Kentucky Court of Appeals
Governmental Liability – Qualified Immunity
Lawrence v George, 2012 WL 2470985 (Ky.App. June 29, 2012), motion for discretionary review denied February 13, 2013, opinion ordered de-published

The plaintiff’s decedent was killed in a collision with a vehicle being operated by a parolee who had absconded. The defendant was the parolee’s parole officer. The plaintiff argued that the defendant should have taken additional steps to have supervised and arrested the parolee. The Court held that defendant properly exercised his discretionary duties associated with the failure of the parolee to report, and was therefore protected from suit by the qualified immunity.

Sixth Circuit Court of Appeals
Professional Liability – Attorneys – Securities Fraud
Bennett v Durham, 683 F.3d 734, 2012 WL 2428598 (6th Cir. June 28, 2012)

The Court held that an attorney providing traditional legal services was not subject to liability for securities fraud under Kentucky’s Blue Sky laws, finding the state law to be the same as federal. In this case the attorney represented the seller of the securities. He drafted the necessary documents, including the joint venture agreements and private placement memoranda. He also told potential investors that he was available to answer questions about the ventures. The Court readily concluded that he was not a seller or offerer of securities. By the same token, the Court held that the mere fact that the company’s officers and directors relied on the attorney did not make the attorney a statutory officer or director. Lastly, the plaintiffs argued that the attorney was an agent, defined as a person “other than a broker-dealer who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities.” Emphasizing the use of the word “effect”, the Court held that the statute envisions sales persons or placement agents. While it is true that there may be a causal relationship between the work of the attorney and the sale, the statute requires more. In order to come within the statute the attorney must actively try to sell the securities. The Court cautioned that this holding would not impact the ability to bring a common law fraud claim if the attorney knowingly drafted fraudulent documents, etc.

Sixth Circuit Court of Appeals
Insurance - Cancer Policy - Actual Charges
Pedicini v Life Insurance Company of Alabama, 682 F.3d 522, 2012 WL 2345215 (6th Cir. June 21, 2012)

This case invovled a dispute between insurer and insured under a supplemental cancer policy. The benefits payable were defined by the term "actual charges." The insured argued that the term represented the amount actually billed by the provider, while the insurer argued that the phrase referred to the amount actually paid to the provider. The Court ruled that the term was ambiguous, and thus the term was construed in the manner most favorable to the insured.

In a vacuum, the Court's conclusion might seem obvious. But in this case, prior policies described the benefit as "usual and customary charges made." The new term appeared after a new policy was negotiated, in which benefits were capped and premium was reduced. The old term clearly referred to the amount charged, so the Court in effect ruled that the language change meant nothing. In this context, it does not appear that such a construction is reasonable, and accordingly the newer term is not ambiguous at all. Undoubtedly, in the future the insustry will tighten the language further and this issue will become moot. But the opinion does reinforce the peculiar fact that the courts, state and federal, are oblivious to the modern health care billing and pricing system, acting as though nothing has changed since the 1960s when a doctore sent a bill and the patient paid it.

Sixth Circuit Court of Appeals
Insurance - Bad Faith
Pedicini v Life Insurance Company of Alabama, 682 F.3d 522, 2012 WL 2345215 (6th Cir. June 21, 2012)

Having decided that the term "actual charges." was ambiguous as used to define benefits due under a cancer policy, the Court went on to consider whether the insurer was in bad faith for declining to pay the full amount due. On the surface, the opinion appears to stand for the proposition that where a provision is ambiguous it is bad faith for the insured to contest the claim. As noted in connection with teh breach of contract claim, it seems at least arguable that in the context of this case it was debateable that the provision was not actually ambiguous. Courts need, but are unlikley, to be wary of the hubris that leads to the conclusion that what is clear to a panel of judges is not necessarily clear to the lesser lights who actually toil in the insurance fields on a day to day basis. This panel gave no thought to how this provision might have appeared to the insurance professional, or for that matter defense counsel.

But if it assumed that the term was clearly ambiguous, and therefore the insurer knew that it would be construed against it, this would still only constitute a failure to pay, or breach of contract. While the Court cites, as state court's continue to do as well, the three prong test from Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993), which is premised on the definition of conduct that would support punitve damages at that time. That standard, however, was changed in 1988 with the enactment of KRS 411.184 & .186, and this change is reflected in later holdings of the Kentucky Court that more then a failure to pay must be shown. While the Court has held the statute to be unconstitutional in the context of neglgience cases based on the jural rights doctrine, that doctrine does not apply to a cause of action such as bad faith because it is of recent vintage. Perhaps for this reason, the opinion suggests that the bad faith was the change in the policy without explaning its significance to insureds, implying that a fraud was committed. This ignores the fact that the insured received a policy which had the language change in it. Of course, the Court did not hold that bad faith was committed, but only that summary judgment was improper.

