Finding Bad Faith in Kentucky Requires Evidence of Outrageous Conduct By Insurer

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In its recent decision in Powell v. Cherokee Insurance Company, Case No.: 5:09-CV-00205, the U.S. District Court for the Western District of Kentucky reaffirmed that in a third-party bad faith lawsuit alleging failure to timely settle a personal injury claim, the third-party claimant must produce evidence of conduct by the insurer that is outrageous, because of the defendant’s evil motive or his reckless indifference to [her] rights in order to establish a bad faith claim under the Kentucky Unfair Claims Settlement Practices Act (UCSPA).

Powell was involved in an automobile accident with a driver, Young, who was insured by Cherokee on November 27, 2004. Cherokee immediately assigned an adjuster to handle Powell’s claim and paid Powell’s property damage claim within three weeks of the accident. Powell hired an attorney in February 2005, who began communicating with the adjuster. On February 28, 2005 and in response to the adjuster’s request for Powell’s medical records, Powell’s attorney advised he would provide the Powell’s medical information and a settlement demand when Powell reached maximum medical improvement. Instead of providing the requested information, however, on November 17, 2006, Powell filed suit against Cherokee’s insureds, the driver and owner of the other vehicle. Defense counsel sent Powell interrogatories on December 14, 2006, requesting medical and other information related to Powell’s damages. Powell did not answer the interrogatories until May 2008, producing extensive medical records and claiming damages of $1.2 million. Defense counsel determined he needed to depose Powell and began communicating with Powell’s attorney to schedule that deposition. Powell’s deposition finally took place on March 11, 2009. On May 19, 2009, Powell’s attorney communicated Powell’s first settlement demand in the amount of $475,000. Counsel for Powell and defense counsel then discussed mediation, which took place on September 16, 2009. The case settled at mediation for $325,000.

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