Federal Court In Kentucky Refuses to Allow Insurer to Assert Reverse Bad Faith Claim

This week the United States Sixth Circuit Court of Appeals declined to allow State Auto Property & Casualty Co. to assert a reverse bad faith claim against a policyholder who admitted to submitting a fraudulent insurance claim after conspiring to burn her own house down. The federal appellate court concluded that Kentucky law does not recognize an action by an insurer against an insured for reverse bad faith.

Fortunetly for insurers, many other states and jurisdiction (such as Pennsylvania for example) do recognize a reverse bad faith cause of action action, which allow insurers to recover their costs and expenses, including attorney fees if successful. As such, in cases of clear fraud by an insured, insurers should check the local juridiction’s applicable law concerning reverse bad faith.