APPEAL FROM MAGOFFIN CIRCUIT COURT ACTION NO. 07-CI-00006
BRIEFS FOR APPELLANT, BITUMINOUS CASUALTY CORPORATION: Pamela Adams Chesnut
BRIEF FOR APPELLEES, ESTATE OF LAHOMA SALYER BRAMBLE: M. Austin Mehr
BRIEFS FOR APPELLANT, GREENWICH INSURANCE COMPANY: Susan L. Maines
BEFORE: ACREE, CHIEF JUDGE; MOORE AND THOMPSON, JUDGES.
OPINION AND ORDER DISMISSING APPEAL
ACREE, CHIEF JUDGE
Appellants Greenwich Insurance Company and Bituminous Casualty Corporation filed separate motions pursuant to CR 76.38(2) seeking reconsideration of this Court's September 3, 2013 order dismissing their separate appeals as interlocutory. By separate order, we granted the motions so that we may clarify our prior ruling, while also addressing the specific bases of the motions to reconsider. After reconsidering the September 3, 2013 order, we again dismiss the appeals as interlocutory.
A history of this case, as concerns the appellants, is necessary.
The underlying litigation was commenced in 2007. Initially, the appellants, insurance companies, were not named parties, but were aware of the litigation. A declaration of rights claim was included in the original Complaint (Count 2), reiterated in the First Amended Complaint (Count 1), again in the Second Amended Complaint (Count 1), and for the last time in the Third Amended Complaint (Count 1). This claim sought a declaration of the appellees' rights under a certain deed. No reference was ever made in these first four complaints to insurance contracts or coverage.
In 2010, with permission of the trial court, the appellees filed a fourth amended complaint naming the appellants as defendants for the first time.
The Fourth Amended Supplemental Complaint incorporated by reference the prior complaints, but did not explicitly assert or reassert any declaration of rights claim, of any kind, against any of the original defendants or against Bituminous or Greenwich. Allegations in the Fourth Amended Supplemental Complaint included the fact that summary judgments on liability had been entered as to certain original defendants, some of whom subsequently agreed to settle the claims, after which judgments were entered. The complaint went on to allege that certain policies of insurance issued by the appellants provided coverage for the claims settled by the appellants' insureds, but that the appellants proceeded in bad faith in satisfying those claims.
After setting forth these and other general allegations, the appellees stated four counts against each appellant. Both sets of claims against the appellants began as follows:
Each and every allegation in this Fourth Amended Complaint is to be taken on its face and incorporated into each and every "Count." No "Count" as set forth in this Complaint is intended to stand alone . . . .
Separate claims were then set out, in pertinent part, as follows:
Count I – Violation of the Unfair Claims Settlement Practices Act, KRS 304.12-230 . . . . Count II – Bad Faith against [appellants, under a common law theory] . . . .
Count III – Punitive Damages against [appellants] . . . .
Count IV – Violation of KRS 304.12-235 [failing to timely settle a claim] against [appellants] . . . .
The appellees' prayer for relief sought
judgment against Greenwich and Bituminous . . . for emotional pain and suffering, inconvenience, stress and worry, statutory interest on the final claim payment at 12%, and attorneys fees under KRS 304.12-235 caused by Greenwich and Bituminous for violation of the Unfair Claims Settlement Practices Act, common law bad faith, fraud and other laws[,] punitive damages [and t]rial by jury.
Nowhere in this complaint did the appellees use the phrase "declaration of rights" or any similar language to assert any claim as they had in the prior complaints against the original defendants. Nowhere in this complaint did the appellees assert any claim or request relief under KRS 418.040 of Kentucky's Declaratory Judgment Act for a declaration of their third-party rights under the contracts of insurance between the appellants and their insureds.