Kentucky Supreme Court
Animals – Landlord Liability for Tenant’s Dog’s Bite
Benningfield v Zinsmeister, 367 S.W.3d 561, 2012 WL 2361778 (Ky. June 21, 2012)

The Court reversed existing law and held that a landlord who permits a tenant to possess a dog is strictly liable if it bites someone on or about the premises. An owner of a dog is strictly liable under KRS 258.235(4). At the heart of the decision is KRS 258.095(5), which defines owner as “every person having a right of property in the dog and every person who keeps or harbors the dog, or has it in his care, or permits it to remain on or about premises owned or occupied by him ...." While the opinion follows a convoluted path to distinguish the prior case, it could have just overruled it and the language of the statute clearly extends owner status to a landlord that has given permission for a dog to be kept by a tenant.

In what might have been a clue that the legislature did not intend liability to be extended to landlords (who have no control over the animal), the Court observed that a literal reading of the statute as applied would lead to absurd consequences, such as landlord liability for a tenant dog that had been taken on vacation, left in a kennel, etc. So instead the Court rewrote the statute, limiting the landlord’s status to what it called the scope of permission. We don’t really know what “on or about” the premises will end up meaning. All we really know is that the Court held in this case that an attack which occurred across the street was not on or about the leased premises.

Kentucky Supreme Court
Intentional Infliction of Emotional Distress
Childers v Geile, 367 S.W.3d 576, 2012 WL 2361782 (Ky. June 21, 2012)

The plaintiff was erroneously advised in the emergency room that she had suffered a miscarriage, which she claimed cause extreme emotional distress. As part of the misdiagnosis, the plaintiff took medication which would be contraindicated in the case of a live baby. When she was examined by her obstetrician, an ultrasound showed a live fifteen week old baby in breech position. Due to the contractions caused by the medication, the baby was delivered five days later but was unable to survive.

What is quite odd is that plaintiff initially filed an action for negligence and intentional infliction of emotional distress, but plaintiff’s dismissed the negligence claim. The most likely reason would be that the complaint was filed after the one-year limitations applied, but an partial settlement could also explain the anomaly. In any event, the Court held that if there was a claim it was covered by the tort of negligence, and thus intentional infliction of emotional distress could not lie. There are a number of other reasons it would not apply, but the issue was framed to isolated the one decided.

Perhaps the most significant aspect of the opinion that it reinforces the rather silly fiction that the tort is not for personal injury, but is based on the right to be left alone. There is no right, and emotional distress, where recoverable, is a personal injury in all other contexts. The fiction was invented by Justice Liebson in 1984 to avoid the clearly applicable one-year statute of limitations, and needs to be discarded. A recent opinion reinforcing it only makes a consistent application of statutes of limitation less likely to occur.

Kentucky Court of Appeals - Unpublished
Premises Liability – Open and Obvious Conditions
Smith v Grubb, 2012 WL 2160192 (Ky.App. June 15, 2012), petition for rehearing denied August 13, 2012, motion for discretionary review granted September 12, 2012 (2012-SC-573-D), vacated and remanded

This Clay county slip and fall case concerned an eroded area in the pavement near a drain, which the court thought could be properly called a pothole since it was the product of gradual erosion over time. The injuries were allegedly a broken ankle, a knee injury and burns from her hot beverage. After a bench trial before Judge House (Yancy White was the plaintiff’s attorney) and standard Clay county award, the appeal was brought. Unfortunately, the Court did not reach the most interesting issues concerning Judge House’s admission in federal court proceedings that he had participated in a vote buying scheme and Mr. White’s role in the scheme.

First, and these days very important, the Court recognized that with respect to an open and obvious condition no duty is owed to the invitee. The Court then proceeded to muddle this key point by referring to comparative fault (which has nothing to do with duty) and suggesting that the Supreme Court decision in Kentucky River Medical Center v. McIntosh, 319 S.W.3d 385 (Ky. 2010) was a change in the law. The Court of Appeals distinguished McIntosh, however, on the ground that there was no evidence that Grubb was distracted. If the issue is duty, what Ms. Grubb was or was not is irrelevant, what is relevant is whether it was foreseeable that someone like Ms. Grubb would be distracted. Before the opinion is over, the Court reverts to the proper analysis based on duty. *20-22. In finding the eroded area to be open and obvious, the Court noted that 1) imperfections in pavement are common, 2) was under a well-lit canopy, and 3) the pothole was not uncommonly deep or shielded from view. This opinion purports to create a rule that imperfections in pavement are not unreasonably dangerous unless the imperfections have special aspects or foreseeable distraction.

