverage, arguing that no coverage existed under the policy for various

reasons.

3
 The attorneys representing the Salyer heirs withdrew their representation of other plaintiffs
prior to the filing of this motion. We shall continue to refer to these parties as the plaintiffs.

                                                 -11-
             On January 11, 2011, the circuit court entered an order ruling on the

pending motions. The court denied the motions filed by Greenwich and

Bituminous, but it granted the plaintiffs’ motion for partial summary judgment. It

found that the policies provided coverage for J.D. Carty Resources’ actions that

formed the basis of the plaintiffs’ complaint and subsequent judgment. It therefore

found that the plaintiffs had established the first prong of the bad faith test as set

forth in Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993); namely, that the

insurers were obligated to pay the claim under the terms of the respective policies.

Both insurance companies moved the court to alter, amend, or vacate this order.

Greenwich specifically argued that the court failed to specify which plaintiffs were

entitled to summary judgment; that the order did not indicate a basis for the ruling

through findings of fact or conclusions of law; that the bad faith standard was

misstated as the standard cited in the order was for first-party, not third-party, bad

faith claims; and that the parties had not been heard on the issues presented

regarding its liability for violations of the UCSPA. Greenwich requested that the

order be made final and appealable. In a separate filing, Greenwich renoticed its

motion to bifurcate. And in February 2011, Greenwich moved the court to

reconsider the denial of its motion for summary judgment.

             By order entered March 11, 2011, the court ruled on the various

pending motions. The court granted the motions to bifurcate and stay discovery,

                                          -12-
partially granted reconsideration on its summary judgment by indicating which

plaintiffs were included in the order (the plaintiffs represented by attorneys Dean

and Mehr), and denied reconsideration as to its judgment in favor of the plaintiffs

on coverage. As to Greenwich, the circuit court stated:

             [T]he insurance policy between Greenwich and its
             insured J.D. Carty Resources, LLC, provides coverage
             for the claims asserted by the Dean/Mehr Represented
             Salyer Heir Plaintiffs against J.D. Carty Resources. J.D.
             Carty Resources’ trespass to minerals constitutes
             property damage and an occurrence under the terms of
             the Greenwich/J.D. Carty Resources insurance contract.
             No exclusions in the policy apply, and additionally the
             Greenwich/J.D. Carty Resources insurance contract
             contains a “personal injury and advertising liability
             endorsement” that also provides coverage for the
             Dean/Mehr Represented Salyer Heir Plaintiffs’ claims
             against J.D. Carty Resources.

In addition, the circuit court made the January 11, 2011, order final and appealable.

Both Greenwich and Bituminous appealed from these rulings (Appeal Nos. 2011-

CA-0542-MR and 2011-CA-0643-MR). This Court dismissed the appeals on

February 21, 2014, as non-final and interlocutory, holding that it was beyond the

circuit court’s discretion to make the rulings final. The Supreme Court of

Kentucky denied the motions by Greenwich and Bituminous seeking discretionary

review on February 23, 2015, and this Court’s opinion and order became final later

that month. At that time, litigation as to the UCSPA and bad faith claims went

forward.

                                        -13-
             In August 2016, Greenwich and Bituminous filed a joint notice of

removal to the United States District Court for the Eastern District of Kentucky

based upon diversity jurisdiction pursuant to 28 United States Code (U.S.C.) §

1441. In response to the removal, the plaintiffs moved to remand the case to state

court. Early in 2017, the federal court opted to remand the case based upon the

failure of the insurance companies to properly remove the case within one year of

its commencement.

             Upon remand, the plaintiffs moved the circuit court to enter a

scheduling order and set the matter for a jury trial on their bad faith claims against

Greenwich and Bituminous. By order entered in April 2017, the matter was set for

a status conference two months later.

             Prior to the status conference, the plaintiffs filed a notice of their

intention to file a motion to enter an agreed judgment and order of dismissal of

their claims against Anaconda, J.D. Carty, and Fast Flow Group. They also moved

to file a fifth amended complaint to assert supplemental claims against Greenwich

and Bituminous, alleging that the insurers had fraudulently induced J.D. Carty

Resources and Anaconda into signing a policyholder’s release in exchange for the

$20,000.00 and defense under the policies.

