March 2010
Supreme Court
Professional Liability-Attorney-Duty
Branham v. Stewart, 307 S.W.3d 94 (Ky. March 18, 2010)
This case has the potential to be scary on a number of levels. In this case the attorney represented the mother individually, as personal representative of the estate of one son, and as his next friend of the surviving son. The case was settled and the mother was made guardian of the surviving son. The surviving son had sustained a severe brain injury. Years later, the surviving son through his conservator brought suit against the attorney asserting that the money was gone due to a breach in the attorney’s duty to him. In actuality, the holding goes no further than stating that the son was a client. In fact, the opinion goes to some lengths to emphasize that the court did not deal with breach of duty or the issue of when the attorney’s duty ended. Nonetheless, the concept raises numerous questions as to potential exposure in connection with obtaining approval of minor settlements. In fact, this exposure may not be limited to attorneys, and theoretically could extend to insurance carriers who undertake to have a guardian appointed on the half of a minor client. Whomever this duty is extended to, what is the attorney required to do. It has uniformly been believed that compliance with the statutory requirements was sufficient, and that court approval ends the question. It would be easy to see liability imposed if counsel withheld information from the Court which might have been germane in deciding whether to impose a surety, but it is difficult to see how counsel could be required to ask for surety while also representing a party who would have an interest inconsistent with such a request. Furthermore, the Court’s opinion is specifically noted to be retroactive, so it is anybody’s guess as to how much litigation is going to be generated by this decision, all for naught if the court ultimately concludes that counsel has the right to rely on court approval.
Abuse of Process
Sprint Communications Co., LP v. Leggett, 307 S.W.3d 109 (Ky. March 18, 2010)
A telephone company has a limited power to condemn a right of way across private property. Sprint had a facility which it had concluded was about to become inadequate, and it wished to construct an expanded and upgraded facility. It determined that the ideal site was adjoining property owned by Leggett. Sprint’s agent approached Leggett about selling the property, and Leggett advised he would sell for $900,000.00. A counter was made of $200,000.00, accompanied by a statement that if the offer were declined the property would be condemned and Leggett was cautioned about the time and expense that would involve. Leggett’s attorney then inquired as to the legal authority for the threat, and Sprint made no response. Instead, Sprint contacted city officials asking them to condemn the property, but the city declined. Additional offers and counters were made, and Sprint filed suit for condemnation. The trial court dismissed the abuse of process claim concluding that Sprint had used the process to achieve the purpose for which it was intended. The decision was reversed, on the ground that the statute in question could not be read to permit a total condemnation as sought in the complaint, but rather just a right of way could be so obtained. In short, the Court found that Sprint had used the threat of litigation to attempt to obtain a remedy not available to it at law. This seems to be too fine a point. The decision really turns on the lack of probable cause, which in turn implicates the sister tort of malicious prosecution. If the holding is limited to cases in which the scope of the legal right is undisputable, perhaps no harm is done. However, this opinion could be used to convert the abuse of process tort into a hybrid malicious prosecution tort without the requirement of favorable termination.
Insurance - Occurrence
Cincinnati Insurance Company v. Motorists Mutual Insurance Company, 306 S.W.3d 69 (Ky. March 18, 2010)
In this case the Kentucky Court adopted the majority view that construction defects, by themselves, do not constitute an occurrence within the meaning of CGL policy. Even more significant, however, is that the Court was willing to accede that its last effort at a similar analysis in Bituminous Casualty Corporation v. Kenway Contracting, Inc., 240 S.W.3d 633 (Ky. 2007) was incorrect. In that case, a contractor had been engaged to raze a garage. The contractor’s employee instead razed the entire residence. The Court found coverage because the insured contractor did not intend to destroy the house. This case recognizes that an accident devolves around fortuity rather than the mere absence of intent. It also recognizes that the focus is on the person acting, whether an employee or subcontractor, rather then the insured company. This promises to serve as a beacon in CGL coverage issues in Kentucky going forward, a subject scarcely treated in Kentucky decisional law.
