So here’s an interesting question I’ve recently run into from the wild world of insurance coverage: can an insurer intervene into a tort action in which it is defending its insured (under ROR, obviously) to have the insurance coverage issues it has raised determined within the tort action? And to be more specific about the insurer’s objective, the aim is to influence the substance of the jury instructions (whether by the number of interrogatories or the wording of the instructions or interrogatories) in a way that will allow the insurer to read to jury verdict and determine whether it has any duty to indemnify, should liability be found.
My answer to this is no, an insurer cannot do this. The question is teed up before a circuit court judge in Kentucky state court, and we will see if the court agrees with me.
The insurer moved to intervene (seeking both intervention of right and permissive intervention under Rule 24) and proposed the filing of a multi-count intervening complaint, raising every coverage issue under the insuring agreements of its policy and every potentially applicable exclusion. Its argument was pretty basic – we can instruct the jury on issues that would determine coverage and have them answer interrogatories that will remove doubt as to whether our duty to indemnify the insured is in fact triggered. What’s not to love?
Well, if you’re the insured, there is a lot to not love about this. No tort defendant wants to give the plaintiff more bites at the apple with jury interrogatories that serve no purpose in the underlying case but to determine coverage. You’re asking the jury to consider – again – whether to impose liability on the insured. Why do that, ever? Or, stated another way, no defendant wants to give the jury another chance to get confused about some arcane legal point and impose liability under some instruction and interrogatory that isn’t really necessary.
Having a knee-jerk reaction against something (no matter how well-founded that knee jerk may be) doesn’t always equate to a reason for a court to rule a certain way. After all, on the other side of the ledger from my opposition to intervention here is judicial economy. To (over-) generalize, if courts love nothing else, they love judicial economy.
Luckily for me, there is a case with a decent progeny out of the United States Second Circuit Court of Appeals that faced this exact issue and denied intervention.
In Restor-A-Dent Dental Laboratories, Inc. v. Certified Alloy Products, Inc., 725 F.2d 871 (2d Cir. 1984), the court rejected intervention of an insurer that sought to intervene for the purpose of submitting additional interrogatories to the jury in the event of a verdict for the plaintiff so as to inform the insurer of what portions of the verdict might or might not be covered. Id. at 872-873. The court explained that the insurer did not have an “interest” in the litigation in the sense of Rule 24. The insurer’s interest in the action was contingent in two respects – first, on a verdict in favor of the plaintiff; and second, on the still unresolved issue of whether the insurer was or was not obligated to cover certain losses. Id.
While Kentucky’s appellate courts have not addressed this question, Kentucky law is consistent with Restor-A-Dent insofar as it requires for intervention that parties seeking intervention have a sufficiently direct and non-contingent interest to advance in the subject litigation. Gayner v. Packaging Service Corp., Ky.App., 636 S.W.2d 658, 660 (1982) (“CR 24.01(b), like its federal counterpart, Fed.R.Civ.P. 24, does not permit a contingent interest […] to be placed in issue by intervention.”). Under this logic, an insurer does not have an "interest" to assert, and cannot intervene of right.
Moreover, when it comes to permissive intervention, this logic – according to some federal courts – also compels denial of intervention on the basis that tort liability and disputed insurance coverage to not have a common question of law or fact. See, e.g., Liberty Mut. Ins. Co. v. Treesdale, Inc., 419 F.3d 216, 228 (3d Cir. 2005) (“[w]here a proposed intervenor has only a contingent financial interest in a declaratory judgment action to establish insurance coverage, he/she can not [sic] accurately claim that there are common questions of law or fact between the coverage dispute and actions to determine liability for injuries [the insured] may have caused.”).
Also, at least in Kentucky, intervention of an insurer into a tort action raises several thorny issues prejudicial to the existing parties that an experienced trial judge will likely recognize.
First, if an insurer is claiming it should be allowed to intervene, it is implicitly acknowledging that its interests and the interests of its insured are not aligned. To intervene would therefore compromise the insurer’s duty to “exercise the utmost good faith” when dealing with its insured. James Graham Brown Foundation, Inc., 814 S.W.2d at 280. An insurer cannot discharge this duty of good faith while it undercuts its insured’s position at the trial of the (potentially? arguably? likely?) covered claims.
Second, the intervention of an insurer sets up a clash of principles of Kentucky law. The first principle is that “[l]iability insurance should not be interjected needlessly into the trial of a negligence case.” See Wittmer v. Jones, Ky., 864 S.W.2d 885, 891 (1993). The second principle is that a party cannot participate in a case and then conceal its identity at trial. Williamson v. Schneider, Ky.App., 205 S.W.3d 224, 228-229 (2006). An intervening insurer – even if just participating in the formulation of jury instructions and interrogatories – is participating in the trial. And so, Kentucky law would dictate that the insurer would be identified at trial, even though insurance shouldn’t be introduced into the trial (except in certain specific situations such as UIM claims or PIP claims). Rather than bang one’s head against the wall trying to square this circle, the better path (I argued) is to deny intervention and leave the insurer to file a declaratory judgment action.
Speaking of which…
There’s another argument to be made that is analogous to what those with a fear of flying use to justify their phobia (i.e., “if God intended that man would fly, he would have given us wings”). That is, Kentucky has answered the question of what an insurer can do when it challenges coverage under the policy. In view of its duty of good faith toward its insured, the Kentucky Supreme Court has instructed that the insurer can defend the claim while preserving by a reservation of rights letter its right to challenge the coverage at a later date, or just roll the dice and risk being found liable “for ‘all damages naturally flowing from’ the failure to provide a defense.” Aetna Cas. & Sur. Co. v. Commonwealth, Ky., 179 S.W.3d 830, 841 (2005). An insurer can file a declaratory judgment action to have coverage determined. Ind. Ins. Co. v. Demetre, Ky., 527 S.W.3d 12, 27 (2017) (noting that raising a coverage issue and filing a declaratory judgment claim are actions an insured is legally entitled to take). What no Kentucky court has ever endorsed is allowing an insurer to intervene and interject questions of coverage into the tort action. Thus, if the Kentucky Supreme Court had intended for insurers to intervene in tort actions, it would have listed this as a permissible path forward for challenging coverage.
While I can’t claim to have seen everything in my career litigating coverage disputes, I haven’t seen an insurer try to intervene at trial like this before. And there are a lot of reasons why. One of the issues I did not address above was how ill-fitting the notion of intervening is at a fundamental level. A judge will be deciding the coverage issues, not a jury – at least for the most part. Should a fact dispute make it to the jury, it would be totally divorced from the tort fact questions presented. Nonetheless, it is an interesting move by this insurer. And it will be interesting to see how the court resolves it. I will post again when the court rules.