             Following the status conference, the court set a jury trial for March 5,

2018. The trial would first determine the issues of damages and apportionment. If

                                          -14-
those matters were settled or resolved, the trial would determine the bad faith

claims. Discovery went forward.

             In November 2017, the plaintiffs filed a motion for partial summary

judgment against Greenwich for the amount of the underlying judgment against

J.D. Carty Resources ($628,000.00), plus interest, for a total of $1,358,858.01.

This was based upon discovery documents that showed that lawyers had advised

the insurance company as early as June 26, 2007, that the policy of insurance did

provide coverage for the trespass claims as well as upon the circuit court’s January

2011 ruling that the policy provided coverage. The court denied this motion in an

order entered February 8, 2018.

             Also in November 2017, Greenwich moved to dismiss the plaintiffs’

fourth amended complaint, arguing that Kentucky law prohibits a third party from

pursuing a claim under the UCSPA for the purpose of determining coverage.

Because coverage had always been contested and had not been established, and the

plaintiffs did not seek a declaratory judgment in that complaint, the plaintiffs did

not have the right to pursue such a claim in the fourth amended complaint. In

addition, Greenwich argued that a third-party bad faith claim is not permitted under

Kentucky common law. Therefore, Greenwich asserted that the plaintiffs did not

have standing to bring a common law bad faith claim against it. Greenwich also

argued that the plaintiffs could not prove that its conduct was outrageous or

                                         -15-
demonstrated a reckless indifference to the rights of others. In response, the

plaintiffs moved to amend the pleadings to conform to the evidence that it was

making a claim for declaratory relief pursuant to KRS 418.404.

             The plaintiffs moved to file a second, fifth amended complaint in

January 2018 to make it clear that they were seeking a declaration of rights as to

whether the insurance companies’ policies covered their claims pursuant to KRS

418.040. The court permitted the plaintiffs to do so by order entered April 16,

2018. This order also scheduled a jury trial to begin on September 17, 2018. The

court denied Greenwich’s motion to dismiss the same day.

             In March 2018, Greenwich filed a response to the plaintiffs’ motion

for partial summary judgment as well as a cross-motion for summary judgment.

Greenwich continued to argue that there was no coverage for lost royalties and

revenue under the policy, only tangible property damage, and that it was entitled to

summary judgment as well as a dismissal of the claims against it. And in April

2018, Greenwich filed a motion to dismiss the fifth amended complaint for failure

to state a cause of action for which relief could be granted based on it being unduly

vague.

             On May 22, 2018, the court entered an agreed order of partial

dismissal. Pursuant to a joint motion, the plaintiffs’ claims against Anaconda and

Bituminous were dismissed with prejudice as settled.

                                        -16-
             On May 30, 2018, Greenwich filed an answer to the fifth amended

complaint as well as a counterclaim against the plaintiffs and a cross-claim for

declaratory judgment against J.D. Carty Resources. These were related to the bad

faith claims against it.

             In July 2018, Greenwich moved to dismiss the fourth and fifth

amended complaints because it had satisfied its part of the underlying agreement

by paying $20,000.00 of the amount due and because of the policy holder’s

release. It argued that the plaintiffs waived their right to object to the policy

holder’s release by failing to object to that portion of the agreement being read into

the record. It also argued that cashing the check constituted waiver and estoppel.

             In August 2018, Greenwich filed a motion for summary judgment on

the second element of Kentucky’s bad faith test. It argued that the plaintiffs failed

to prove that it lacked a reasonable basis in law or fact to deny the claim and that

whether the belief that coverage did not exist was fairly debatable. The gist of

Greenwich’s argument was that the plaintiffs’ claims for trespass to minerals (here,

the capture, removal, and sale of natural gas) did not constitute a covered

occurrence under an endorsement to the policy or was at least fairly debatable. To

be an occurrence, the claimed loss must be an accident, which Greenwich asserted

was not the case here as J.D. Carty Resources’ actions were not accidental.

                                          -17-
Therefore, the plaintiffs could not prove all of the elements, and their bad faith

claim should be dismissed. The plaintiffs objected to the motion.

