5/15/2015 by Gregory Hudson, Jennifer Kennedy-Coggins | Cozen O'Connor
In an opinion handed down last week, the Sixth Circuit Court of Appeals refused to adopt a new cause of action under Kentucky law for a reverse bad faith claim by an insurer against its insured where the Kentucky Supreme Court had not previously done so in State Auto Prop. & Cas. Ins. Co. v. Hargis, — F.3d –, 2015 WL 2081922, 2015 U.S. App. LEXIS 7475 (6th Cir., May 6, 2015). The Sixth Circuit further refused to certify the question to the Kentucky Supreme Court for review. Slip Op. at *4-5.
At issue in this case was a fire loss sustained to the insured’s, Lori Hargis, residential home. State Auto Property and Casualty Insurance Company (“Insurer”) insured the home. Ms. Hargis submitted a claim for the fire loss totaling over $866,000. The Insurer paid out over $425,000 on the claim before it filed a lawsuit seeking to void the policy for Ms. Hargis’ alleged conspiracy to cause the fire and inflation of the claim. Ms. Hargis filed a counterclaim against the Insurer for breach of contract and bad faith. Id. at *2. Through the course of litigation, Ms. Hargis admitted that she hired a friend to burn down her house to collect the insurance proceeds. Ms. Hargis and her friend were then indicted on conspiracy to commit wire fraud, where Ms. Hargis eventually pled guilty. Ms. Hargis received a 60 month prison term and was ordered to pay restitution to Insurer. After the indictment, the Insurer moved for partial summary judgment on Ms. Hargis’ bad faith claim, which was granted. The Insurer also filed an amended complaint asserting causes of action for insurance fraud and a common law tort claim for reverse bad faith. Id. at *3.