I frequently write here about insurance coverage disputes after Missouri car crashes because insurance coverage is one of the most difficult issues to deal with after an accident. Injured and grieving families don’t need more on their plates, but insurance companies—who make more money when they don’t pay claims—sometimes refuse to cover the costs of accidents or the resulting lawsuits, leaving those families without money they sometimes badly need. In Philadelphia Indemnity Insurance Co. v. Youth Alive Inc., four families who had lost their loved ones sued Youth Alive, a nonprofit serving at-risk youth, over a deadly car crash. YA’s insurer, Philadelphia, refused to defend or indemnify YA, triggering this federal lawsuit and cross-claims. The Sixth Circuit agreed that Philadelphia was liable but found its coverage position was not taken in bad faith.
YA serves at-risk young people in Louisville, Kentucky. In 2008, it used three vans to take teens to an event. At the end of the event, there were more people than there were seats on the buses, so a YA employee asked 16-year-old participant Herbert Lee, who had driven separately, to take four of the teenagers home. Unfortunately, Lee was unlicensed and driving a stolen car. A police officer noticed his erratic driving, ran his plates, found that the car was stolen and attempted to pull him over. He fled the officer and crashed into a tree, killing all four passengers. The estates of all four teens sued for negligence in Kentucky court; YA asked Philadelphia for indemnity and defense under its commercial general and excess liability policies.
Philadelphia sued in federal court for a determination of non-coverage, arguing that the policies did not cover bodily injury arising from vehicles “owned or operated by or loaned to any insured.” “Insured” included volunteer workers and club members, which Philadelphia argued Lee was. YA counterclaimed for bad faith and breach of a Kentucky law by misrepresenting its coverage and failing to settle claims. The district court ultimately decided Philadelphia owed coverage under the general liability policy but not the excess policy, and its coverage position was not taken in bad faith. The underlying cases settled for $1.8 million.
Both parties appealed. Because of the settlement, however, only the bad-faith claim was considered by the Sixth Circuit. YA claims Philadelphia’s policy position was taken in bad faith, causing damages including cessation of operations for a time. Under Kentucky law, bad faith exists when the insurer not only owes coverage, but lacked a reasonable legal basis for denying the claim and knew it or recklessly disregarded it. But when the underlying recovery dispute is a matter of first impression in the courts, the Sixth said, there can be no bad faith. Thus, it agreed with Philadelphia that it had a reasonable legal basis for contesting coverage. It was reasonable for Philadelphia to argue that Lee was a volunteer worker or club member, the court said, even though the district court later found otherwise. There’s no contradictory authority in Kentucky and only sparse authority elsewhere, the court noted. Thus, it affirmed the district court.
Insurance coverage disputes can be dry, but they cover an issue of vital importance to the people in the underlying personal injury lawsuits: whether injured people are going to be able to recover the money they need. This is often not just band-aid money, but money the injured person and his or her family needs to deal with the effects of the crash. For example, the medical bills from a car crash can quickly overwhelm people of ordinary means. Even with insurance, care for a serious injury quickly gets into the thousands. And if the injured person is a wage-earner, he or she may be out of work for weeks during the recovery—which means he or she is not able to earn money during that time. Without those wages, the family can suffer real financial hardship. That’s why many clients come to our offices in St. Louis; they want to pass those costs on to the person whose negligence caused them in the first place.
Carey, Danis & Lowe represents clients across Missouri and southern Illinois who have suffered serious injuries or lost a loved one because of someone else’s bad decision. If you’d like to tell us about your situation and learn more about your options, call us today at 1-877-678-3400 or send us a message through our website.
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