             Also in August, Greenwich moved the court to alter, amend, or vacate

its interlocutory order entered March 11, 2011, based upon a new decision by the

Supreme Court of Kentucky in American Mining Insurance Co. v. Peters Farms,

LLC, 557 S.W.3d 293 (Ky. 2018). The plaintiffs disputed that the policy at issue

in American Mining was the same as the one in the present case.

             And also that month, the plaintiffs filed a motion for summary

judgment seeking a declaration of rights under the fifth amended complaint that

Greenwich’s insurance policy provided coverage for their trespass claim. They

argued that the plain language of the endorsement explicitly covered trespass and

that Greenwich’s attorneys offered it the same advice.

             Prior to trial, both sides filed motions in limine. Greenwich

specifically objected to the introduction of any testimony from the plaintiffs’

proposed expert, David Huff, regarding whether its managing general agent

(MGA) agreement with DBG & Associates, including the compensation structure,

was improper or violated the UCSPA. It also sought to exclude testimony about or

reliance upon the 2011 interlocutory orders regarding coverage. In a separate

motion, Greenwich sought to strike Mr. Huff’s opinion in whole or in part because

he had never been a licensed insurance adjuster and therefore was not qualified to

                                         -18-
offer an opinion as to whether a carrier acted in bad faith. The plaintiffs argued

that Mr. Huff was qualified to offer expert testimony in this case.

             In September 2018, Greenwich filed a response to the plaintiffs’

motion for summary judgment and filed a cross motion for summary judgment

seeking a declaration that its policy did not provide coverage for mineral trespass

and conversion. It again cited the newly released opinion of the Supreme Court for

its argument that the March 2011 interlocutory order should be amended or

vacated.

             The circuit court held a pretrial conference on September 7, 2018, and

thereafter entered an order ruling on various motions that had been pending. The

court bifurcated the claims against John Carty, individually, from those against

Greenwich in the fourth amended complaint. It granted Greenwich’s motion to

alter, amend, or vacate the March 11, 2011, order in part, having determined that

the holding in American Mining was dispositive as to the question of whether

Coverage B (Property Damage based upon an occurrence) provided J.D. Carty

Resources with coverage for the allegation of mineral trespass. Based on that

holding, the court vacated its ruling that the policy provided coverage for the

mineral trespass claims. It noted that the plaintiffs had stipulated on the record that

they agreed with the court’s interpretation of American Mining and were

withdrawing any claim that J.D. Carty Resources’ mineral trespass constituted

                                         -19-
property damage and an occurrence under the terms of the insurance contract with

Greenwich. The court did not, however, grant the portion of Greenwich’s motion

related to Group C of the personal injury and advertising injury endorsement.

             The court went on to grant the plaintiffs’ motion for summary

judgment and denied Greenwich’s cross motion for summary judgment related to

coverage for the mineral trespass claims, holding that the policy did provide such

coverage. It denied Greenwich’s motion for summary judgment on the fourth and

fifth amended complaints based upon waiver or equitable estoppel. It also denied

Greenwich’s motion for partial summary judgment regarding the policy language

in the personal injury and advertising injury endorsement in Group C, ruling that it

did not find any ambiguity in the policy language or that the interpretation of the

policy language was fairly debatable. It found that questions of fact remained as to

whether Greenwich had acted reasonably in handling the plaintiffs’ claim. The

court opted to pass the motion related to Mr. Huff’s testimony, noting that it would

address specific objections during his testimony.

             A jury trial commenced on September 17, 2018, and concluded eleven

days later. Greenwich filed a written motion seeking a directed verdict of

dismissal due to lack of evidence of outrageous conduct. It argued that there was

no evidence of reckless indifference to the plaintiffs’ collective rights in the way

Greenwich had defended itself and that, once put on notice, it took reasonable

                                         -20-
measures to investigate and promptly respond to the claims. Greenwich also filed

a written motion for a directed verdict due to lack of sufficient evidence of

emotional distress. The court entered a directed verdict in favor of Greenwich as

to several individuals or estates.

             Following the trial, Greenwich filed motions for a judgment

notwithstanding the verdict (JNOV) pursuant to Kentucky Rules of Civil

Procedure (CR) 50.02, citing lack of sufficient proof of mental anguish in the

context of bad faith, of outrageous conduct, of violations of the UCSPA, and for

the punitive damages award. The plaintiffs argued that the jury’s verdict was

consistent with the evidence that had been presented at the trial.

