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Watson v. United States Liability Insurance Co.

Court of Appeals of Kentucky

May 24, 2019

WILLIAM GERALD WATSON APPELLANT
v.
UNITED STATES LIABILITY INSURANCE COMPANY APPELLEE

          APPEAL FROM MCCRACKEN CIRCUIT COURT HONORABLE WILLIAM A. KITCHEN, III, JUDGE ACTION NO. 09-CI-01400

          BRIEF FOR APPELLANT: M. Austin Mehr Philip G. Fairbanks Lexington, Kentucky

          BRIEF FOR APPELLEE: David Domene Emily C. Lamb Louisville, Kentucky

          BEFORE: JONES, KRAMER, AND K. THOMPSON, JUDGES.

          OPINION REVERSING AND REMANDING

          KRAMER, JUDGE.

         This dram shop case has a long and convoluted history, having been initiated in 2009 by Appellant William Gerald Watson, who had been severely injured in an automobile accident in 2008. It is before the Court, however, on a narrow issue involving the accrual date for statute of limitation purposes of a bad faith claim against a third-party insurer brought pursuant to the Unfair Claims Settlement Practices Act (UCSPA), KRS[1] 304.12-230. Given the convoluted history and the fact that it is before us on a narrow issue, we will not belabor portions of the factual and procedural background that are not relevant for the disposition of this appeal. Our focus, therefore, is singularly toward reaching a decision as to when the alleged bad faith claim accrued, and more to the point - as argued by Watson - what date the underlying claim was settled.

         Procedurally relevant, in February of 2012, Watson sought to amend his complaint to assert a third-party bad faith claim against Appellee United States Liability Insurance Company ("USLI"), which provided coverage to an underlying defendant, Pure Country, LLC. In his tendered amended complaint, Watson alleged that during the on-going dram shop litigation - before his claims against Pure Country ultimately settled - USLI had acted in violation of UCSPA. The circuit court denied Watson leave to amend his complaint. However, over five years later on August 9, 2017, [2] Watson moved to amend his second amended complaint; this time he was granted leave to do so on August 11, 2017.

         Thereafter, in a November 14, 2017 order, the circuit court granted a CR[3] 12.02(f) motion from USLI and consequently dismissed Watson's claim purely on limitations grounds - to the extent that his claim encompassed alleged bad faith conduct from USLI that occurred on or predated August 9, 2012 (e.g., five years prior to the date Watson moved to amend his complaint to add a bad faith claim against USLI).[4] Second, in a February 26, 2018 order, the circuit court granted a CR 56 motion from USLI and dismissed what remained of Watson's claim. It did so for two reasons: (1) limitations grounds, after reconsidering the issue of when Watson's bad faith claim against USLI had accrued, and determining it had actually accrued no later than June 30, 2012 (the date USLI represented that Watson and Pure Country had settled "in principle"); and (2) Watson's inability to prove USLI had engaged in any actionable bad faith conduct between June 30, 2012, and the month Watson executed the settlement agreement and was paid the settlement amount, December 2012.

         Now on appeal, the dispositive issue presented is when Watson's bad faith claim accrued. USLI maintains that Watson's claim accrued no later than June 30, 2012, when an offer of settlement was conveyed to Watson from USLI. Watson, on the other hand, argues that his claim should have been deemed asserted as of February 2012 (when he moved for leave to amend his complaint a second time to assert his bad faith claim against USLI) or on April 17, 2012 (the date the circuit court denied him leave to do so). Alternatively, Watson argues his bad faith claim did not accrue until December 2012, [5] when he executed the agreement that settled his claims against Pure Country and was paid the settlement amount.

         Because we agree that Watson's claim did not accrue until December 2012, we reverse.

         Turning to our analysis, we begin with Watson's argument that the circuit court erred in denying him leave to assert his bad faith claim on or before April 17, 2012, while his underlying dram shop claim against Pure Country was still being litigated. Watson's argument is founded upon his allegation that USLI had engaged in bad faith settlement conduct prior to that date. And, claiming the circuit court erred in denying his motion on the basis that his claim was unripe at that time, [6] he notes that in Wittmer v. Jones, 864 S.W.2d 885, 891 (Ky. 1993), the Kentucky Supreme Court stated: "While we see no impediment to joinder of the claims in a single action, at trial the underlying negligence claim should first be adjudicated. Only then should the direct action against the insurer be presented." (Emphasis added). Watson reasons that if the Court in Wittmer saw "no impediment" to allowing the joinder of a third-party bad faith claim against an insurer before the insurer's obligation to pay the underlying claim against its insured was established or deemed uncontested, then there was no "impediment" to his claim going forward, either.

         However, the Wittmer Court merely stated that an underlying negligence claim against an insured must be adjudicated before a third-party claim of bad faith against an insurer may proceed. Wittmer never addressed the issue of when a third-party bad faith claim accrues for limitations purposes.

         With respect to most torts, conduct standing alone is not the typical starting point of the applicable limitations period; rather, the earliest starting point is the date a claimant is able to demonstrate the complained-of conduct caused a non-speculative injury. As explained in Saylor v. Hall, 497 S.W.2d 218, 225 (Ky. 1973), "[r]ecovery is not possible until a cause of action exists. A cause of action does not exist until the conduct causes injury that produces loss or damage." Thus, where the existence of an injury is speculative until the final resolution of some other claim or litigation, the injury cannot exist - and the applicable statute of limitations therefore cannot run - until that other claim or litigation is finally resolved. See Vandertoll v. Commonwealth, 110 S.W.3d 789, 796 (Ky. 2003) ("The statute of limitations begins to run from the time when a complete cause of action accrues . . . . Where a party's right depends upon the happening of a certain event in the future, the cause of action accrues and the statute begins to run only from the time when the event happens.") (Quoting Forwood v. City of Louisville, 283 Ky. 208, 140 S.W.2d 1048, 1051 (1940)).

         For example, because an essential element of malicious prosecution is the favorable termination of underlying criminal proceedings, a claim of malicious prosecution cannot accrue for limitations purposes until there is a favorable termination of underlying criminal proceedings. See Dunn v. Felty, 226 S.W.3d 68, 73 (Ky. 2007). Similarly, regarding legal malpractice claims based on "litigation negligence," our Supreme Court has held "that the injury becomes definite and non-speculative when the underlying case is final" and non-appealable. Pedigo v. Breen, 169 S.W.3d 831, 833 (Ky. 2004). The premise underlying this rule of finality is that there is a theoretical possibility that the injured party may be "fully restored" by virtue of the appeals process "to the position that he occupied before the negligent act or omission." Doe v. Golden & Walters, PLLC, 173 S.W.3d 260, 272 (Ky. App. 2005). "In other words, because professional negligence may or may not cause an actual injury, until the final adverse outcome in an underlying case happens, a plaintiff has no right to bring an action because there are no certain damages." Saalwaechter v. Carroll, 525 S.W.3d 100, 106 (Ky. App. 2017).

         The same holds true in the context of third-party claims of bad faith. Only an injured third-party claimant may sue an insurer for violating UCSPA.[7] And, the existence of any actionable injury likewise depends upon the final resolution of another claim. ...


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