APPEAL FROM JEFFERSON CIRCUIT COURT HONORABLE TOM MCDONALD, JUDGE ACTION NO. 97-CI-004443
Before: Knopf, Tackett, And Vanmeter, Judges.
The opinion of the court was delivered by: Tackett, Judge
Lloyd Knotts and Jackie Knotts appeal from a summary judgment entered in favor of Zurich Insurance Company in the Knottses' bad faith action against Zurich for an alleged failure to promptly settle a claim. The circuit court held that the Unfair Claims Settlement Practices Act, Kentucky Revised Statute (KRS) 304.12-230, does not apply once litigation begins. We agree, and affirm.
Lloyd Knotts was injured at a job site when he was working as an independent contractor on the premises of Zurich's insured, Lawson-Mardon, Inc. The accident took place on November 10, 1992. Knotts filed suit on January 14, 1993.
Prior to filing suit, the attorney for Knotts sent a letter on November 30, 1992, to the insured demanding payment of all medical expenses and future therapy for Knotts, and full payment for the job he was working on when the injury occurred. The letter further stated that "[a]fter Mr. Knotts reaches maximum medical improvement, we will negotiate conclusion of this matter. If this proposal is not satisfactory to you, please let us know so we can proceed with litigation." This letter was evidently sent to Zurich, and on December 10, 1992, Zurich responded to the demand by sending a letter acknowledging the attorney's representation of Knotts and stating "We are in the initial stages of our investigation of this accident. Therefore, as you may well understand, we are not in a position to discuss liability. . . . [A]s we are not Mr. Knott's [sic] workers compensation carrier, we cannot make payment of his medical expenses as you requested . . . ." Knotts' attorney then advised his client, in a letter dated December 18, 1992, "I recommend beginning suit right away. It looks like they are going to stall us."
The underlying action went to trial, and Knotts was awarded $1,202,104.29 in damages, reduced by 20% after apportionment of liability to Knotts for his own negligence. That verdict and damages award was affirmed by this Court in 1996. Litigation commenced on this bad faith action in 1997. The circuit court granted summary judgment in Zurich's favor after concluding that the statute upon which the claim is based, the UCSPA, does not apply to conduct that occurs after litigation commences. This appeal followed.
The statute in question, KRS 304.12-230, reads as follows in its entirety:
It is an unfair claims settlement practice for any person to commit or perform any of the following acts or omissions:
(1) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
(2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;
(3) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
(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 ...