Causes of Action: UCSPA, Actual Damages required to get punitives

From Excel v. Liberty Mutual, COA, NPO, 5/6/2011

On appeal, Exel first argues that the trial court erred by granting Liberty’s motion for summary judgment because proof of actual damages is not necessary to sustain a claim of bad faith. We disagree.

To establish a private cause of action for a claim of bad faith under the UCSPA, one cannot rely merely upon a “technical violation” of the UCSPA. Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993). Indeed, “a condition precedent to bringing a statutory bad faith action is that the claimant was damaged by reason of the violation of the statute.” Motorists Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 452 (Ky. 1997). Absent actual damage, there can be no cause of action premised upon an allegation of bad faith under the UCSPA. Id. at 454. (citation omitted).

Exel directs this court to Commonwealth Dept. of Agric. v. Vinson, 30 S.W.3d 162 (Ky. 2000), in which the Kentucky Supreme Court stated,
“compensatory damages are not an essential element of an intentional tort[.]” Id. at 166. In Vinson, the Department of Agriculture (Department) was sued by former employees who alleged bad faith under KRS 61.103(2), which specifically provides for the right to file a civil action for punitive damages independently of one for compensatory relief. The Department argued the statute should be interpreted in accordance with Kentucky common law, thereby requiring actual compensatory damages before a party is entitled to punitive damages. In reconciling the statute with the common law, the Court noted, “[w]here the plaintiff has suffered an injury for which compensatory damages, though nominal in amount may be awarded, the jury may in a proper case, award punitive damages as well.” Id. (emphasis added). Under the facts of Vinson, the Court found there to be a possibility of compensatory damages, although none were addressed by the claimants.

We find Vinson to be factually different from the instant case. Here, the UCSPA contains no provision permitting a claim for punitive damages absent a showing of compensatory damages, or absent a showing that the claimant was injured by actions that violated the statute. Rather, case law suggests that in order for a claimant to succeed on a claim of bad faith, they must allege actual injury. Thus we conclude that in order for Exel to defeat Liberty’s motion for summary judgment, it must allege injuries on which compensatory damages may be awarded.