We're discussing the bad faith insurance lawsuit that the Kentucky Supreme Court worked over last summer, Demetre v. Indiana Insurance Company. In Anatomy of a Kentucky Bad Faith Insurance Claim; Part 1, we ran through the basic facts, the insurance company's attempts to weasle out of coverage, and its investigation of its insured before it finally turned to the claim. All of this had provoked the insured, Demetre, to hire his own lawyer - both to protect himself from the claim and from his own insurance company - and to sue his insurance company for its bad faith actions.

Demetre's bad faith insurance claims resulted in the following verdict, which was upheld by the Kentucky Supreme Court: $925,000 in emotional distress and $2,500,000 in punitive damages. Let's look at how Kentucky bad faith insurance law led to that result.

Claims based on bad faith insurance practices have three sources in Kentucky law: (1) breach of the covenant of good faith and fair dealing; (2) the Kentucky Consumer Protection Act, KRS 367.170; and, (3) the Unfair Claims Settlement Practices Act, KRS 304.12-230.

Indiana Insurance argued that it had provided Demetre with a defense to the claim and had paid it off in any event, so there was no bad faith claim against it. Not so the Kentucky Supreme Court ruled for the following reasons: (1) Indiana Insurance falsely asserted that Demetre had misled it, even though it was "uncontested" that Demetre informed it that the property had been used previously as a gas station, it had happily taken Demetre's premium payments and there was no evidence that the property was contaminated or that Demetre was told that it was; (2) Indiana Insurance's conduct amounted to "a sustained effort ... to deny coverage long after it could and should have been determined that it was legally obligated under its contract with Demetre."

Demetre paid out nearly $400,000 to his own lawyer which was an "ascertainable economic loss" required under the Consumer Protection Act.

The Court ruled that Demetre was not required to present expert testimony to support his emotional distress damages.

So here's what this case boils down to: (1) Demetre was honest and forthright about the property when he sought coverage; (2) nevertheless, when the claim arose against Demetre, his insurance company turned against him, falsely claimed that he had been deceptive and drug its feet from well over a year about actually defending him and investigating the claim made against him. And so it cost Indiana Insurance, as it should have.

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