Empire Fire & Marine Ins. Co. v. Simpsonville Wrecker Service, Inc.

• Decision Date: 29 April 1994
• Docket Number: No. 92-CA-2738-MR,92-CA-2738-MR
• Citation: 880 S.W.2d 886
• Parties: EMPIRE FIRE & MARINE INSURANCE COMPANY, Appellant, v. SIMPSONVILLE WRECKER SERVICE, INC., Appellee.
• Court: Kentucky Court of Appeals

Page 886

880 S.W.2d 886

EMPIRE FIRE & MARINE INSURANCE COMPANY, Appellant, v. SIMPSONVILLE WRECKER SERVICE, INC., Appellee.

No. 92-CA-2738-MR.

Court of Appeals of Kentucky.

April 29, 1994 Discretionary Review Denied by Supreme Court Aug. 24, 1994.

Wayne J. Carroll, Edward H. Bartenstein, Louisville, for appellant.

Charles F. Merz, Laurence J. Zielke, Louisville, for appellee.

Before GUDGEL, McDONALD and WILHOIT, JJ.

GUDGEL, Judge:

This is an appeal from a judgment entered by the Jefferson Circuit Court in a tort action for damages which was based upon an insurer's alleged bad faith refusal to pay its insured's claim under a motor cargo liability endorsement attached to a liability insurance policy. Previously, this court determined in this same matter that the insurer's policy was ambiguous and therefore must be construed to provide coverage for the insured's loss. Simpsonville Wrecker Service, Inc. v. Empire Fire & Marine Insurance Company, Ky.App., 793 S.W.2d 825 (1989). After a second trial a jury determined that there was no basis in law or fact to justify the denial of the insured's claim, and that the insurer either knew there was no reasonable basis for denying the claim or acted in reckless disregard for whether such a basis existed. On appeal, appellant insurer contends that the trial court erred (1) by failing to grant its motions for a directed verdict, (2) by admitting damage evidence which was too speculative to support a jury verdict, and (3) by failing to find that appellee had released its claim. As we agree with appellant's first contention, we reverse and remand without addressing its remaining contentions.

In May 1987 appellee was employed to transport a heavy piece of equipment from Texas to Indiana. The equipment, but not appellee's vehicle, incurred severe damage during the trip when the equipment struck a highway overpass. Appellee then sought reimbursement for the loss under the cargo transportation coverage endorsement included in a liability insurance policy issued by appellant. However, because appellee's vehicle did not itself collide with the overpass, appellant denied appellee's claim on the ground that no covered loss had occurred because appellee did not have all-risk cargo insurance coverage, but instead had limited insurance coverage only for collisions between the insured vehicle and other vehicles or objects. This action then was filed in the circuit court.

The trial court granted appellant a summary judgment on the ground that there was no coverage for the loss under appellee's policy. On appeal, however, in a two-to-one decision this court determined otherwise, stating as follows:

Given the facts that the policy herein was for cargo in transit and specified cargo insofar as cranes are concerned, and that the coverage was not for the vehicle itself, considered in light of the language's ambiguity as well as the policy as a whole, we must agree with the views expressed hereinabove. This we do in light of the mandate of Wolford v. Wolford, Ky., 662 S.W.2d 835, 838 (1984), requiring that if a contract is capable of two constructions or if its language is ambiguous then it must be liberally construed in order to resolve any doubts in favor of the insured.

Simpsonville, supra at 829.

On September 19, 1990, after the supreme court denied a motion for discretionary review, this case was remanded to the circuit court with directions to reinstate appellee's complaint and to conduct a jury trial as to the parties' respective claims. Before the scheduled trial date, however, appellant consented to the entry of a judgment against it for the amount of the insured loss. Further, appellee settled its claims against an independent insurance agent and an excess lines broker relating to their alleged failure to procure the all-risk policy requested by appellee. Hence, the only matter tried before the jury was appellee's action against appellant for compensatory and punitive damages stemming from the latter's alleged bad faith refusal to pay.

At the conclusion of the trial the court first instructed the jury that appellant was obligated to promptly pay appellee's claim. The jury was asked to determine whether appellant's failure to promptly pay that claim lacked a reasonable basis in law or fact, and whether appellant either knew it lacked a reasonable basis for denying the claim or acted in reckless disregard for whether such a basis existed. The jury answered the court's interrogatory in the affirmative. It awarded appellee $318,775 in compensatory damages for lost profits but nothing for punitive damages. This appeal followed.

