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Messer v. Universal Underwriters Insurance Co.

Court of Appeals of Kentucky

June 21, 2019



          BRIEFS FOR APPELLANT: Patrick Conley Hindman, Kentucky Kyle R. Salyer Paintsville, Kentucky Kevin C. Burke Jamie K. Neal Louisville, Kentucky.

          BRIEF FOR APPELLEE: Robert E. Stopher Robert D. Bobrow Louisville, Kentucky C. Thomas Anderson Pikeville, Kentucky.

          ORAL ARGUMENT FOR APPELLANT: Kevin C. Burke Louisville, Kentucky.

          ORAL ARGUMENT FOR APPELLEE: Robert E. Stopher Robert D. Bobrow Louisville, Kentucky.



          ACREE, JUDGE.

         Appellant Fred Messer appeals the Perry Circuit Court's order granting Appellee Universal Underwriters Insurance Company's motion for summary judgment and dismissing the third-party bad faith claim Messer brought against Universal pursuant to the Kentucky Unfair Claims Settlement Practices Act (UCSPA), KRS[1] 304.12-230. We affirm.


         Mark Taylor worked for Mountain Ford, Inc. detailing vehicles in preparation for sale to the public. On March 30, 2012, around midnight, Taylor was driving a Mountain Ford Jeep on a two-lane road heading west. Messer was driving a Lexus heading east when the two vehicles collided. Both vehicles were totaled. The Jeep was insured by Universal and the loss beneficiary was Mountain Ford. The insurance covered the replacement cost for the Jeep and liability to third parties to a maximum of $500, 000 for accidents that occurred when the vehicle was driven with Mountain Ford's permission. Universal also insured Mountain Ford pursuant to a $5, 000, 000 excess or "umbrella" coverage policy.

         The police report of the collision says, "Unit one [Messer's vehicle] was traveling East on Lost Creek Road (KY-1146) when the operator failed to maintain proper control and allowed his vehicle to cross the center line in a right[-]hand curve." Additionally, blood tests conducted by both the Kentucky State Police and the Appalachian Regional Hospital indicated Messer had methadone, THC, and benzodiazepines in his system. In short order, Messer's insurer, Kentucky Farm Bureau, paid its liability policy limits to Taylor.

         A representative of Taylor's attorney reported the accident to Universal by telephone on April 11, 2012. A Universal clerk took notes of the conversation that included the representative's assertion that Taylor was driving the Jeep with Mountain Ford's permission. Upon investigation, Universal learned from Taylor's supervisor that Taylor's use of the vehicle exceeded the employer-defined permitted use. The supervisor later testified that Taylor drove the vehicle home on the night in question without Mountain Ford's permission or the supervisor's permission. On April 24, 2012, Universal denied coverage to Taylor because his use of Mountain Ford's vehicle was non-permissive.

         Similarly, on May 2, 2012, Universal denied Messer's claim for third-party insurance benefits because Taylor's use of the Jeep was non-permissive and, therefore, outside the terms of coverage under its contract of insurance with Mountain Ford. Non-permissive use of an insured vehicle was a policy exclusion.

         Consistent with Universal's position that Taylor was driving Mountain Ford's vehicle without permission, and after paying Mountain Ford for the total loss of the Jeep, Universal sought subrogation for that loss from Taylor in a letter to his attorney dated August 2, 2012. The letter demanded that Taylor "issue a draft [to Universal] in the amount of $11, 706.93." After more direct communication among insurers, Messer's insurer paid Universal's subrogation claim for the damage to Mountain Ford's vehicle.

         Messer points out that the same letter states "liability rests with your client Mark Taylor." He interprets the letter as Universal's acknowledgement that Taylor's negligence was the cause of the accident. The police report and toxicology reports mentioned earlier do not support Messer's interpretation. Universal expressly acknowledges nothing more than that the letter reflects only its claim that Taylor owed Universal a sum of money equal to that which it paid Mountain Ford for the total loss of the vehicle Taylor drove without permission.

