Mobley v. Progressive Direct Ins. Co.

686 F.Supp.3d 570

Chelsea MOBLEY, Plaintiff, v. PROGRESSIVE DIRECT INSURANCE COMPANY, Defendant.

CIVIL ACTION NO. 2:20-00126 (WOB-CJS)

United States District Court, E.D. Kentucky, Northern Division at Covington

Signed August 10, 2023

Marcus S. Carey, Marcus S. Carey Attorney at Law, Sparta, KY, for Plaintiff.

Gregory M. Erpenbeck, Busald, Funk & Zevely PSC, Florence, KY, Tracey Clemmons Smith, Gwin Steinmetz & Baird PLLC, Louisville, KY, for Defendant.

MEMORANDUM OPINION AND ORDER

Willam O. Bertelsman, United States District Judge

Before the Court is Progressive Direct Insurance Company's Motion for Summary Judgment. (Doc. 33). Mobley responded (Doc. 39), and Progressive replied (Doc. 41). Therefore, the motion is ripe. For the following reasons, the motion will be granted.

Factual and Procedural History

In February 2018, Chelsea Mobley was injured when the car she was riding in, driven by John Lang, dropped off the right side of the road and hit a utility pole. (Doc. 33-1 at 2). Mobley brought a claim against Lang, and Lang's insurance company settled the claim for $100,000, the amount of Lang's policy limit. (Doc. 33 at 1). Meanwhile, Mobley was insured by Progressive on a policy held by her father. (See Doc. 33-2). Mobley's attorney informed Progressive of the settlement with Lang. (Doc. 33 at 2; Doc. 39 at 2). Progressive agreed to waive its subrogation rights against Lang and permitted the settlement to proceed. (Doc. 33 at 2; Doc. 39 at 2).

According to Mobley's mother Lisa, the $100,000 settlement with Lang's insurance carrier was insufficient to cover Mobley's injuries and resulting disabilities. (Doc. 37, Lisa Mobley Aff. ¶¶ 4, 5). So she consulted with Progressive to see whether the family insurance policy might provide additional coverage. (Id. ¶ 5). Progressive told her there was no "extra" coverage beyond what Mobley had gotten from Lang's insurance carrier. (Id. ¶ 6).

Lisa found an older copy of the family's insurance policy, which showed that the policy included underinsured motorist coverage. (Id. ¶ 7). She then obtained from Progressive copies of the policy that had been in effect before, at the time of, and after Mobley's accident. (Id. ¶ 9). She eventually told Progressive that she would be consulting an attorney, at which point Progressive agreed that Mobley's policy did include underinsured motorist coverage. (Id. ¶¶ 10, 11).

In March 2020, Mobley's attorney made a demand for the $100,000 policy limit under that coverage. (Doc. 33-3 at 1). He included with that demand information about Mobley's injuries: that she had suffered a concussion, that her medical bills exceeded $14,000, and records from Mobley's treating physician indicating that her body was 15% impaired, that her injuries prevented her from working and earning income, and that she would incur future treatment expenses of $2,000 to $3,000 per year. (Id. at 1-3). The records reflected that Mobley's last doctor visit was on August 8, 2018. (Id. at 3).

In April, Progressive offered Mobley $20,000 to settle the underinsured motorist claim. (Id. at 4). Mobley's attorney rejected the offer and renewed the demand for the policy limit. (Doc. 33-4). Counsel for Progressive wrote to Mobley's attorney in June and July. (Doc. 33-5). The first letter said that Progressive was open to negotiations and offered to schedule a pre-suit medical exam for Mobley and stipulated that it would be the only exam should the case proceed to litigation. (Id. at 1). It also said that Progressive had no documentation about Mobley's medical condition or ability to work or attend school, and requested any new information or evidence that might be available. (Id.). The second letter said the same thing and requested a new demand. (Id. at 3).

Mobley sued in state court in August, bringing claims for breach of contract and bad faith. (See Doc. 1-2). Progressive removed. (Doc. 1). The Court bifurcated the two claims and stayed discovery on the bad faith claim pending the outcome of the contractual claim. (Doc. 12).

During discovery on the breach of contract claim, Progressive deposed Mobley and learned that she had recently undergone knee surgery. (Doc. 33-6 at 1). Mobley underwent an independent medical exam in May 2021. (Id. at 3; Doc. 13). Afterwards, Progressive reevaluated Mobley's claim, mediated the case, and settled the underinsured motorist breach of contract claim for $72,500. (Doc. 33-6 at 11; see also Doc. 21, dismissing Mobley's underinsured motorist claim).

The Court then entered a new scheduling order (Doc. 29), and Progressive moved for summary judgment on the remaining bad faith claim in May 2023 (Doc. 33).

