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What Is The Time for Responding to a Defense Tender?

Insurers must acknowledge a claim within 15 days of notice.  Ky. Rev. Stat. § 304.12-230.

Insurers must affirm or deny coverage within a reasonable time.  806 Ky. Admin. Regs. 12:095. 

Does Reserving Rights Create a Conflict of Interest? 

A conflict of interest arises in the defense of an underlying claim when there is incentive by the insurer to for the insured to be found negligent, so it would not have to pay out on the claim. O’Bryan v. Leibson, 446 S.W.2d 643, 644 (1969).

Does a Reservation of Rights Create Additional Duties?

If an insurer believes that there is no coverage for a claim against an insured, it has several options including (1) not defending the claim, and (2) defending the claim under a reservation of rights.  Aetna Cas. & Sur. Co. v. Commonwealth, 179 S.W.3d 830, 841 (2005). An insured may refuse a defense under a reservation of rights and then later litigate the coverage question. Cincinnati Ins. Co. v. Vance, 730 S.W.2d 521, 524 (1987).

What Must Be Done If A Conflict of Interest Exists?

If a conflict of interest arises, the insured has the right to be represented by independent  counsel of the insured’s choosing. O’Bryan v. Leibson, 446 S.W.2d 643, 644 (1969).

If an insurance company timely denies coverage, both sides may then act independently of each other. Cincinnati Ins. Co. v. Vance, 730 S.W.2d 521, 524 (1987). In that case, both sides must then bear responsibility for the loss occasioned in the underlying tort action if wrong in their judgment about the policy coverage question. Cincinnati Ins. Co. v. Vance, 730 S.W.2d 521, 524 (1987).

Who Is Responsible for Fees of Independent Counsel?

The insurer. (See above.)

What Are Independent Counsel’s Obligations?

No cases found.

What Settlement Duties Exist?

The duty to settle does not arise until a claimant makes a demand within the policy limits, as there is no affirmative duty on the insurer to “seek out the claimant and offer settlement in order to avoid a charge of bad faith.” Davis v. Home Indem. Co., 659 S.W.2d 185, 189 (Ky. 1983).

What Actions May Result in a Claim for Bad Faith?

Tort: Kentucky recognizes first-party and third-party causes of action in tort against an insurer for acts in bad faith. Motorists Mutual v. Glass, 996 S.W.2d 437, 451 (Ky. 1999).

Contract: A bad faith claim may arise under the implied covenant of good faith inherent in the insurance contract.  Grundy v. Manchester Ins. & Indem. Co., 425 S.W.2d 735, 737 (Ky. 1968).

Consumer Protection Act:  Insured may also have a claim for violation of Kentucky’s Consumer Protection Act as the purchase of a policy is a service intended to be covered by the Act.  Stevens v. Motorists Mut. Ins. Co., 759 S.W.2d 819, 821-822 (Ky. 1988).

Under either a contract claim or Consumer Protection Act claim, a claimant must  prove:  (1) the insurer was obligated to pay the claim under the terms of the policy; (2) the insurer lacked a reasonable basis in law or fact for denying the claim; and (3) the insurer either knew there was no reasonable basis for denying the claim or acted with reckless disregard for whether such a basis existed. Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993).

Are Attorney’s Fees Recoverable in Insurer-Insured Dispute?

Yes; if the insurer wrongfully failed to defend its insured, it will be liable for damages including attorney’s fees of the independent counsel retained by the insurer. Aetna Cas. & Sur. Co. v. Commonwealth, 179 S.W.3d 830, 841 (2005).

Are Punitive Damages Recoverable in Insurer-Insured Dispute?

Punitive damages may be awarded if the evidence shows that the insurer acted with “evil motive” or a “reckless disregard to the rights of others.” Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993).

Alternative Coverage Options

An insurer may, but is not required to file a declaratory judgment action before the underlying tort action is determined under penalty of being estopped to later contest coverage if it has failed to do so.  Cincinnati Ins. Co. v. Vance, 730 S.W.2d 521, 524 (1987).

Relevant Statutes

Declaratory Judgment – Ky. Rev. Stat. § 418.040

“In any action in a court of record of this commonwealth having general jurisdiction wherein it is made to appear that an actual controversy exists, the plaintiff may ask for a declaration of rights, either alone or with other relief; and the court may make a binding declaration of rights, whether or not consequential relief is or could be asked.”

Consumer Protection Act – Ky. Rev. Stat. § 367.110 et seq.

Unfair Claims Settlement Practices Act (UCSPA) – Ky. Rev. Stat. § 304.12-230. There is not private right of action for insurer’s violation of this statute.  806 Ky. Admin Reg. 12:095 § 2(3).

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