             On November 9, 2018, the court entered its trial judgment. It noted

that it had verbally granted Greenwich’s motion for a directed verdict due to lack

of proof of emotional distress damages or lack of proof to support the dismissed

plaintiffs’ claims. It also had granted a directed verdict related to another plaintiff

who had passed away and whose claim had not been revived. As a result of these

rulings, 52 plaintiffs remained. The court went on to state that it had denied the

remaining motions by Greenwich for a directed verdict at the close of the

plaintiffs’ case-in-chief and at the close of its case-in-chief. As to the jury’s

verdict, it found in favor of the plaintiffs on all of the interrogatories under

Instruction No. 2 and awarded each plaintiff compensatory damages for emotional

                                          -21-
distress in amounts between $11,000.00 and $40,000.00 for a total of $834,000.00

under Instruction No. 4. Under Instruction No. 5, the jury found that Greenwich

had acted with gross negligence towards the plaintiffs and awarded $14.3 million

in punitive damages. The court awarded the plaintiffs the individual sums set forth

in Instruction No. 4 and jointly awarded them the punitive damages along with

post-judgment interest.

             Greenwich filed another motion for a JNOV following entry of the

judgment on each of the grounds listed above. In the alternative, it moved the

court to alter or vacate the punitive damages award.

             On November 30, 2018, the court entered an order and judgment

granting the plaintiffs’ motion for partial summary judgment against Greenwich

related to the payment of damages and interest from the order and judgment

entered in December 2008 in the underlying case. The court determined that

Greenwich was obligated to pay the amount due from J.D. Carty Resources. The

amount of damages was $628,000.00, and, with accrued interest, the amount owed

was $1,520,433.27. The court adjudged Greenwich to be jointly and severally

liable to the plaintiffs under the terms of the December 17, 2008, order and

judgment. This order was made final and appealable. Greenwich filed a notice of

appeal from the September 17 and November 30, 2018, orders as well as from

several orders entered in 2011 (Appeal No. 2019-CA-0015-MR).

                                        -22-
             On January 22, 2019, the court entered an order denying Greenwich’s

motion for a JNOV or new trial, specifically addressing the punitive damages

argument. It held that Greenwich failed to challenge the amount of punitive

damages and that the amount awarded was not excessive. Greenwich filed a notice

of appeal from the November 9, 2018, judgment, the January 22, 2019, order

denying its motion for a JNOV, and several other orders entered during the course

of the proceedings (Appeal No. 2019-CA-0207-MR).

             On appeal, Greenwich raises issues related to the circuit court’s bad

faith judgment, including orders related to coverage and its conduct; the amount of

mental anguish and punitive damages awarded; various trial errors, including jury

selection and evidentiary rulings; and the order requiring Greenwich to pay the

underlying default judgment to the plaintiffs (now appellees).

             For its first, multi-part argument, Greenwich contends that the trial

court’s orders concerning coverage were erroneous. Because this argument

addresses conclusions of law, the trial court’s rulings “are subject to independent

de novo appellate determination.” Gosney v. Glenn, 163 S.W.3d 894, 898 (Ky.

App. 2005). “In general, the proper interpretation of insurance contracts is a

matter of law to be decided by a court; and, thus, an appellate court uses a de novo,

not a deferential, standard of review.” Pryor v. Colony Ins., 414 S.W.3d 424, 427

                                        -23-
(Ky. App. 2013) (citing Hugenberg v. West American Ins. Co./Ohio Cas. Group,

249 S.W.3d 174, 185 (Ky. App. 2006)).

             First, Greenwich argues that the trial court improperly permitted the

appellees to file a bad faith claim prematurely so that they could obtain a ruling on

coverage. Rather than filing a declaratory judgment to obtain a ruling on coverage,

which Greenwich argued could have been immediately appealable, the appellees

instead filed a third-party bad faith action to obtain an interlocutory ruling on

coverage. Greenwich points out that when the appellees were later confronted with

the holding in Pryor, supra, they asserted that the holding was inapplicable to them

as coverage had been established by that time

             Greenwich cites to Pryor, supra, in support of this argument. In

Pryor, the Court recognized that the general rule “is that a complainant must first

establish liability before seeking indemnity from an insurer in an action based on

the insured’s negligence. The prohibition of direct actions against insurers until

liability has been established has remained the law in Kentucky.” 414 S.W.3d at

432 (citing N.Y. Indem. Co. v. Ewen, 221 Ky. 114, 298 S.W. 182, 185 (1927)).

