State Farm Mutual Automobile Insurance Company v. Reeder

Reeder (plaintiff) lived next door to the Hampton family and shared a driveway with them. One of the Hamptons’ children accidentally drove into a carport on the shared driveway during a visit, causing damage to the roof of Reeder’s home and demolishing the carport, along with a boat and ladder that were stored underneath. The Hamptons were insured through State Farm Mutual Automobile Insurance Company (defendant) and immediately notified State Farm of Reeder’s damages. State Farm obtained an $8,471 estimate for Reeder’s repairs, which was $5,000 less than the lowest bid that Reeder obtained. Reeder rejected State Farm’s ultimate offer of $8,961 and filed suit against the insurer, requesting the costs of his repairs and attorney fees. Of Reeder’s claimed damages, $8,471.14 was undisputed by State Farm. Reeder also requested $250,000 from State Farm for violation of the state’s unfair-claims-settlement practices statute, claiming that State Farm violated the statute by acting in bad faith in adjusting his claim. The trial court dismissed Reeder’s unfair-practice claim. However, following a trial on the rest of Reeder’s allegations, a jury awarded Reeder $11,000. Both parties appealed. Reeder renewed his argument that State Farm violated the state’s unfair-claims-settlement act, although the act did not specifically create a private cause of action for third-party claimants against insurers. State Farm argued that the statute did not create any individual cause of action; rather, the statute only gives the insurance commissioner a right to regulate insurance settlements. A court of appeals reversed the trial court’s judgment, holding that the statute created a private right of action against an insurance company by third-party claimants. However, the court affirmed the lower court’s denial of prejudgment interest because it was based on unliquidated damages. Both parties appealed to the Kentucky Supreme Court.