Statute of Limitations - Estoppel
Fluke Corp. v. Lemaster, 306 S.W.3d 55 (Ky. March 18, 2010)
Employees of an electrical contractor were called to a coal processing facility to repair an electrical failure. A circuit breaker labeled “MAIN” was disengaged, and one of the employees applied a voltmeter manufactured by Fluke, which showed the absence of electricity at the breaker. All three were injured when an electrical arc blasted through the cabinet of the equipment in question. A federal investigation determined that the voltmeter was in good working order. All three employees filed suit against the owner of the facility alleging negligence. After one of the injured employees was deposed, plaintiffs began to shift blame to Fluke. Plaintiffs consulted with an expert who remembered a recall of other Fluke products. Plaintiffs amended their complaint to add Fluke as a defendant. At some point the employee who had used the voltmeter disclosed that it had been indicating a low battery for four weeks prior to the explosion. The manual instructed the user to replace batteries as soon as the indicator appears to avoid shock or personal injury. The plaintiffs also uncovered an internal memorandum which indicated reported problems with the product series in a low battery situation. After the accident, Fluke was reprimanded by the Consumer Product Safety Commission for failing to disclose defects in another product series. The Kentucky Court declined to recognize estoppel based on an alleged failure to disclose defects to a government agency. The rule may be different if a manufacturer makes affirmatively false statements about the existence of a defect.
Statute of Limitations - Latent Injury Discovery Rule
Fluke Corp. v. Lemaster, 306 S.W.3d 55 (Ky. March 18, 2010)
The latent injury discovery rule is only available where the fact of injury or offending product was not immediately evident or discoverable with the exercise of ordinary care. Where the plaintiffs knew that a voltmeter had shown the absence of power just before an electrical explosion, the offending product was known. The fact that plaintiff’s claimed they did not know it was defective did not implicate the discovery rule since they knew enough to prompt an investigation.
Settlement - Open Records
Central Kentucky News-Journal v. George, 306 S.W.3d 41 (Ky. March 18, 2010)
The Court ruled that settlement agreements involving public entities are subject to disclosure under the Open Records Act and are generally not subject to the privacy exception. The Court left open that certain specific facts may invoke the privacy exception where the public would have little legitimate interest and would likely cause serious personal embarrassment or humiliation, such as the name of a victim of sexual abuse.
Court of Appeals
Insurance - No-Fault - Arising Out of Use
Rawlings v. Interlock Industries, Inc. , ___ S.W.3d ___, 2010 WL1006853 (Ky.App. March 19, 2010), review granted December 8, 2010 (2010-SC-264-D & 2010-SC-352-D & 2010-SC-368-D)
This case makes mush out of the already often confused decisional law relating to the phrase “arising out of the ... use of a motor vehicle”, largely because the opinion seeks to justify a desired result rather than discerning the correct result from existing statutes and case law. While a statute of limitations case, this panel framed the issue as whether the injured person was unloading the vehicle at the time of the accident. The Court reasoned that since the claimant was not unloading, he was using the vehicle at the time of the accident. The Court wholly ignored the fact that unloading is an exception to using, and one cannot conclude that by not falling within the exception the injured person was using the vehicle at the time. More importantly, however, is that the Court focused on the status of the claimant rather then the requirements of the statute of limitations. The two year no-fault statute of limitations applies to “[a]n action for tort liability not abolished by KRS 304.39-060". KRS 304.39-230(6). KRS 304.39-060 is a key statute under the no-fault system, and it creates the threshold for bringing a civil action. In section (2)(a), the statute abolishes all tort liability “... with respect to accidents occurring in this Commonwealth and arising from the ownership, maintenance, or use of a motor vehicle...”. The tort liability not abolished is described as follows: “a plaintiff may recover damages in tort for pain, suffering, mental anguish and inconvenience because of bodily injury, sickness or disease arising out of the ownership, maintenance, operation or use of such motor vehicle“ once the threshold is met. This statute says nothing about the status of the claimant, and is readily seen to focus on the relationship between the accident and the injury instead. Viewed in this light, the accident clearly arose out of the unloading of the truck, by a tortfeasor who was not upon the truck. Accordingly, the accident, did not arise out of the use of the motor vehicle. If the opinion were to stand, then pedestrians would be ineligible for benefits and governed by the statute of limitations, because they by definition are not using a motor vehicle at the time of the accident. Hopefully the Supreme Court will review this or at least declare it to be unpublished, although the high Court has had its own difficulties focusing on the actual language of the statute in the past.