Appellants did not file answers in the circuit court, and so there is no counterclaim seeking a declaratory judgment under KRS 418.040, or otherwise, as to the coverage of their insurance contracts. Instead, on May 12, 2010, the appellants filed a Joint Notice of Removal to federal court of the claims against them based on diversity of citizenship under 28 U.S.C. § 1332. Pertinent portions of their Notice of Removal state as follows:
The Fourth Amended Supplemental Complaint seeks judgment and damages against Bituminous and Greenwich . . . . The jurisdictional amount in controversy is satisfied in this case as Plaintiffs [appellees] claim damages of more than $75,000.
The appellants made no mention of KRS 418.040 in this notice of removal to federal court.
After removal, appellants filed answers to the Fourth Amended Complaint in federal court. No mention of KRS 418.040 is made in either answer. Neither appellant filed a counterclaim or cross-claim containing a declaration of rights action under KRS 418.040 or under the federal Declaratory Judgment Act, 28 U.S.C. § 2201. Rather, each appellant simply denied the specific paragraph of the amended complaint that alleged the insurance contracts in question cover the claims. Then, each appellant asserted that same denial as a separate affirmative defense. Denominating it "Fourth Defense," Bituminous asserts:
Plaintiffs' claims are barred in whole or in part by the terms and provisions of Bituminous's Commercial Lines Policies issued to Anaconda [one of the original defendants] and Bituminous affirmatively asserts that no coverage was afforded under its policies issued to Anaconda for the claims of Plaintiffs [appellees herein].
Greenwich asserted a similar affirmative defense, also denominated "Fourth Defense," which ends by simply stating that "none of [its insurance] policies . . . provide coverage for the claims made by the Plaintiffs [appellees herein] as against [its insured]."
On June 7, 2010, the Magoffin Circuit Court clerk entered in the record of this case the federal district court's order granting the motion by some appellees to remand the case from federal court back to Magoffin Circuit Court. The order indicates that removal was ordered for a lack of complete diversity. We could find no mention of a declaration of rights claim, counterclaim, cross-claim, or third-party claim in the federal case record.
Once the case was again in Magoffin Circuit Court, the appellees filed a "motion for partial summary judgment on the issue of [appellants'] obligation to afford coverage under the terms of their respective insurance policies[.]" Appellees made their motion pursuant to CR 56 which allowed them to seek summary judgment as to "all or any part" of a claim. CR 56.01. As stated in their motion, the part of their claim for which they sought judgment was "the first of three prongs of Kentucky's test for bad faith" – that the insurer be obligated to pay the claim under the terms of the insurance policy. See Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993) (cited by appellees in their motion).
The appellants responded with cross-motions for partial summary judgment. Greenwich's cross-motion sought judgment "on the issues of coverage applicable to its policy of insurance with [its insured, an original defendant, and] ask[ed] that this Motion be considered as its Response and Objection to [appellees'] Motion for Partial Summary Judgment on the third-party bad faith issues." Greenwich stated that its policy did not cover the category of loss suffered by appellees ("intangibles such as royalties or economic loss") so that "there can be no coverage. As such, the first prong of Wittmer can never be met[.]"
Similarly, Bituminous filed a cross-motion for summary judgment, noting that appellees had "asserted claims for alleged bad faith and Unfair Claims Settlement Practices Act violations[.]" Also citing Wittmer, Bituminous recognized that the issue of the "insurer's obligation to pay a claim under the terms of its policy is an essential element of a bad faith claim."
Neither Greenwich nor Bituminous mentioned KRS 418.040 or CR 57 (addressing declaratory judgments) in their cross-motions for summary judgment, effectively acknowledging that they were addressing the issue as the pleadings framed it – one element of a claim of liability and their defense to it.
On January 11, 2011, the Magoffin Circuit Court ruled on these pending motions. As we noted in our September 3, 2013 order dismissing, the circuit court's order provides, in pertinent part, as follows:
Kentucky recognizes a three[-]prong test of bad faith. Those three prongs are:
(1) The insurer must be obligated to pay the claim under the terms of the policy;
(2) The insurer must lack a reasonable basis in law or fact for denying the claim; and
(3) It must be shown that the insurer either knew there was no reasonable basis for denying the claim or acted with reckless disregard for such a basis existed . . . Wittme ...