United States District Court
Insurance – UCSPA - Adjustors
Madison v Nationwide Mutual Insurance Company, 2012 WL 692598 (W.D.Ky. March 2, 2012)

This Court addressed the scope of the Unfair Claims Settlement Practices Act (UCSPA) in the context of removal. The plaintiff had included a claim against the local adjuster, which had the effect of destroying diversity jurisdiction, a common practice to avoid federal court. On removal, the insurer argued that the joinder of the local adjuster was fraudulent since the UCSPA did not apply to adjusters. The UCSPA is silent on this point, which is logical since it was never intended to be a basis for a private cause of action in the first place.

The District court held that the UCSPA does not apply, relying on the prior Supreme Court opinion in Davidson v. American Freightways, Inc., 25 S.W.3d 94 (Ky. 2000) in which the Court held that a person was who had a self insured retention was not subject to the UCSPA. The rationale was that the UCSPA was intended to regulate insurers, and insureds with a self insured retention were not subject to such regulations. The District court held the same rationale applied to adjustors, since they were not engaged in the business of insurance either. The opinion lists a number of unpublished federal court decisions in which this result has been reached.

While the rationale makes perfect sense, one should not be too sure that logic will suffice in state court, since the whole concept of a private cause of action for violations of the UCSPA violates basic principles of logic. A lot will depend on who writes the opinion and who is on the Court when this issue does reach the Supreme Court.

United States District Court
Insurance – UCSPA – Attorney Client Privilege
Shaheen v Progressive Casualty Insurance Company, 2012 WL 692668 (W.D.Ky. March 2, 2012)

This is a case brought by a third party plaintiff against a liability insurer alleging delay in payment as a basis for a claim under the Unfair Claims Settlement Practices Act (UCSPA). The court held that the attorney-client privilege between the insurer and counsel retained to defend the insured remained intact despite a claim of bad faith by the claimant. The opinion discusses the various approaches taken by different states, since the Kentucky court had not squarely decided the issue. To a large degree the court relied on Riggs v Schoering, 822 S.W.2d 414 (Ky. 1991), which acknowledged that the discovery requests in such a case implicated attorney-client privilege.