Kentucky Court of Appeals
Damages - Property Damage
Mountain Water District v. Smith, 314 S.W.3d 312 (Ky. May 21, 2010)

While Mountain Water was constructing a sewer system a pipe from the previous system was broken causing a sewage back up on the Smith’s property. There was some indication that a remedy would require work to be done on property over which the Smiths had no control. The Smith’s offered evidence as to the diminution of the value of the Smith’s property. Neither side offered proof as to the cost of repair, and Mountain Water argued that the absence of such proof was fatal to the claim. The Court held that proof of cost of repair was not essential where the claim is based on difference of fair market value. The Court agreed that if cost of repair was less that loss of value, then the cost of repair would control (assuming repairs made the property complete). The effect is that once a plaintiff offers proof of a loss in value, the burden shifts to the defendant to show that the cost of repair is less.

Kentucky Supreme Court
Insurance - UIM - Coots Notice and Waiver
Kentucky Farm Bureau Mutual Insurance Company v. Young, 317 S.W.3d 43 (Ky. May 20, 2010)

The state’s high Court has now addressed some of the issues that have been developing in the Court of Appeals dealing with the sufficiency of a Coots notice as required by KRS 304.39-320(3). Young was driving his automobile which was insured by Kentucky Farm Bureau [KFB] when it was struck by a tractor trailer, injuring Young and two passengers. The driver of the tractor trailer settled by paying policy limits. Young’s attorney sent a letter advising that pursuant to a tentative settlement, Young was to receive $100,000.00 and that the letter was formal Coots notice. KFB had received a letter from another attorney indicating that Young’s share of the settlement was $75,000.00. The KFB adjustor sent Young’s attorney a letter seeking clarification as to the amount of the settlement and suggesting that KFB will likely be advancing the settlement amounts. KFB received a response just three days prior to the deadline which provided a copy of the tortfeasor’s declarations page but did not clarify the amount of the Young settlement.

A month later, Young’s attorney made a claim under KFB’s UIM coverage and for the first time advised KFB of the correct amount of Young’s settlement which was $72,900.00. Apparently, Young’s share was initially $75,000.00 but was reduced to accommodate one of the passengers. Further, Young had executed a full release in favor of the tortfeasor, thus foreclosing any subrogation rights by KFB. The Court held that the Coots notice was insufficient and thus Young had waived his rights to an UIM claim. The Court’s decision is predicated on the purpose of a Coots notice and the language of KRS 304.39-320(3). Both require that the UIM insurer be informed of the settlement amount. The Court observed that a notice that informs of the fact of settlement without advising of the amount does not permit the UIM carrier to make a decision as to whether it wishes to preserve its subrogation rights. The Court cautioned that this requirement is not to become a technicality to be used to avoid coverage, and where, as here, the UIM carrier had reason to doubt the amount the carrier had a duty to seek clarification.

The question then remains, what is the effect of an incorrect settlement amount which is not known to be incorrect at the time the Coots decision is made by the UIM carrier? The opinion as written would suggest that a waiver of UIM would be the result. However, it would not be surprising to see a requirement of prejudice to evolve. There will come a case where the discrepancy is minor, and the Kentucky Court has not historically been strong on rule enforcement and tends to be anti-insurance. Once an exception is created, it will no doubt grow until it effectively swallows the rule. One final observation is in order. The initial settlement was tentative, and the Court did not directly address whether this was a problem. The amount subsequently changed. The Court did say that the “correct” amount would be the amount at the time of the letter, but did not comment on whether the letter was premature. This issue is in the pipeline and should be addressed before too long, but in the interim it would behoove plaintiff’s counsel to delay sending a Coots letter until the terms of the settlement are final.

Kentucky Court of Appeals
Insurance - No-Fault - Uninsured Occupying and Insured Vehicle
Stewart v. Elco Administrative Services, Inc., 313 S.W.3d 117 (Ky.App. May 14, 2010)

The claimant was injured while occupying a rental car, and made a claim against the rental company for basic reparation benefits. The trial Court denied the benefits claim, on the ground that the claimant owned a vehicle which was uninsured. The Court of Appeals reversed. Where a claimant is injured while operating his own vehicle and he failed to comply with the no-fault act and procure insurance, public policy precludes the claimant from taking advantage of the Act. But that does not mean he has generally waived or rejected no-fault, and here he was occupying an insured vehicle at the time he was injured, and accordingly was entitled to benefits.

Kentucky Court of Appeals - Unpublished
Negligent Misrepresentation - Certificates of Insurance
Western Leasing, Inc. v. Acordia of Kentucky, Inc., 2010 WL1006853 (Ky.App. May 7, 2010), ordered depublished March 29, 2011 (2010-SC-380-D)

It is no surprise that the Court determined that an agent could be liable for negligent misrepresentation if he makes false statements about coverage, but a certificate of insurance raises special issues. Usually, a certificate of insurance specifically states that it is for informational purposes only and cannot change the coverage actually provided. Given that type of disclaimer, the question is presented whether one could justifiably rely on such a certificate. The Court held that a certificate holder could so rely, but only as to affirmative misstatement about coverage. In other words, if the certificate states that the holder is additional insured but the holder is not, liability may follow. However, the failure to advise that the coverage is subject to exclusions is not actionable. The opinion also reinforces that a broker who procures insurance with various insurers is the agent of the insured, not the company. Thus, this type of negligence should not be imputable to the company and cannot work on estoppel so as to alter coverage.

Kentucky Court of Appeals - Unpublished
Insurance - Bad Faith - Not Applicable to Insurance Broker
Western Leasing, Inc. v. Acordia of Kentucky, Inc., 2010 WL1006853 (Ky.App. May 7, 2010), ordered depublished March 29, 2011 (2010-SC-380-D)

The Court held that an insurance broker is not covered by the Unfair Claims Settlement Practices Act, and thus cannot be sued for bad faith. The Court came close to limiting the Act to insurance companies, but probably left sufficient room for this type of a claim to be a threat to third party administrators and others acting as agents of an insurer in the handling of claims.

Kentucky Court of Appeals
Wrongful Death - Earning Capacity
Aull v. Houston, 345 S.W.3d 232, 2010 WL1814839 (Ky.App. May 7, 2010)

This was a medical malpractice case seeking recovery for damages allegedly arising from immunizations. The pediatric patient had been diagnosed with Leigh’s disease, for which there was no definitive treatment and generally results in death at an early age. The patient dies at age five. Generally, Kentucky presumes that a child has the capacity to earn money in the future, and the absence of an earning history is no bar to recovery. The Court in this case held that there could be no recovery since his disability was so profound that he was unable to earn money in the future.

Kentucky Court of Appeals
Wrongful Death - Social Security Disability Benefits
Aull v. Houston, 345 S.W.3d 232, 2010 WL1814839 (Ky.App. May 7, 2010)

This Court held that social security disability benefits that might have been paid by the state or federal government are not to be considered as earnings for purposes of determining loss in a death case. This is likely to be reviewed by the Supreme Court, but perhaps this issue will be finally decided soon. In the meantime, this case is helpful to the defense and should extrapolate into social security retirement benefits as well.