Bad Faith - Sixth Circuit Holds That Insurer's Insistence on Overly Broad Release Prior to Paying Funds Pursuant to Judgement Could Constitute Bad Faith Under Kentucky Law
The Court of Appeals for the Sixth Circuit recently addressed a number of first- and third-party bad faith claims brought by a victim of a car accident against the insurer that insured both her and the driver who hit her. See Rawe v. Liberty Mut. Fire Ins. Co.,
No. 05-5485, 2006 WL 2519319 (6th Cir. Sept. 1, 2006). The Court held that the insurer’s insistence that the plaintiff sign an overly broad release before it would pay a judgment in favor of the plaintiff could constitute
bad faith under Kentucky law.
The plaintiff, Melissa Rawe, was seriously injured in a car accident and sought compensation both under the other driver’s insurance policy and under the underinsured motorist provision of her own policy. Both policies
happened to be issued by the same insurer. After two years, the insurer paid its policy limits under the other driver’s policy. Rawe continued to seek a settlement under her own policy, and eventually filed suit
against her insurer. The parties agreed to a settlement, and the Court entered a judgment for $45,000 in favor of Rawe. The insurer, however, refused to satisfy the judgment unless Rawe signed a release not only for the
claims that were the subject of the settlement, but also for any and all future claims, including claims that were not part of the action. Rawe refused to sign the broad release and moved the Court to compel the insurer
to pay, which the Court did. Shortly after the settlement funds were paid, Rawe sued the insurer and asserted claims that included first- and third-party common law bad faith and violation of the Kentucky Unfair Claims Settlement
Practices Act.
One of Rawe’s claims focused on the insurer’s insistence that she sign a release covering all future claims. The Court held that Rawe stated a cause of action both for first-party common law and statutory bad faith
under Kentucky law. The Court reasoned that the insurance company’s insistence on the release interfered with Rawe’s clearly protected rights in the Court’s judgment and forced her to take further unnecessary
steps to collect the judgment. The Court said it was an issue of fact whether the insurer’s actions in demanding the release were reasonable, and it reversed a grant of summary judgment to the insurer.