Mosley v. Arch Specialty Ins. Co.

626 S.W.3d 579

Crystal Lee MOSLEY, Individually and as Administratrix of the Estate of Rhett Lee Mosley, Deceased and Rhett Mosley, Jr., a Minor, by and Through His Mother and Next Friend, Crystal Lee Mosley, Appellants

v.ARCH SPECIALTY INSURANCE COMPANY and National Union Fire Insurance Company, Appellees

2018-SC-0586-DG

Supreme Court of Kentucky.

JUNE 17, 2021

COUNSEL FOR APPELLANTS: Kellie Marie Collins, J. Dale Golden, Lexington, Golden Law Office, PLLC, Kenneth R. Friedman, Friedman Rubin, Jeffrey Reed Morgan, Manchester, Jeffrey R. Morgan & Assoc PLLC.

COUNSEL FOR APPELLEE, ARCH SPECIALTY FIRE INSURANCE COMPANY: Mindy Barfield, Lexington, Shadette Page Johnson, Dinsmore & Shohl LLP.

COUNSEL FOR APPELLEE, NATIONAL UNION FIRE INSURANCE COMPANY: Christopher S. Burnside, Louisville, Christopher Glade Johnson, Griffin Terry Sumner, Frost Brown Todd LLC.

COUNSEL FOR AMICUS CURIAE, INSURANCE INSTITUTE OF KENTUCKY: Ronald Lee Green, Green Chesnut & Hughes PLLC, Lexington.

OPINION OF THE COURT BY CHIEF JUSTICE MINTON

We accepted discretionary review in this third-party bad-faith case to determine whether Arch Specialty Insurance Company and National Union Fire Insurance Company acted in bad faith while mediating negligence and wrongful death claims asserted by Crystal Lee Mosley against insureds of Arch and National Union after her husband's death in a coal mining accident. The trial court summarily dismissed bad-faith claims against both companies, and the Court of Appeals affirmed. We likewise affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

While working the night shift at a surface mine, Rhett Mosley was killed when the lube truck he was operating crashed and overturned, crushing him underneath the truck. After the accident, a Mine Safety and Health Administration (MHSA) investigation revealed the lube truck's brakes were improperly maintained and malfunctioned at the time of the accident. MSHA also noted Rhett was not wearing a seatbelt. MSHA ultimately concluded that these two circumstances—along with mine management's failure to conduct preoperational equipment checks—were the root causes of Rhett's fatal accident.

Crystal Lee Mosley, in her individual and representative capacities, brought a negligence and wrongful-death action against four companies involved in the mining operation: (1) Rex Coal Company, owner of the mine; (2) Jean Coal Company, operator of the mine; (3) Regional Contracting, Rhett's employer, an employee-leasing company that provided employees to Jean Coal; and (4) Dixie Fuels, owner of the lube truck. Mosley also sued Terry Loving, the owner and sole managing member of Regional Contracting and Dixie Fuels.¹ Loving, Jean Coal, and Regional Contracting were insured by Arch. Rex Coal and Dixie Fuels were insured by National Union. Rex Coal and Dixie Fuels were indemnitees under the Arch policy insuring Jean Coal, Regional Contracting, and Loving.

During the several years following the filing of Mosley's complaint, the parties undertook discovery, disputed liability, and filed summary judgment motions. The litigation was complex and slow moving. Regional Contracting, Rhett's employer, argued that all claims against it were barred by the exclusivity provisions of Kentucky's Workers’ Compensation Act. Jean Coal, the company that contracted with Regional Contracting for employees, asserted it was entitled to up-the-ladder immunity under the Workers’ Compensation Act. Dixie Fuels, owner of the lube truck, argued Mosley's claims against it were misplaced under the law of bailments because Jean Coal had possession and control of the lube truck at the time of the accident, relieving it of any obligation to maintain the truck. And Rex Coal argued it was not involved in the mining operation at the time of the accident, so it owed no duty to Rhett. All defendants asserted that they were entitled to an apportionment instruction based on Rhett's own negligence in failing to wear an available seat belt.

The trial court dismissed Mosley's claims against Regional Contracting, finding its payment of workers’ compensation benefits on Rhett's behalf barred suit against it. The remaining parties were ordered to attempt mediation and mediated on two separate occasions.

