Phelps v. State Farm Mut. Auto. Ins. Co.

Decision Date23 August 2012
Docket NumberNo. 10–6085.,10–6085.
Citation680 F.3d 725
PartiesCynthia PHELPS, Plaintiff–Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant–Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

680 F.3d 725

Cynthia PHELPS, Plaintiff–Appellant,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant–Appellee.

No. 10–6085.

United States Court of Appeals,
Sixth Circuit.

May 25, 2012.
Rehearing and Rehearing En Banc Denied Aug. 23, 2012.
*


[680 F.3d 727]


ON BRIEF:Sara B. Gregory, Lance W. Turner, Thomas E. Carroll, Carroll & Turner, P.S.C., Monticello, Kentucky, for Appellant.
David T. Klapheke, Boehl Stopher & Graves, LLP, Louisville, Kentucky, for Appellee.

Before: BATCHELDER, Chief Judge; CLAY and GILMAN, Circuit Judges.


GILMAN, J., delivered the opinion of the court in which CLAY, J., joined.
BATCHELDER, C.J. (pp. 735–38), delivered a separate dissenting opinion.

OPINION

RONALD LEE GILMAN, Circuit Judge.

Cynthia Phelps alleges that State Farm Mutual Automobile Insurance Company violated Kentucky's Unfair Claims Settlement Practices Act (UCSPA) in its processing of her third-party insurance claim. The district court granted summary judgment in favor of State Farm on the ground that Phelps had failed to present sufficient evidence to show that the three years taken to settle her claim raised a genuine dispute as to whether State Farm had acted in bad faith. For the reasons set forth below, we REVERSE the judgment of the district court and REMAND the case for further proceedings consistent with this opinion.

I. BACKGROUND

This case arises out of an automobile accident that occurred on July 18, 2003. As Phelps was pulling into a gas station in Jefferson County, Kentucky, Lindsey Kirby pulled out of the station in front of Phelps without warning. The two cars collided, causing injuries to Phelps's spine that ultimately required surgery in October 2003. Kirby was insured by State Farm under an automobile insurance policy with a $50,000 limit of liability. State Farm concedes that Kirby was at fault for the accident and that State Farm was obligated to provide the insurance coverage.

Not long after the accident, Phelps filed a third-party liability claim with State Farm for personal injuries and property damage arising out of the accident. Adjuster Denise Ray was assigned to the claim. Ray sent Phelps a medical-authorization form in September 2003, which Phelps signed and returned that same month. On October 2, 2003, State Farm transferred Phelps's claim to a second adjuster, Bob Nieses. Nieses sent Phelps's counsel, Thomas Carroll, a letter requesting a list of Phelps's medical providers. Nieses received a response within two weeks. He then began collecting Phelps's medical records.

Phelps's claim file shows minimal activity until February 11, 2004, when State Farm first noted that Phelps had a prior back injury in 1999 in the same part of her body as the present injury. Nieses determined that additional information was needed to evaluate Phelps's claim and to separate any prior injuries from the current claim. His file note indicates: “Need to gather information on wage loss, medical bills, and prior condition.” But there is no evidence that Phelps was made aware of State Farm's need for this information at the time.

Carroll submitted a “settlement package” that was received by State Farm on April 2, 2004. The package included documentation regarding Phelps's surgery and

[680 F.3d 728]

related medical and wage-loss costs totaling $22,620.22. The package did not include a demand, but it expressed Phelps's interest in reaching a settlement and made a request for information about State Farm's policy limits.

State Farm apparently did little to process Phelps's claim for several months after receiving her settlement package. Nieses testified in his deposition that he did not complete a claim valuation because he considered it “premature” due to the outstanding information about Phelps's 1999 back injury. In July 2004, State Farm substituted yet another adjuster, Amy Lirely, to process Phelps's claim. On September 14, 2004, Lirely requested information from Phelps's attorney about the 1999 injury. State Farm allegedly “received permission to examine PIP [personal injury protection] records” relating to Phelps six days later, but neither party has explained what these records covered.

By October 24, 2004, State Farm had received the medical records relevant to Phelps's 1999 injury. But State Farm contends that the records it received covered only Phelps's immediate treatment following the 1999 injury and did not include documentation about her treatment in the years following that injury. Lirely testified that the missing information was relevant to determine how well Phelps had recovered from the 1999 injury by the time of the present accident. Nonetheless, Lirely proceeded to complete a claim evaluation based on the available records, valuing Phelps's claim between $24,620 and $49,620. Phelps argues that this range was outrageously low given the documentation that State Farm had before it.

State Farm made an initial settlement offer of $25,000 four days later, on October 28, 2004. According to State Farm, its offer did not include compensation for future wage loss or future impairment of earnings because Phelps failed to include any such information in her settlement package. In addition, medical records from December 2003 indicated to State Farm's adjusters that Phelps had substantially recovered from her July 2003 injury and probably would not experience any future impairments.

Carroll did not directly respond to State Farm's offer, but Phelps contends that Carroll made additional requests for State Farm to reveal its policy limits over the course of the fall and that Lirely refused to provide this information. Lirely, however, disputes ever being asked about the policy limits. In any event, having heard nothing from Carroll about her offer, Lirely left a phone message for him in January 2005, but the call was not returned.

