AIA Praises Ky. Supreme Court Decision on Workers’ Comp Exclusive Remedy Doctrine

January 31, 2003

The Kentucky Supreme Court, overturning a lower court ruling, voted 4 to 3 to maintain the longstanding exclusive remedy doctrine underpinning the state’s workers’ compensation system. The court’s decision in Reker v. Travelers Indemnity Company brought immediate praise from the American Insurance Association (AIA), which had filed an amicus brief in the case.

“This important decision reinforces the ‘exclusive remedy’ shield, which prohibits tort damages against an employer and the insurer if the employer purchases a workers’ compensation insurance policy,” said Ed O’Daniel, AIA Kentucky counsel. “If allowed to stand, the lower court’s radical restructuring of the longstanding ‘rule of exclusivity’ would have impaired the effectiveness of Kentucky’s workers’ compensation system and added exorbitant costs for all parties.”

Specifically, the court ruled that a workers’ compensation claimant cannot bring a civil action in circuit court for “bad faith” when an insurance company refuses to settle an injury claim. The injured employee, Reker, filed a lawsuit alleging bad faith against the insurer after a dispute over the insurer’s payment of various medical bills. The Supreme Court reversed the Court of Appeals, which had held that a 1996 law passed by the General Assembly authorized a civil cause of action against an insurer for unfair claims settlement practices.

The Court thoroughly discussed the enactment of the 1996 law, which directed the commissioner to impose fines on insurers who engage in unfair claims settlement practices. The 1996 General Assembly specifically rejected amendments that would have authorized a private civil action for “bad faith” damages against an insurer – proof enough, said the court, of a legislative intent not to authorize a private right of recovery. The statutory language in the 1996 law authorizes only administrative remedies, not a private cause of action for “bad faith” violations.

The majority opinion, authored by Justice William Cooper, noted that “the statutory scheme of the Workers’ Compensation Act contains other interrelated provisions that provide civil remedies for an employee who is injured by an employer’s ‘bad faith’ refusal to settle or to make payments when due.” Additionally, an insurer is subject to penalties imposed by the Commissioner of Workers’ Claims for bad faith in the payment of benefits. The court concluded that the specific workers’ compensation provisions on exclusive remedy prevail over other general statutes which address civil remedies.

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