Kentucky Court of Appeals
Premises Liability – Liability of Store Manager
Smith v Grubb, ___ S.W.3d ___, 2012 WL 2160192 (Ky.App. June 15, 2012), petition for rehearing denied August 13, 2012, motion for discretionary review filed September 12, 2012 (2012-SC-573-D), in abeyance

The plaintiffs sought to avoid federal Court by naming the local store manager as a defendant, and the efforts to remove the case was inexplicably unsuccessful. The opinion suggests that the federal Court relied on an unpublished Court of Appeals case, Bradford v. Lexington-Fayette Urban County Government, 2005 WL 327177 (Ky. App. 2005). Bradford had nothing to do with individual liability of an employee for a corporation’s breach of duty. Rather, it found liability on the part of a corporation which had undertaken the owner’s responsibility to maintain a parking garage. The corporation had by contract assumed control and possession of the parking garage, and thus assumed the duties to invitees associated to control. The Court held that a store manager was not equivalent to a property manager such as was involved in Bradford.

Sixth Circuit Court of Appeals
Insurance – Bad Faith - USCPA
Phelps v State Farm Mutual Automobile Insurance Company, 680 F.3d 725, 2012 WL 1889396 (6th Cir. June 13, 2012)

This is a horrible opinion that, if it were to be followed, effectively allows a third party claimant to bring an action alleging what could only be called adjustor malpractice. On the one hand, it is hard to blame the majority judges given the fact that the Kentucky Court has created a muddle wrapped in a mess and suspended in a logical vacuum, and gave it the name “bad faith”. However, as inconsistent as the Kentucky cases are with regard to this subject, the dissent and the trial judge were able to divine what should be an obvious element of any such claim. The majority should have taken a cue that they were on the wrong track from the trouble they had discerning the essential elements. Somehow, they concluded that as a threshold matter one had to show conduct which would justify imposition of punitive damages, separate from the oft-cited three prong test from Wittmer v Jones, 864 S.W.2d 885 (Ky. 1993), then wondered why the third element of the Wittmer test sounded similar and redundant. (The Bult opinion, cited by the author, does refer to a high evidentiary threshold, the King opinion, an unpublished 6th Circuit opinion authored by the same Judge, says no such thing, but does indicate a lack of understanding of Kentucky law on the subject to the extent that King suggests that there can be a common law bad faith claim by a third party claimant).The Court’s confusion appears to be based on a misreading of the Wittmer test and cases construing it. The rather obvious answer to the majority’s puzzlement is that there is no additional threshold element, unless it is that there is evidence of a violation of KRS 304.12-230 and resultant damage, two requirements that did not merit a mention.

The claim arose from an automobile accident in which the claimant alleged that the insured pulled out from a gas station in front of her. The claimant sustained an injury to the spine, which allegedly required surgery. The insured’s liability limits were $50,000.00. The opinion does not say, but it may be assumed that the claimant received no-fault benefits in the sum of at least $10,000.00, so the limits would cover a $60,000.00 award. The majority held that bad faith could be inferred from the following facts:

1) The adjustor valued the claim at between $24,620 to $49,620. The claimant had demonstrated specials of $22,620.22. The first offer was $25,000.00, and the majority concluded that this did not account for pain and suffering. How the majority did not know that, after allowing for no-fault, this offer actually contained pain and suffering in the sum of $12,379.78 is unknown. This aspect of the opinion does not even address the fact the claimant had sustained a prior injury to the same area. The criticism of the Court, however, is that the first offer was on the low side of the valuation. Yes, read that again. Apparently, the majority thinks that negotiation begins with the high number and then – of course such tactics would never lead to a settlement. There is not only nothing about this aspect of the claim handling that shows bad faith, there is nothing wrong with it at all. As an aside, it should be noted that attempting to obtain the best settlement possible is not an improper or unreasonable motive.

2) The majority opinion cites a delay of three years before the claim was settled. The reality, according to its own recitation of the facts, was that the case settled within 2 years and nine months from the date of the accident. The majority ignores the fact that the case was settled just barely a year after the first (and apparently only) demand. By doing this, the majority is including time as delay before claimant reached MMI, as well as the five month delay in the claimant even responding to the first offer. Part of the problem may be that the majority did not know what a claim index is, and seemed to be under the impression that such a return was all one would need to assess the role of a prior injury. As the dissent points out, such is not the case. The majority also makes the incredible statement that everything the insurer needed to settle the case was in the settlement package provided by claimant’s counsel. Apparently, the majority has not had any experience in this area, or they would have known that such packages almost always contain selected records and other information, and in reality reflect the claimant’s side of the case coupled with counsel’s spin. Kentucky law is clear that a mere delay in payment is insufficient, and this should have been the governing rule in this aspect of the case.

3) The majority opinion’s third basis makes no sense as written. Even the claimant’s counsel conceded that there is no requirement under Kentucky law that an insurer provide a claimant a copy of the insured’s policy, which, after all, is financial information belonging to the insured. The majority seems to say that the insurer had a duty to offer limits once it determined that a reasonable valuation of the claim would be in excess of the limits. But according to the opinion, the insurer did precisely this, settling within weeks of the claimant’s deposition. So the reality is the majority just thinks the insurer should have concluded the claim had a higher value earlier, at best a negligence argument.

4) The majority then posits a “kitchen sink” bad faith basis, most of which are conclusory and find no factual support in the opinion. The majority points to the fact that 4 adjustors handled the file, but seems to assume that this was voluntary. While the opinion does not reflect the reasons for this, many insurers experience turnover, particularly in difficult economic environments. There is no provision in the UCSPA regarding staffing, so this type of fact is not even relevant. The same is true when the Court says no IME was requested. The failure to do so is not a violation of the UCSPA and thus not relevant. More importantly, few insurers would request an IME under the circumstances presented, and most defense counsel would recommend against it. The insurer could have had a record review conducted, but this is not required and is at best a judgment call.

Perhaps the most troubling and potentially damaging aspect of this opinion, in the event it is followed by Kentucky courts, is its suggestion that conclusions as to the ultimate question by so-called experts should have been considered by the trial judge. While both may have expertise to offer in some insurance contexts, neither had any business discussing claims practices. More importantly, a jury does not need an expert to determine if an insurer’s conduct was so egregious as to justify imposition of punitive damages. Surely the Court would not allow an expert in any other case to express their opinion that a tortfeasor acted recklessly.

Aside from a lack of understanding insurance and personal injury actions, the primary source of the confusion that begat the majority opinion seems to be the Kentucky Supreme Court decision in Farmland Mutual Insurance Company v Johnson, 36 S.W.3d 368 (Ky. 2000). Farmland was a first party case, and while the majority may have been correct in determining that the legal standard was the same in first and third party cases, the factual context and statutory basis is not the same. Nor is the process for resolving claims. The majority acts like the insurer had agreed to pay x dollars if the insured was injured and failed to do so. In the third party context, the claimant has no right to benefits, and in fact has no rights under the policy itself until judgment. The Farmland opinion is poorly worded and reasoned, but it cannot be said, as the majority did, that the Court did away with the requirement that improper motive or purpose be shown. The most that can be said is that, in the context of that case, improper purpose and motive could be inferred from the lack of any basis for the position taken and the subjective knowledge that there was no basis.

Kentucky Court of Appeals
Statute of Limitations – Medical Malpractice
Litsey v Allen, 371 S.W.3d 786, 2012 WL 1959562 (Ky.App. June 1, 2012)

This case illustrates the principle that a specific limitations statute applies before a general one, and gives a broad construction of the word malpractice. The former patient claimed that she was given Xanax in order to make her more vulnerable to the physician’s advances, and that the male physician subjected her to inappropriate sexual comments and advances. This, she claimed, constituted intentional infliction of emotional distress [often called “outrage”], which the Court has incorrectly held to be subject to the five year statute of limitations. The Court held that the claim was actually governed by KRS 413.140(1)(e), which applies to claims against a physician, surgeon, dentist or hospital for negligence or malpractice. The Court held that the facts complained were within the definition of malpractice. This type of rationale, if it stands, should apply with equal force to KRS 413.245 which governs other claims against professionals. It may be worth noting that the facts described probably do not amount to the tort of outrage because the facts actually describe either assault or battery, or both.

Kentucky Court of Appeals
Statute of Limitations – Continuous Relationship
Litsey v Allen, ___ S.W.3d ___, 2012 WL 1959562 (Ky.App. June 1, 2012)

The continuous representation rule has been applied in Kentucky to medical professional liability cases, and thus the statute of limitations is tolled not only by the discovery rule set forth in KRS 413.140(2), but by the continuation of treatment by the physician. In this opinion, however, the Court held that the mere fact that the physician continued to provide prescriptions was not sufficient continued treatment. The basis for the Court’s holding was that subsequent to her last office visit, she was not relying on her physician to correct the consequences of the poor treatment she had received from him. It will be interesting to see if the Supreme Court will approve of any limitations on the continuation rule.