         On September 9, 2012, Messer filed an action in Perry Circuit Court against Taylor alleging Taylor caused the accident, and against Mountain Ford alleging it negligently entrusted its vehicle to Taylor. Messer also submitted a third-party claim with Universal to pay his substantial alleged damages.[2]

         After Universal denied Messer's third-party claim, he made a bad faith claim against Universal for violation of the UCSPA. The circuit court bifurcated the action allowing the accident-based tort claim to proceed while the UCSPA claim was abated. For quite a while, whether Taylor's use of Mountain Ford's vehicle was permissive or non-permissive remained a disputed fact at the center of the tort claim, but it also impacted the question of third-party coverage.

         Universal's investigation of Messer's insurance claim progressed, and discovery proceeded on Messer's tort claims. On December 19, 2012, Universal valued Messer's claim at $0.00 (zero dollars) based on its position that Taylor did not have permission from its insured, Mountain Ford, to use its vehicle. A year later, Universal made the same assessment for the same reason. On March 19, 2014, Universal began nearly monthly offers to settle Messer's third-party claim for $20, 000.

         Taylor's non-permissive use was one of Mountain Ford's defenses to Messer's claim of negligent entrustment. On October 13, 2014, to resolve the permissive/non-permissive use question, Messer filed a motion for partial summary judgment. He claimed there was no genuine issue of material fact regarding Taylor's use of the vehicle, specifically, that such use was permissive. Universal's response in opposition was supported by considerable documentary and testimonial countervailing evidence.

         On November 10, 2014, the circuit court denied Messer's motion, concluding there was a genuine issue regarding the material fact whether Taylor's use of Mountain Ford's vehicle was permissive or non-permissive. The issue would have to be resolved by a jury. Until then, Mountain Ford's non-permissive-use-of-the-vehicle defense to Messer's negligent entrustment claim survived. Until then, the establishment of third-party coverage remained a point of genuine debate.

         Later in November 2014, a jury heard proof on this single issue - whether Taylor was driving Mountain Ford's vehicle with permission "either expressly given or . . . [as] implied from the facts and circumstances." (Jury Instructions, Record (R.) at 2280). The jury found Taylor did have permission to drive Mountain Ford's vehicle and that Taylor was entitled to coverage by Universal under the terms of the policy. The circuit court entered an order to that effect on December 3, 2014.

         Universal soon raised its reserve to nearly double what it had been, but still made Messer two more $20, 000 settlement offers which Messer rejected.[3]However, after losing its defense of non-permissive use and as indicated in its claims notes dated February 23, 2015, Universal reassessed its insureds' - Mountain Ford's and Taylor's - potential exposures.

         Notwithstanding evidence that Messer was driving impaired and crossed the centerline, Universal's claims analysts made a judgment call that a jury might still apportion as much as fifty percent of the fault for the accident to Taylor. Given Messer's claimed damages of more than $4, 000, 000 and Universal's contractual obligation to insure Mountain Ford under two policies totaling $5.5M in coverage, the analysts concluded its insureds' exposures could be substantial.

         On March 3, 2015, Universal offered Messer $275, 000 to settle. The next week Universal offered $375, 000 and increased its offer several times until it reached an offer of $500, 000.[4] Despite his knowledge of the $5, 000, 000 umbrella policy, Messer did not counteroffer and accepted the half-million-dollar offer on April 27, 2015. He then voluntarily dismissed the underlying tort claims.

         Thereafter, the circuit court lifted its stay and discovery proceeded on the bad faith claim. On February 16, 2016, Universal moved for summary judgment arguing that until December 3, 2014, whether it was contractually obligated to pay was unresolved; that Taylor's liability was never beyond dispute; and that both precluded Messer's bad faith claim.

         The circuit court denied Universal's motion on April 4, 2016. On October 4, 2016, Universal renewed the motion and cited the recent publication by the Kentucky Supreme Court of Hollaway v. Direct General Insurance Co., 497 S.W.3d 733 (Ky. 2016). On October 27, 2016, after reviewing Hollaway, the circuit court granted Universal's motion. Messer appealed.


         Summary judgment is proper where there exists no genuine issue of material fact and movant is entitled to judgment as a matter of law. Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480 (Ky. 1991). All facts and all inferences drawn from those facts are viewed in a light most favorable to the nonmoving party. Id. Because summary judgment involves only questions of law and the existence of disputed material issues of fact, an appellate court does not ...

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