Unlike many other jurisdictions, under Kansas law, an aggrieved insured cannot file a lawsuit against its insurer for “bad faith” as it is not a recognized tort in first-party claims.1 Note that Kansas still recognizes “bad faith” in the third-party context.2
In eliminating “bad faith” in first-party lawsuits, the Kansas Supreme Court differentiated the first and third-party contexts:
In third party claims, the absolute control of the trial and settlement is in the hands of the insurer. That control gives rise to a fiduciary relationship between the insurer and its insured. In first party claims the insurer is not in a position to expose the insured to a judgment in excess of policy limits through its unreasonable refusal to settle a case nor is the insurer in exclusive control of the defense. Although an insurer must make a good faith attempt to settle claims (K.S.A. 40-2404(9)(f)), the insured and insurer in a first party relationship have an adversary relationship, rather than a fiduciary relationship.3
In further justifying its reasoning that “bad faith” should not be actionable in first-party claims, the Court pointed out other avenues that an aggrieved insured had, including statutory remedies:
K.S.A. 40-219 provides an insurance company may be enjoined from doing any business in this state if it fails to pay a loss within three months after final judgment. The injunction against doing business shall continue until the judgment is fully paid. K.S.A. 40-254 provides any person may be fined $500 and/or imprisoned six months for violation of the act.
The Court also pointed out the potential imposition of attorney’s fees:
K.S.A. 40-256 provides the insurance company must pay attorneys’ fees for an insured who obtains a judgment against it where the company refused to pay the full amount of loss without just cause or excuse. K.S.A. 40-908 provides attorneys’ fees may be recovered by a plaintiff where judgment is rendered against a company on a policy insuring property against certain losses.4
After going through its analysis the Court ultimately found that a cause of action in the first-party context for “bad faith” was not necessary in light of an insureds’ other options, finding that,
We are of the opinion the legislature has intended to provide a remedy for an insured who has problems with his insurance company. He can maintain an action on the contract for his policy benefits, with costs, interest and attorneys’ fees under arbitrary circumstances. He may also report the company to the Department of Insurance under the Uniform Trade Practices Act for improper handling of claims pursuant to K.S.A. 40-2404(9). The company’s actions are reviewable by the department and punishable if found improper. The legislature has provided several remedies for an aggrieved insured and has dealt with the question of good faith first party claims. Statutory law does not indicate the legislature intended damages for emotional suffering to be recoverable by an aggrieved insured through a tort of bad faith. Where the legislature has provided such detailed and effective remedies, we find it undesirable for us to expand those remedies by judicial decree.
We hold the tort of bad faith is not recognized in Kansas.5
So, what can an insured do who feels like he has suffered bad faith at the hands of his insurance company in Kansas? An insured may bring an action against their carrier for breach of contract, an insured may bring action against their carrier under certain circumstances for attorney’s fees under K.S.A. 40-256 and K.S.A. 40-908. Further, an aggrieved insured may also take up grievances in a set of proceedings before the insurance commissioner for violations of the Uniform Trade Practices Act. However, unlike many other jurisdictions, there is not a private right of action recognized for these types of carrier violations.6
And insureds should keep in mind that under Kansas law, actions for good faith and fair dealing are still viable, so long as they are brought as part of a breach of contract claim.7 However, in pleading that your insurance company violated the duty (or covenant) of good faith and fair dealing, it is important to point out that the insurance company violated an express term of the contract.8
1 See Spencer v. Aetna Life & Cas. Ins. Co., 227 Kan. 914, 611 P.2d 149 (1980).
3 Id. at 922.
4 Id. at 922-923. (Additional citations omitted).
5 Id. at 926
6 See Jahnke v. Blue Cross & Blue Shield of Kansas, Inc., 51 Kan. App. 2d 678, 678, 353 P.3d 455, 457 (2015)(The absence of a private right of action defeats the court’s subject matter jurisdiction), see also, Spencer, at 925-926.
7 See Waste Connections of Kansas, Inc. v. Ritchie Corp., 296 Kan. 943, 298 P.3d 250 (2013).
8 See, e.g., Moore v. The Climate Corp., 2016 WL 4527991, at *8 (D. Kan. Aug. 30, 2016)(Finding that in order to assert a claim for breach of a duty of good faith and fair dealing under Kansas law, a plaintiff must plead a claim for breach of contract and point to a term in the contract that the defendant allegedly violated by failing to act in good faith).