On March 29, 2005, Lirely finally heard from Carroll, who rejected State Farm's $25,000 offer and demanded $150,000 to settle the claim. Although State Farm criticizes Carroll for making a demand that far exceeded the policy limits, there is no evidence that Lirely contemporaneously told Carroll that the demand in fact exceeded the policy limits or that Lirely disclosed any information about the policy limits.

Phelps eventually filed suit against Kirby, the driver insured by State Farm, in Kentucky state court in May 2005. In late May and early June, State Farm's attorney submitted discovery requests to Carroll. Carroll did not respond to these requests until October 25, 2005. State Farm asserts that the discovery produced pertinent new information, including a comprehensive medical-records release and wage-loss documentation. But Phelps contends that the information obtained through discovery was not necessary to the adjudication of her claim and that State Farm had all of the pertinent information that it needed as of April 2, 2004,

[680 F.3d 729]

when it received the settlement package (or, at the very latest, as of October 24, 2004, when it received information about Phelps's 1999 injury).

On November 3, 2005, State Farm once again replaced Phelps's claims adjuster, this time assigning the claim to Lillian Jones. Meanwhile, discovery in the pending lawsuit continued through the winter. Phelps was deposed on March 22, 2006. She testified that she had fully recovered from her 1999 injury prior to the 2003 accident. State Farm's attorney determined that Phelps was a credible witness and recommended that State Farm increase its settlement offer.

Carroll first demanded the policy-limits amount of $50,000 on April 11, 2006. State Farm countered with an offer of $40,000 the following day, which Carroll rejected. Finally, State Farm offered $50,000, the full policy limits, on April 13, 2006. Phelps accepted the offer shortly thereafter, which resolved her pending suit against Kirby.

In May 2007, Phelps filed the present lawsuit, alleging that State Farm had violated Kentucky's UCSPA through its conduct in processing her claim. The lawsuit originated in state court, but State Farm removed the case to the United States District Court for the Western District of Kentucky based on diversity jurisdiction. Following discovery, State Farm filed a motion for summary judgment. Phelps relied in her response on the testimony of two expert witnesses, Gary Fye and David Huff, concerning the allegedly unreasonable claims-handling practices of State Farm.

In his report, Fye describes himself as a “national claim handling expert,” presently employed as a claim-practices analyst at the Gary T. Fye Company. He has previously worked as a licensed independent analyst and as a claims adjuster or manager for four different insurance companies. His educational background is varied, but largely unrelated to the insurance industry (with the exception of some course work in Business Administration). Fye has also participated in several dozen insurance-related educational programs, given a multitude of presentations, and offered expert testimony in many federal and state court cases.

His report provides background information on the insurance industry and State Farm's general methods for handling claims, focusing on its financial motivations. With respect to Phelps's claims, Fye presented the following opinions:

State Farm treated this claim as an opportunity to seek an underpayment by unreasonably making and maintaining a lowball offer to the claimant, whom it considered an adversary. BI [ (Bodily Injury) ] liability coverage is meant to pay the sums owed by Kirby, within the policy limit, without a delay or a trial. It appears State Farm attempted to achieve its own outcome goals by freezing its assessment of the range of value and not moving.

State Farm incorrectly substituted its own subjective and unreasonable value for the claim. State Farm offered what its adjuster felt the beginning point of negotiations should be, but didn't investigate what a jury might find. It particularly avoided obtaining an...

To continue reading

Request your trial
61 cases
  • Nolen v. Fedex Techconnect, Inc.
    • United States
    • United States District Courts. 6th Circuit. Western District of Tennessee
    • September 4, 2013
    ...for summary judgment, [a court] must draw all reasonable inferences in favor of the nonmoving party.” Phelps v. State Farm Mut. Auto. Ins. Co., 680 F.3d 725, 730 (6th Cir.2012) (citing Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S.Ct. 1348). “The central issue is ‘whether the evidence......
  • Brown v. Bd. of Educ. of the Shelby Cnty. Sch.
    • United States
    • United States District Courts. 6th Circuit. Western District of Tennessee
    • September 15, 2014
    ...“ ‘do more than simply show that there is some metaphysical doubt as to the material facts.’ ” Phelps v. State Farm Mut. Auto. Ins. Co., 680 F.3d 725, 735 (6th Cir.2012) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). A......
  • Brown v. Bd. of Educ. of the Shelby Cnty. Sch.
    • United States
    • United States District Courts. 6th Circuit. Western District of Tennessee
    • September 15, 2014
    ...“ ‘do more than simply show that there is some metaphysical doubt as to the material facts.’ ” Phelps v. State Farm Mut. Auto. Ins. Co., 680 F.3d 725, 735 (6th Cir.2012) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). A ......
  • Jenkins v. Plumbers & Pipefitters Union Local No. 614, & CS3, Inc., 10–2929.
    • United States
    • United States District Courts. 6th Circuit. Western District of Tennessee
    • September 6, 2013
    ...party must “ ‘do more than simply show that there is some metaphysical doubt as to the material facts.’ ” Phelps v. State Farm Mut. Auto. Ins. Co., 680 F.3d 725, 735 (6th Cir.2012) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT