Torts: Breach of fiduciary duty and first party insurance claims

Elements of Proof

Punitive damages were not permitted for the breach of contract claim in Federal Kemper Ins. Co. v. Hornback, 711 SW 2d 844 (Ky. 1986).  However, Justice Liebson’s dissent is noted for future reference on the existence of a fiduciary relationship involving a first party claim.

Movant cites Anderson v. Continental Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368 (1978), in which the Wisconsin court stated that an insured must prove three elements in order to prevail against an insurance company for alleged refusal in bad faith to *847 pay the insured’s claim: (1) the insurer must be obligated to pay the 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. Subsequently, in Davis v. Allstate Ins. Co., 101 Wis.2d 1, 303 N.W.2d 596 (1981), the Wisconsin court amplified this rule, stating an insurer is, however, entitled to challenge a claim and litigate it if the claim is debatable on the law or the facts.
These guidelines as presented by the movant are a fair statement of the law. This amounts to the same standard for imposing punitive damages described by the Kentucky Court of Appeals in Feathers v. State Farm Fire and Casualty Co., Ky.App., 667 S.W.2d 693 (1983). Feathers stated that the insurance company may be liable for punitive damages where it denies payment after “the policyholder has substantially complied with the terms and conditions required by the policy, and there is no substantial or credible evidence that the policyholder directly or indirectly set fire to his property for personal gain….” 667 S.W.2d at 696.