Insurer’s duty of good faith continues after litigation

May 23, 2006

The Supreme Court recently published Knott v. Zurich Ins. Co., holding that the Uniform Claims Practices Act applies during litigation. “KRS 304.12-230 imposes what is generally known as the duty of good faith and fair dealing owed by an insurer to an insured or to another person bringing a claim under an insurance policy.” “[I]t proscribes a list of particular acts and practices.” “The commencement of litigation by the filing of a complaint, even when the claim adjustment process is underway, however, does not change the fundamental nature of what the claimant seeks .” “Nothing in KRS 304 .12-230 limits its applicability to pre-litigation conduct, and since the statute applies to “claims,” it continues to apply to an insurer so long as a claim is in play. As such, we hold that KRS 304.12-230 applies both before and during litigation.”

The Zurich Court went on to address “what sorts of post-filing conduct by an insurer will be admissible in a bad faith action.” “Our preferred rule as to what evidence of post-filing conduct may be admissible in a bad faith action is best summed up as follows:

In principle, an insurer’s duty to settle should continue after the commencement of litigation . If the insurer were immunized for objectional settlement conduct occurring after litigation begins, the insured would be left without a remedy. It makes sense, therefore, to hold the insurer responsible for such conduct…

The Court further emphasized “that before admitting evidence of post-filing behavior, courts must be careful to weigh the probativeness of the proposed evidence against its potential for prejudice, as required by KRE 403.” Therefore, while litigation strategy or trial tactics may not be admitted to show bad faith, evidence of its settlement behavior may be. This evidence is not automatically admissible, but subject to a KRE 403 analysis.

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