Factual Overview - Legal Malpractice Case
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion for review granted May 19, 2011 (2010-SC-430-DG)
This appeal arose from a substantial verdict which was returned in a legal malpractice case. The plaintiff, Osborne, was a homeowner who was in her home when a private plane crashed into her home on October 22, 2002. Osborne’s first attorney apparently failed to proceed at all, and Osborne retained Keeney. Within two weeks, Keeney had secured a partial payment from the homeowner’s insurer. A complaint was filed on October 22, 2004. After removal to federal court, the complaint was dismissed on the ground that it was not filed within the statute of limitations period. In dismissing the case, the Court also held that Keeney’s failure to cooperate in discovery and comply with the orders of the Court would have independently warranted dismissal. The Complaint alleged, in addition to negligence, intentional destruction of the client’s file and fraud with respect to his services. The total verdict was over $5 million, most of which was punitive damages against the attorney. The Court considered an array of legal issues, and in doing so reversed most of the judgment. This case is no doubt headed higher.
Professional Negligence - Attorney - Need for Expert
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion for review granted May 19, 2011 (2010-SC-430-DG)
The Court held that the failure to file a claim within the applicable statute of limitations required no expert testimony. While that may be true in the Keeney case, it should be limited to situations where there is no legal dispute about the applicability of a particular statute, when the claim accrued, or where there is a question about when the injury was sustained.
Professional Negligence - Attorney - Case Within the Case
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion for review granted May 19, 2011 (2010-SC-430-DG)
The Court reaffirmed the general proposition that a plaintiff in a legal malpractice case must prove that “but for” the attorney negligence plaintiff would have prevailed in the underlying action. The opinion is less than clear as to just what the issue raised was, but it appears that Keeney argued he was entitled to a “complete and separate” trial as to the underlying case, and this concept was rejected. The opinion contains other language, however, suggesting that the burden of proving the underlying case is different in the malpractice case than it would have been in the underlying case. There is also loose language which could be read to suggest that the loss of opportunity is the injury. We suspect that plaintiffs will cite the case for such propositions. The case should be read as holding that plaintiff presented sufficient evidence of negligence on the part of the pilot regardless of the context, and there is no indication that the panel intended to allow a claim for loss of chance.
Professional Negligence - Attorney - Jury Instructions
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion for review granted May 19, 2011 (2010-SC-430-DG)
The opinion rejects Keeney’s assertion that the jury should have been instructed “to specifically find liability on the part of the pilot”. The opinion does not advise as to what instructions were given or requested, so the reader is left to guess as to the nature of the dispute. The opinion merely says that the instruction given conformed with instructions given in Daugherty v. Runner, 581 S.W.2d 12 (Ky.App. 1978) and Equitania Ins. Co. v. Slone & Garrett, P.S.C., 191 S.W.3d 552 (Ky. 2006). The latter case involved no issue of causation, but both appear to approve of causation being dealt with using a simply “a substantial factor” instruction. This may be sufficient in a number of types of cases. For example, where the underlying case was tried, that jury may have been instructed and those instructions can advise the jury as to the standard by which they should judge the underlying case. Or, the underlying case may turn on a purely factual issue, i.e., which side had the green light. But in this case, the phrase “a substantial factor” gives the jury no guidance as to the law of the underlying case, and thus the only standard they would have to apply would be “what sounds fair?” Depending on what jury instructions were requested, this may be an issue which could catch the attention of the Supreme Court.
Professional Negligence - Recovery of Emotional Distress
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion for review granted May 19, 2011 (2010-SC-430-DG)
The Court clarified that the impact rule precludes recovery for emotional distress in most professional liability cases other than medical, since these claims usually do not involve any physical contact or injury. This is true even if the theory advanced is fraud, as fraud permits recovery for pecuniary loss only.
Professional Negligence - Punitive Damages
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion for review granted May 19, 2011 (2010-SC-430-DG)
It is not so clear what lessons can be drawn from this opinion as to punitive damages in a case of this type. The Court did not address the issue of whether a legal malpractice claim was premised in contract or tort, except to note that in a contract action punitive damages can be recovered if the breach is accompanied by a separate tort. In this case, there were allegations of fraud, but it does not appear that this Court was drawing such a fine line. In recent years, the Court and bar have had increasing difficulty in distinguishing between tort and contract, and we place the blame on the ill advised move toward allowance of “bad faith” breach of contract claims against insurers.
