Kentucky’s Unfair Claims Settlement Practices Act: What Policyholders Should Know About Bad Faith

If an insurance company in Kentucky fails to handle a claim in good faith, the policyholder may have remedies under the insurance policy and Kentucky law. But not every claim denial, delay, or disagreement over the amount owed constitutes bad faith. Kentucky imposes a demanding legal standard for a bad faith claim. At McWherter Scott & Bobbitt, our Kentucky insurance dispute lawyers represent policyholders in property and business insurance disputes. Depending on the facts, a claim may involve both breach-of-contract damages—the benefits owed under the policy—and additional damages arising from bad faith claim handling.

The Kentucky Unfair Claims Settlement Practices Act (UCSPA)

Kentucky’s UCSPA (KRS 304.12-230) defines the following acts or omissions as unfair claims settlement practices. The statute identifies numerous categories of prohibited conduct, but a violation does not automatically establish an actionable bad faith claim. Kentucky law imposes additional requirements for proving bad faith.

1. Misrepresenting pertinent facts or insurance policy provisions relating to coverage at issue.
2. Failing to promptly acknowledge and reasonably act upon communications about insurance policy claims.
3. Failing to create and implement reasonable standards for promptly investigating insurance claims.
4. Refusing to pay insurance claims without conducting a reasonable investigation, based on all available information.
5. Failing to confirm or deny insurance policy coverage of claims within a reasonable time after the policyholder completes their proof of loss statements.
6. Not acting in good faith to effectuate fair, prompt, and equitable settlements of insurance claims where liability has become reasonably clear.
7. Compelling the policyholder to institute litigation by offering substantially less than the amount the policyholder ultimately recovers through litigation.
8. Trying to settle an insurance claim for less than a reasonable man would have believed was due, based on printed/written “advertising material accompanying or made part of an application.”
9. Trying to settle the claim based on an altered application without notice to the insured of the alteration, or without the insured’s consent or knowledge.
10. Making insurance claim payments to the insured or beneficiaries without providing a statement explaining the coverage under which the payments are being made.
11. Informing insurance claimants of the insurance company’s policy to appeal arbitration awards that favor claimants – to force the claimant to accept a settlement in an amount less than the arbitration award.
12. Delaying investigating or paying a claim by requiring the submission of essentially duplicate information forms (such as a preliminary claim report and then a formal proof of loss).
13. Failing to settle claims promptly, when liability is reasonably clear under one part of the insurance policy – to influence settlements under other parts of the insurance policy.
14. Failing to promptly give the claimant a reasonable explanation (legal or factual) for the denial of the claim or an offer of a compromise settlement.

Importantly, a violation of the UCSPA does not automatically mean an insurer has committed actionable bad faith. Under Kentucky law, a claimant generally must show that the insurer was obligated to pay the claim, lacked a reasonable basis in law or fact for denying or delaying the claim, and knew there was no reasonable basis for its position or acted with reckless disregard for whether one existed.

Additional unfair insurance claims practices

Kentucky regulations also establish claim-handling standards for property and casualty insurers. Importantly, 806 KAR 12:095 states that the regulation itself does not create a private cause of action. Some of those standards include:

• Generally, insurance companies and their agents can’t misrepresent or conceal any relevant coverage, benefits, or insurance policy provisions from a first-party claimant (806 KAR 12:095, Section 4(1)).
• Insurance companies must provide acknowledgment that they have received notice of a claim within 15 business days, excluding holidays, unless the company pays the claim within that period (806 KAR 12:095, Section 5(1)).
• The insurer shall offer any payment due within thirty (30) calendar days of receipt of proof of loss (806 KAR 12:095, Section 6(1)(a)).
• The insurance company shall notify the insured within 30 calendar days after receipt of the proof of loss if it needs more time to determine whether the claim should be accepted or denied and give the reasons why more time is necessary (806 KAR 12:095, Section 6(1)(c)).
• If the insurance company still needs more time to complete its investigation, it must explain the reasons more time is necessary within 45 calendar days of the initial notification and every 45 calendar days thereafter (806 KAR 12:095, Section 6(1)(d)).

When does an insurance dispute become bad faith in Kentucky?

An insurance company can be wrong about coverage or the value of a claim without necessarily acting in bad faith. A legitimate dispute over coverage, causation, the scope of damage, or the amount owed does not automatically create a bad faith claim.

The question is not simply whether the insurer denied, delayed, or underpaid a claim. Kentucky’s bad faith standard focuses on whether the insurer lacked a reasonable basis for its position and knew or recklessly disregarded that fact. Whether that standard is met depends on the particular facts and circumstances of the claim. At McWherter Scott & Bobbitt, we represent policyholders in disputes involving bad faith and unfair claims practices in Kentucky.

What bad faith damages and remedies are available in Kentucky?

If the facts support a bad faith claim or another statutory remedy, available damages and remedies may include:

• Compensatory damages. Proven losses caused by the insurer’s bad faith.
• Interest. Interest on overdue first-party claims may be available under KRS 304.12-235.
• Attorney’s fees. KRS 304.12-235 also provides for reasonable attorney’s fees when an insurer fails to timely settle a claim and the delay is without reasonable foundation.
• Punitive damages. These damages may be available under KRS 411.184, depending on the facts and applicable law.

How do our Kentucky bad faith insurance lawyers help?

At McWherter Scott & Bobbitt, our Louisville, Kentucky insurance claim attorneys represent homeowners, commercial property owners, and businesses in insurance disputes arising from a wide range of property losses and coverages, including:

• Earthquake
• Fire, smoke, and soot
• Flood
• Hail
• Hurricanes
• Storm damage
• Tornadoes
• Vandalism
• Water damage
• Wildfire
• Wind
• Additional living expenses
• Ice damming
• Loss of business income/extra expenses
• Loss of rents
• Theft

Our insurance dispute lawyers can review the policy and claim history, identify the coverage and claim-handling issues, help document covered damage and expenses, and work with appropriate experts when needed. If the insurer has failed to pay benefits owed or the facts support additional remedies under Kentucky law, we can pursue those claims on the policyholder’s behalf.

Contact our Kentucky unfair claims lawyers now

If you have questions about how your Kentucky property insurance claim is being handled, we can review the policy, claim history, and insurer’s position and help determine what benefits or remedies may be available. Please call us or complete our contact form to schedule a consultation.