At the first mediation, Arch offered its $1 million policy limits to settle all claims against its insureds. Mosley refused to accept less than National Union's $6 million policy limits as well, which National Union was unwilling to contribute because of its insureds’ available defenses. The first attempt at mediation failed.

At the second mediation, an attorney representing all defendants and an adjuster for National Union attended. Arch did not send an adjuster to negotiate but again offered its full $1 million policy limits toward a global settlement. Mosley demanded $1 million from Arch to settle the claims against Jean Coal, but not the claims against Loving. Arch refused to settle, insisting that it had an obligation to both of its insureds and could not exhaust its policy limits to protect only one of its insureds, leaving the other exposed. Mosley continued to demand National Union's $6 million policy limits. So the second mediation failed. But shortly after that, Mosley reached a settlement with Arch, accepting the full $1 million policy limits to settle all claims against its insureds, Jean Coal and Loving. Later, National Union settled its claims on behalf of Rex Coal and Dixie Fuel for $2 million.

Following the second failed mediation, Mosley filed third-party bad-faith claims against Arch and National Union. Mosley claimed that Arch and National Union acted in violation of the Kentucky Unfair Claims Settlement Practice Act (KUCSPA)² and engaged in a civil conspiracy during the mediations of the wrongful-death action. Arch and National Union contested these claims and filed motions to dismiss. The trial court denied the motions, allowing the bad-faith claims to proceed, however, discovery for the bad-faith action was stayed until the underlying wrongful-death action was fully resolved.

Upon settlement with National Union, Mosley moved for discovery on the bad-faith claims. Arch responded with a motion for judgment on the pleadings, and National Union moved for summary judgment. Mosley, in turn asked the trial court for an opportunity for discovery on their bad-faith claims.

The trial court granted Arch's motion for judgment on the pleadings. The trial court explained that accepting the face of Mosley's complaint as true, Arch's alleged conduct was legally insufficient to prosecute a claim for bad-faith because of violations of KUCSPA, civil conspiracy, and punitive damages. The trial court later granted National Union's summary judgment motion after it found Mosley had failed to establish a cause of action for bad faith under Kentucky law. Additionally, the trial court held that even if additional discovery was granted, no genuine issue of material fact exists because National Union's insureds’ liability was never beyond dispute.³

Mosley appealed both dismissals, arguing the trial court erred in denying her discovery motion because a proper bad-faith cause of action had been pleaded against Arch and that a genuine issue of fact did exist under the claim against National Union.

Mosley argues to this Court, as he did below, that Arch and National Union acted in bad faith during the two mediations, both together and separately. Mosley insists that the insurance companies leveraged claims by forcing global settlements instead of negotiating each claim individually. Mosley also contends that the companies acted in bad faith by sending only one attorney to the second mediation to negotiate for both insurers and their respective insureds. Finally, Mosley claims that Arch and National Union would not settle unless she reduced their settlement request from National Union. Overall, Mosley argues this conduct constituted bad faith and violated the KUCSPA.

II. ANALYSIS

A. The trial court did not err in dismissing the third-party bad-faith claims.

Under the KUCSPA, an insurance company must deal in good faith with a claimant in determining whether the company is contractually obligated to pay the claimant.⁴ This is true whether the claimant is the company's own insured, or the company insures the claimant's tortfeasor. Kentucky, unlike many states, allows a third-party to bring a cause of action for claims of bad-faith, and this Court explained the standard for such claims in Wittmer v. Jones .⁵ The Court held that a plaintiff has a "steep burden" of satisfying three requirements before a trial court should find the plaintiff to have brought a viable bad-faith claim.⁶ Those requirements are:

(1) the insurer must be obligated to pay the insured's 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 whether such a basis existed.⁷ The failure to show any of these elements eliminates the bad-faith claim as a matter of law.⁸

B. Standard of Review

In response to Mosley's complaint, Arch filed a motion for judgment on the pleadings based on her failure to state a claim of bad faith under Kentucky law, and the trial court granted the motion.⁹ A motion for judgment on the pleadings "should be granted if it appears beyond doubt that the nonmoving party cannot prove any set of facts that would entitle him/her to relief."¹⁰ These motions are based purely on whether the plaintiff has stated a cause of action as a matter of law and do not require or permit the trial court to make any findings of fact.¹¹ Because a trial court's ruling on a motion for judgment on the pleadings is a question of law, appellate review of a judgment on the pleadings is de novo.¹² So in this instance we will review the trial court's decision that Mosley's claim failed to state a claim without...