First, appellant contends that the court erred by failing to grant its motions for a directed verdict. We agree.

In order to maintain a private cause of action for tortious misconduct justifying a claim of bad faith, an insured must prove (1) that the insurer was obligated to pay, (2) that the insurer lacked "a reasonable basis in law or fact for denying the claim," and (3) 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." Wittmer v. Jones, Ky., 864 S.W.2d 885, 890 (1993). The reported Kentucky cases involving the tort of bad faith refusal to pay, however, are factually distinguishable and do not govern the precise issue presented here. In Feathers v. State Farm Fire & Casualty Co., Ky.App., 667 S.W.2d 693 (1983), overruled, 711 S.W.2d 844 (1986), Federal Kemper Insurance Co. v. Hornback, Ky., 711 S.W.2d 844 (1986), overruled, 784 S.W.2d 176 (1989), Curry v. Fireman's Fund Insurance Co., Ky., 784 S.W.2d 176 (1989), and Wittmer, supra, each insurer's liability for bad faith refusal to pay involved issues other than whether the insured's loss was a type of occurrence for which coverage was provided by the terms of the company's policy. In Feathers and Federal Kemper, for example, the insurers claimed they were not legally obligated to pay fire losses otherwise covered by the policies because the insureds were allegedly guilty of arson. Moreover, in Curry the insurer was determined to have wrongfully continued in bad faith to refuse to pay the insured's claim even after the insurer learned that it was legally obligated on its policy. Finally, in Wittmer the insurer refused to pay because it could not agree with its insured as to the dollar amount of the loss.

Here, by contrast, the principal issue was whether the loss that occurred was one which was covered by the policy's insuring clause. Once this court determined on appeal that the policy was ambiguous and that the loss was covered by the policy, appellant ended its refusal to pay and consented to the entry of a judgment against it for the amount of the insured loss. The precise issue before us, therefore, is whether sufficient evidence was adduced at trial to establish that the refusal to pay prior to this court's final determination that coverage existed for the loss constituted a bad faith refusal to pay the claim. We are of the opinion that the refusal was not made in bad faith, and that to conclude otherwise would effectively deprive every insurer of its right either to raise lack of coverage as a defense to an action on a policy or to file an action seeking a declaration of rights respecting coverage issues.

Although the coverage issue in this case had not yet been addressed by our courts on the date of the collision between appellee's cargo and the overpass, the issue certainly was not one of first impression in a national sense. In fact, prior to that date 43 Am.Jur.2d Insurance § 725 (1982) had addressed the issue as follows:

One of the perils frequently covered by motor carrier cargo policies is damage or loss caused by the collision of a truck or other conveyance with another object, and the authorities are in disagreement whether a collision of the load with an object, such as, for example, an overhead bridge is covered by such a policy, some cases requiring the vehicle itself to collide with an object in order that the accident may be covered by the policy, and other cases taking the view that the collision of the load with an object constitutes a "collision" within the meaning of the policy notwithstanding that the vehicle itself does not strike the object. (Footnotes omitted.)

Moreover, some thirty-three years earlier it was stated in A.L.R.2d that:

Policies insuring motor carriers against liability for loss or damage to shipped property frequently provide for coverage of damage caused by the collision of the motor truck or trailer with some other object, and in several cases the question has arisen, with diametrically opposite conclusions reached by the courts, whether such a stipulation covers damage resulting when the shipped property, and not the vehicle itself, collided with the ceiling of an underpass, due to the height of the load. In several of such cases it was held that the policy in question did not cover such a loss.

L.S. Tellier, Annotation, Coverage of Policy Insuring Motor Carrier Against Liability for Loss of or Damage to Shipped Property, 36 A.L.R.2d 506, 523 (1954).

Indeed, as of the date of appellee's loss most of the courts mentioned in the quoted treatises had taken the position that no coverage existed if the insured's cargo but not the carrier's vehicle struck another object such as an overpass. See, e.g., Trinity Universal Insurance Co. v. Robert P. Stapp, Inc., 278 Ala. 209, 177 So.2d 102 (1963); St. Paul Fire & Marine Insurance Co. v. Mose Gordon Construction Co., 121 Ga.App. 33, 172 S.E.2d 459 (1970); Wolverine Insurance Co. v. Jack Jordan, Inc., 213 Ga. 299, 99 S.E.2d 95 (1957); Mendelsohn v. Automobile Insurance Co., 290 Mass. 228, 195 N.E. 104 (1935); Western Casualty and Surety Co. v. D & J Enterprises,...