The Pryor Court examined the issue as follows:

                    Next, we address whether Pryor was authorized to
             sue as a third-party claimant under UCSPA. In fact, 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. Motorists

                                         -24-
             Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 452 (Ky. 1997).
             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.

Pryor, 414 S.W.3d at 433.

             The appellees, on the other hand, argue that Greenwich’s

interpretation of Pryor is incorrect as it (Greenwich) had agreed multiple times that

the trial court properly considered insurance coverage issues. They point to the

motions for summary judgment filed in 2010, in which the parties asked the trial

court to rule on coverage, and to Greenwich’s appeal of that ruling, which was

                                        -25-
dismissed as interlocutory. Greenwich argued to this Court in a motion for

reconsideration and to the Supreme Court in a motion for discretionary review that

the parties had properly sought rulings on coverage in the way they did. The

appellees also argue that they had adjudicated their claims against J.D. Carty

Resources prior to bringing Greenwich into the action. Only after Greenwich

received unfavorable rulings did it argue in the opposite manner.

               We are persuaded by Greenwich’s argument that the circuit court

improperly permitted the appellees 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. That coverage had been ruled on by the time

Pryor was rendered does not excuse the error. And neither does the appellees’

motion to amend the pleadings to seek a declaration of rights once the legal

problem was raised. The method by which the appellees prosecuted their bad faith

claim ultimately did not permit Greenwich to seek review of the trial court’s

interlocutory ruling on the first prong of the Wittmer bad faith test prior to the trial.

Therefore, the trial court should have dismissed the appellees’ fourth amended

complaint in which they sought their third-party bad faith claim against

Greenwich. We must vacate the November 8, 2018, judgment and direct the trial

court to enter a judgment in favor of Greenwich on the appellees’ third-party bad

faith claim.

                                          -26-
             Based upon this ruling, we need not address Greenwich’s remaining

arguments related to coverage, the amount of damages awarded, and various trial

errors.

             As to the November 30, 2018, order in which Greenwich was directed

to reimburse the appellees for J.D. Carty Resources’ payment default under the

2008 trespass settlement in the amount of $1,520,433.27, we must also reverse that

judgment. In making this award, the trial court cited to State Automobile Mutual

Insurance Company v. Empire Fire & Marine Insurance Company, 808 S.W.2d

805, 808 (Ky. 1991) (“[A]n 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.”), and its conclusion that Greenwich

had wrongfully denied coverage in this action to reach this decision. We must

agree with Greenwich that the appellees did not have standing to challenge the

defense it provided to J.D. Carty Resources as to the settlement proceedings as the

duty to defend in such situations is between the insured and the insurer, absent an

assignment of rights from the insured. “As a general matter, Kentucky courts have

long recognized that an insurer that breaches its duty to defend will be liable to its

insured for judgments and settlements obtained after that breach.” The Point/Arc

of Northern Kentucky, Inc. v. Philadelphia Indemnity Insurance Company, 154 F.

Supp. 3d 503, 507 (E.D. Ky. 2015) (citing Interstate Cas. Co. v. Wallins Creek

                                         -27-
Coal Co., 164 Ky. 778, 176 S.W. 217, 219 (1915)). Therefore, the trial court erred

in ordering Greenwich to pay the underlying settlement judgment.

             For the foregoing reasons, the judgments of the Magoffin Circuit

Court are reversed, and this matter is remanded for dismissal of the appellees’

fourth amended complaint.

             McNEILL, JUDGE, CONCURS IN RESULT ONLY.

             TAYLOR, JUDGE, DISSENTS AND DOES NOT FILE SEPARATE
OPINION.

BRIEFS FOR APPELLANT:                     BRIEF FOR APPELLEES:

Mindy G. Barfield                         M. Austin Mehr
Shaye P. Johnson                          Philip G. Fairbanks
Lexington, Kentucky                       Lexington, Kentucky

Susan L. Maines
Lexington, Kentucky

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