The Kentucky Supreme Court reversed the court of appeals' affirmance of the trial court's denial of bad faith claims. Nichols v. Zurich Am. Ins. Co., 630 S.W. 3d 683 (Ky. 2021).
Miller Pipeline Corporation had a commercial fleet policy with Zurich. The policy provided UIM coverage of $1,000,000.
Miller's employee, James Nichols, was severely injury on June 4, ,2002, in an automobile accident. For over two years and eight months, Nichols and his counsel negotiated with Zurich over UIM coverage. Seven Zurich employees examined the policy terms and acknowledged the policy included UIM coverage with $1,000,000 limits. Nichols relied on this representation when settling with the tortfeasor.
In February 2005, Zurich, through adjuster David Gusman, advised Nichols' that the policy did not include UMI coverage. Zurich's documents, however, showed that the underwriter produced a copy of the policy showing UIM coverage. The underwriter refused to comply with Gusman's request for an endorsement showing no UIM coverage. Zurich eventually produced an endorsement "effective 4/1/02" which was created in September 2005. The endorsement noted no additional premium was charged and no return of premium, and the second page provided "No Change in Premium," suggesting no UIM coverage.
In October 2005, Nichols filed suit against Zurich to collect under the UIM provision. Initially, Zurich defended on the grounds that the endorsement explicitly excluded UIM coverage and filed a motion for summary judgment on that basis. The trial court denied the motion because, among other reasons, Zurich never made any assertion of lack of UIM coverage until almost three years after the accident and while the policy set forth effective premiums for UIM coverage, the change endorsement made no mention of premium refund.
Almost three years later, Nichols filed a motion for summary judgment that the UIM coverage was included. Zurich filed a cross motion and changed strategy, asserting for the first time that the policy's UIM coverage was issued due to a mutual mistake and should be reformed. The trial court allowed Zurich to amend its answer to allege mutual mistake and to request reformation. The trial court then granted Zurich's motion for summary judgment. The court of appeals affirmed.
The supreme court reversed, holding that mutual mistake was not available as ground to reform the policy since no facts indicated that Zurich was aware of Miller's desire to exclude optional coverages, such as UIM. The supreme court held that Nichols was entitled to partial summary judgment on the issue of UIM coverage.
On remand, the trial court granted Nichols' motion to amend his compliant to assert bad faith. Zurich then settled Nichols' UIM claim for the policy limits of $1,000,000.
After discovery, the parties filed cross motions for summary judgment on the bad faith claim. The trial court granted Zurich's motion and the court of appeals affirmed.
The supreme court found that Nichols presented evidence from which a jury could determine that Zurich did not act reasonably in denying his claim. Further, there was evidence that Zurich acted with reckless disregard. For four years after the accident, Zurich failed to investigate, negotiate, or otherwise meaningfully interact with Nichols. Thereafter, Zurich continued to delay and litigate despite having no legal foundation upon which to base its case, only fulfilling its contractual obligations nine years after Nichols' accident.
The bad faith claim was remanded to the trial court for further proceedings.