Professional Negligence - Recovery for Punitive Damages in Underlying Case
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion for review granted May 19, 2011 (2010-SC-430-DG)
The Court dodged the issue of whether a plaintiff in a legal malpractice case can recover for punitive damages that could have been recovered in the underlying action. The Court noted a split in foreign jurisdictions that have considered the question, but made it clear that this panel felt that they would be recoverable. The Court does point out that KRS 411.165(1), which “creates” liability on the part of an attorney, uses the phrase “all damages”. The Court could consider that phrase to include punitive damages, or could read it as meaning compensatory only.
Damages - Personal Property
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion for review granted May 19, 2011 (2010-SC-430-DG)
In the underlying case, Osborne had claimed damages for personal property which had not been paid by her homeowners coverage. She had submitted an inventory claiming a value of $141,023.65, while the insurer paid $83,127.36. The opinion does not say why the items were not covered or paid, but the numbers suggest a reason other than the policy limits. The jury awarded $54,924.04, while the difference between her insurance claim and amount paid was $57,896.29. Keeney argued that the values established by Osborne were replacement value, while the measure of damages was actually fair market value. The Court held that in cases involving loss of household goods and wearing apparel, the concept of fair market value is not applicable and instead the measure should be the value to the individual. The panel did not address the rather obvious fact that the “value to the owner” measure is also different than replacement value.
Duty - Impact Rule
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion for review granted May 19, 2011 (2010-SC-430-DG)
Ms. Osborne was sitting in her living room at the time the plane struck her home, but it was undisputed that she was not struck by the impact. The Court vacated the $500,000 award for mental pain and suffering because she had admitted that she suffered no physical injury and nothing associated with the crash touched her.
Punitive Damages - Sufficiency of Evidence
Keeney v. Osborne , ___ S.W.3d ___, 2010 WL 743671 (Ky.App. March 5, 2010), motion filed July 1, 2010 (2010-SC-430-D)
The Court held that the facts of the underlying case would not have supported a punitive damages claim against the pilot. Unfortunately, this panel did not explain why they thought the proof insufficient, but just concluded that they thought it lacking. In an area desperately lacking in meaningful guidance, this is disappointing. It appears that the Court concluded that there needed to be something directed to the plaintiff more than just the original negligence, which would be consistent with our view. The pilot should not have decided to fly after having difficulty starting the engine and causing a fire in the process of trying. But that created a risk of injury. It did not make injury nearly certain or otherwise suggest a wilful disregard of anyone’s safety.
Sixth Circuit Court of Appeals
Statute of Limitations - Latent Injury Discovery Rule
Asher v. Unarco Material Handling, Inc., --- F.3d --- (6th Cir. March 3, 2010)
A number of Walmart employees were exposed to carbon monoxide gas due to the negligent operation of propane welders inside the company’s distribution center. A group of Walmart employees filed suit within one-year of the last carbon monoxide exposure. A second group of Walmart employees were added by amendment more than a year after the last exposure. After rejecting an argument that the amendment related back under rule 15, the Court addressed the application of the Kentucky discovery rule. The rule in question is the latent injury rule which to date has been applied only to product cases involving products such as asbestos. The plaintiffs in this case, however, had immediate symptoms which grew worse with time. The Court held that the claim that the workers erroneously attributed their symptoms to influenza was not material since that did not make the injury “inherently unknowable”.
Unpublished But Interesting
Insurance - Personal Injury Liability Coverage
Sonitrol of Lexington, Inc. v. General Star Indemnity Co. , 2010 WL 743785 (Ky.App. March 5, 2010)
Sonitrol was sued in Texas by a franchisee alleging interference with contract, misappropriation of trade secrets, interference with prospective business advantage and trade disparagement. Sonitrol declined a defense under a reservation of rights, and after settling the case sued in Kentucky alleging coverage and the cost of defense. Its policy with Star General provided for personal injury coverage, but advertising liability coverage had not been purchased by Sonitrol. Personal Injury was defined as “mental injury, anguish or shock which arises out of ...” enumerated torts. The Court noted that had advertising liability coverage been purchased Sonitrol would have had coverage, and it was unwilling to extend the existing coverage under those circumstances. Secondly, the claims asserted by a corporation did not involve “mental injury, anguish or shock.” The Court affirmed the trial Court’s finding of no coverage.
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