Analysis

Progressive moves for summary judgment on Mobley's remaining bad faith claim. (Id.). Under federal law, summary judgment is proper where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the movant is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c). "In determining whether there exists a genuine issue of material fact, the court must resolve all ambiguities and draw all factual inferences in favor of the non-moving party." See Swallows v. Barnes & Noble Book Stores, Inc., 128 F.3d 990, 992 (6th Cir. 1997) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).

Summary judgment is inappropriate if the evidence would permit a reasonable jury to return a verdict for the non-moving party. Id. However, "[t]he non-moving party also may not rest upon its mere allegations or denials of the adverse party's pleadings, but rather must set forth specific facts showing that there is a genuine issue for trial." Moldowan v. City of Warren, 578 F.3d 351, 374 (6th Cir. 2009) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Fed. R. Civ. P. 56(e)(2)).

Kentucky law recognizes four categories of insurance bad faith claims: (1) common-law third-party bad faith; (2) common-law first-party bad faith; (3) statutory bad faith under the Kentucky Consumer Protection Act; and (4) statutory bad faith under the Kentucky Unfair Claims Settlement Practices Act. World Heritage Animal Genomic Res., Inc. v. Wright, No. 22-5828, 2023 WL 3868646, at *1 (6th Cir. June 7, 2023) (first citing Ky. Rev. Stat. § 304.12-230; then citing Rawe v. Liberty Mut. Fire Ins. Co., 462 F.3d 521, 526-27 (6th Cir. 2006)).

All four categories are analyzed under the same framework, set out by the Kentucky Supreme Court in Wittmer v. Jones. Under that framework, a plaintiff must show:

(1) the insurer was obligated to pay the claim under the policy;

(2) the insurer lacked a reasonable factual or legal basis for denying the claim; and

(3) the insurer knew there was no reasonable basis for the denial or acted with reckless disregard for whether such a basis existed.

Id. (citing Mosley v. Arch Specialty Ins. Co., 626 S.W.3d 579, 584 (Ky. 2021)). See also Belt v. Cincinnati Ins. Co., 664 S.W.3d 524, 532 (Ky. 2022) (citing Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993)).

Here, Mobley's bad faith claim is of the statutory variety, brought under the Kentucky Unfair Claims Settlement Practices Act (the Act). (Doc. 1-2 ¶ 8; Doc. 39 at 4-5). The Act seeks to protect the public by requiring insurers to act in good faith when dealing with insureds and third-party claimants. Belt, 664 S.W.3d at 530-31 (first citing State Farm Mut. Auto. Ins. v. Reeder, 763 S.W.2d 116, 118 (Ky. 1988); then citing Indiana Ins. Co. v. Demetre, 527 S.W.3d 12, 26 (Ky. 2017); and then citing Stevens v. Motorists Mut. Ins. Co., 759 S.W.2d 819, 820-21 (Ky. 1988)). It does so by prohibiting certain settlement practices. Id.; Ky. Rev. Stat. § 304.12-230.

At issue here are three of those prohibited practices, found in subsections (1), (6), and (7) of the Act. (Doc. 39 at 4-5). Subsection (1) prohibits "[m]isrepresenting pertinent facts or insurance policy provisions relating to coverages at issue[.]" Ky. Rev. Stat. § 304.12-230(1). Subsection (6) prohibits "[n]ot attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear[.]" Id. § 304.12-230(6). And subsection (7) prohibits "[c]ompelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds[.]" Id. § 304.12-230(7).

Although the Act enumerates those and 14 other prohibited practices, those practices alone are merely "technical violations" of the Act. Belt, 664 S.W.3d at 531 (citing Wittmer, 864 S.W.2d at 890). Technical violations are mere contractual claims and do not rise to the level of bad faith. Id. (citing Wittmer, 864 S.W.2d at 890). Instead, a plaintiff bringing a bad faith claim must satisfy the three elements laid out in Wittmer.

Here, Progressive does not dispute the first element because Mobley's policy included underinsured motorist coverage. (Doc. 33 at 8). So the Court will focus on the second and third elements.

A. Element 2 — Whether Progressive lacked a reasonable basis for denying the claim

The second Wittmer element is whether the insurer lacks a reasonable factual or legal basis for denying the claim. Wittmer, 864 S.W.2d at 890. An insurer lacks a reasonable basis for denial only when liability is "beyond dispute." Mosley v. Arch Specialty Ins. Co., 626 S.W.3d 579, 586 (Ky. 2021) (citing id.). In contrast, if liability is unclear, then a bad faith claim fails as a matter of law. Id. (citing Hollaway v. Direct Gen. Ins. Co. of Miss., 497 S.W.3d 733, 739 (Ky. 2016)). Thus, "the second Wittmer element is not satisfied if an 'absolute duty to pay [the plaintiff's] claim is not clearly established' or if disputes persist about the degree of injury attributable to the insured's actions." Martinez v. State Farm Mut. ...