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Nichols v. Zurich Am. Ins. Co.

Supreme Court of Kentucky

February 20, 2014


Released for Publication March 13, 2014.

As Corrected March 12, 2014.

Page 699


COUNSEL FOR APPELLANT: Kevin Crosby Burke, Udell Barry Levy.

COUNSEL FOR APPELLEE: Robert E. Stopher, Robert Dmitri Bobrow.

John D. Minton Jr., CHIEF JUSTICE.

Page 700



Upon the motion of Appellant, James D. Nichols, we granted discretionary review of the Court of Appeals' opinion affirming a summary judgment of the Jefferson Circuit Court entered on behalf of Appellee, Zurich American Insurance Company (Zurich). The summary judgment dismissed Nichols' claim for Underinsured Motorist (UIM) coverage under an insurance policy issued by Zurich upon the grounds that the UIM coverage included in the policy was the result of a mutual mistake in the making of the insurance contract.

On appeal, Nichols's main argument is that the defense of mutual mistake upon which the trial court reformed the policy was not available because Zurich failed to present evidence that proved by clear and convincing evidence that it had mistakenly issued UIM coverage. Nichols also contends that the doctrine of mutual mistake

Page 701

should not have been applied because Zurich failed to affirmatively plead the defense of mutual mistake with particularity and thus waived the defense; that reforming the insurance policy on the grounds of mutual mistake is inconsistent with Kentucky statutes regulating insurance; that Nichols was improperly denied partial summary judgment on the issue of UIM coverage; and that the Court of Appeals erred in affirming the trial court's denial of Appellant's request to amend his complaint to include a claim of statutory bad faith.


Nichols was employed by Miller Pipeline Corporation (Miller), a corporation with its primary place of business in Indiana. On June 4, 2002, while driving a truck for Miller in Jefferson County, Kentucky, Nichols was severely injured in an automobile collision. Miller had a commercial fleet vehicle insurance policy issued by Zurich with an effective date of April 1, 2002. The policy included an UIM endorsement with $1,000,000.00 limits. The policy had been procured through Miller's use of an independent insurance broker, M.J. Insurance, Inc., of Indianapolis, Indiana.

As a result of his injuries, Nichols received workers' compensation benefits. Zurich was also Miller's workers' compensation carrier. The driver whose negligence had caused Nichols' injuries had an insurance policy with a $25,000.00 liability limits. In September of 2003, the at-fault driver's insurance company offered to pay its policy limits in exchange for a release of its insured driver. Nichols, aware of the UIM coverage included in the April 2002 Zurich policy, notified Zurich of his proposed settlement with the tortfeasor pursuant to KRS 304.39-320(3) and Coots v. Allstate Insurance Co .[1]

When Zurich did not respond to the Coots notice, Nichols accepted the settlement in the fall of 2003, thereby permanently foreclosing any potential to collect his damages short-fall from the tortfeaser.[2] Nichols continued his efforts to recover the remainder of his damages from the UIM coverage in the Zurich policy. In February of 2005, Nichols's attorney learned that Zurich was claiming that there was no UIM coverage because " Miller Pipeline had rejected the coverage both in the states of Kentucky and Indiana, as well as the majority of states where they conduct business." [3]

In 2005, Nichols brought suit against Zurich in the Jefferson Circuit Court to recover his damages under the UIM coverage included in the Zurich policy. Zurich's answer, neither admitting nor denying that the policy included UIM coverage, simply asserted " the policy will speak for itself." In August 2006, Zurich moved for summary judgment upon the grounds that " Miller Pipeline had no UIM coverage for Nichols' [sic] accident and [therefore] Nichols has no UIM claim against Zurich American. It's that simple." Unfortunately, as set out below, it was not that simple. Initially, the trial court denied Zurich's motion for summary judgment,

Page 702

finding that genuine issues about the facts surrounding Miller's purported rejection of UIM coverage remained unresolved.

As the facts before the trial court developed, the policy issued to Miller by Zurich in April 2002 contained two endorsements providing for UIM coverage: Endorsement CA 21 79 (" Kentucky Underinsured Motorist Coverage" ) and Endorsement CA 21 17 (" Uninsured Motorist Coverage," which by its definitions provision included " underinsured" coverage). The form upon which Miller formally rejected Endorsement CA 21 79 was not submitted to Zurich by Miller until June 20, 2002 -- sixteen days after Appellant's accident, but it was back-dated to April 1, 2002.[4] The first formal indication to Nichols that Miller had intended to reject UIM coverage did not arrive until February 3, 2005, thirty-four months after the policy was issued and thirty-two months after the accident.

In July 2009, after the parties had conducted discovery, Nichols moved for partial summary judgment on the issue of liability, arguing that undisputed facts compelled the conclusion that his injuries were covered by the UIM provisions included in the 2002 insurance policy. In response, Zurich moved for summary judgment, arguing that the inclusion of UIM coverage in the policy was a mutual mistake by Miller and Zurich that required reformation of the policy to reflect Miller's intent to reject UIM coverage. In connection with that motion, Zurich was granted leave of court to amend its answer to assert the equitable defense of mutual mistake.

Ultimately, the trial court denied Nichols's motion for partial summary judgment and granted Zurich's motion for summary judgment. Nichols then moved the court to alter, amend, or vacate its order. He also moved at that time for leave to amend his complaint to add a statutory bad faith claim. Both motions were denied; Nichols ...

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