Kentucky Court of Appeals
Statute of Limitations - Product Liability
Bridgefield Casualty Insurance Company v. Yamaha Motor Manufacturing Corporation of America , 385 S.W.3d 430, 2012 WL 5274647 (Ky.App. October 26, 2012)

This action was brought by a workers' compensation insurer seeking subrogation for benefits paid against the manufacturer of an ATV. Because workers' compensation subrogation is derivative, the claim is governed by the same rules that would have applied had the injured employee brought the claim himself. In this case the issue was the statute of limitations.

The suit was filed more than one year after the injury, and contained the full range of product liability claims. The Court rejected plaintiff's attempt to invoke the discovery rule, because the injury was discovered on the date of the accident. Plaintiff also argued estoppel, but it is not clear what the claim was based on. Finally, the plaintiff argued that a different limitations period should apply to the warranty claims, but this failed because the lack of privity of contract as defined by KRS 355.2-318.

Kentucky Supreme Court
Insurance – Validity of Anti-Assignment Clause
Wehr Constructors, Inc. v. Assurance Company of America, 384 S.W.3d 680, 2012 WL 5285774 (Ky. October 25, 2012), petition for rehearing denied December 20, 2012

The insured was a hospital which purchased a builder's risk policy in connection with the construction of an addition to its facility. Wehr was a contractor in the job. A dispute arose between Wehr and the hospital concerning damage sustained to the flooring and subflooring of the project. The insurer denied the hospital's claim. A state court action was filed by the insured against Wehr, and in the settlement the insured assigned its rights under the builder's risk policy to Wehr. Wehr filed suit in federal court, and the insurer invoked the anti-assignment provision in its policy which provided:

F. Transfer of Your Rights and Duties Under This Policy Your rights and duties under this policy may not be transferred without [Assurance's] written consent except in the case of death of an individual named insured.

The Federal District Court certified the question to the Kentucky Supreme Court. The Court reviewed what it called the majority and minority rules, the former limiting such a provision to assignments before a loss has occurred, and the latter enforcing the provision as written. The Court determined that the majority rule would apply in Kentucky.

The Court agreed that the provision was unambiguous, and that public policy was the province of the legislature. The opinion does not express a satisfactory explanation for its dismissal of KRS 304.14-250(1), which states that: "A policy may be assignable or not assignable, as provided by its terms.". The opinion says that this provision does not establish public policy in the case of a post loss assignment. This can only rationalized by viewing the assignment as relating not to the rights under the policy, but to the cause of action. A thin reed, but the only reed available to rationalize the opinion internally. This seems to be inconsistent with the view the Court took concerning post loss rights of an insured under a policy in the context of the Unfair Claims Settlement Practices Act in Knotts v. Zurich Ins. Co., 197 S.W.3d 512 (Ky. 2006). How can a claim against an insurer be a claim in Knotts but a cause of action in this case? Our view would be that this case is correct while the Court's decisions relating to "bad faith" are incorrect, but consistency has not been the hallmark of Kentucky law over the last three decades.

Kentucky Supreme Court
Claims Investigation - Attorney Client Privilege
Collins v. Braden , 384 S.W.3d 154, 2012 WL 5285717 (Ky. October 25, 2012)

This case arose from a self-inflicted death that occurred in a hospital in Corbin. The decedent was the father of an attorney associated with a Clay county plaintiff's law firm, which likely raised concerns on a number of levels. In house counsel retained outside counsel to conduct an investigation. After suit was filed, the plaintiff predictably sought discovery of the report prepared by the attorney. The trial judge entered an order providing for the discovery, and the hospital filed a writ of prohibition. The Court of Appeals granted the writ, and the plaintiff filed an appeal to the Supreme Court. That Court reversed the Court of Appeals, but did not close the door on the applicability of the attorney-client privilege. Further, the opinion does not deal with the applicability of work product to aspects of the reports that may not be privileged, see Duffy v. Wilson, 289 S.W.3d 555 (Ky. 2009), but that may be because of the procedural framing of the issues. The opinion will have a significant impact on the use of outside counsel in such circumstances, and more importantly will have a significant impact on how such investigations should be conducted.

The Court's ruling was that the writ should not have been granted because the hospital had not made an adequate showing that the report was privileged. The Court discussed three methods a party might use to establish the existence of privilege: 1) the party may request an in camera review of the documents in question; 2) the party may produce a detailed privilege log with descriptions sufficient to show the existence of privilege; or 3) the party may make an offer of proof describing the documents. Of course, none of these options are really satisfactory. The descriptions themselves can reveal the thinking of the attorney or reflect choices made based on privileged communications. If counsel is to prepare a written report in the future, he or she may want to include steps or actions to disguise the defense team thinking. Or, it may be appropriate to limit the extent to which the investigation is reduced to writing at all. The Court of Appeals was correct to prohibit production in its entirety, but this opinion will reflect the new reality, in the short term at least. While this case involved a hospital responding to the threat of litigation, the impact of this case needs to be accounted for by any risk management strategy.

Kentucky Supreme Court
Professional Liability - Child Abuse Reports
Norton Hospitals, Inc. v. Peyton , 381 S.W.3d 286, 2012 WL 5274676 (Ky. October 25, 2012)

A duty to report dependency, neglect or abuse on the part of a child is created by KRS 620.030(1) and (2). An immunity for making such reports is created by KRS 620.050(1). In this case, the patient was admitted for an induction and a toxicology screen was performed. The actual results were negative. After the birth, the attending neonatologist authorized the toxicology report to be reported to the state. Peyton argued that the neonatologist misread the report, while the hospital claimed the state misread its report. The Court of Appeals held that a factual issue as to who requested the toxicology report in the first place precluded summary judgment. The Supreme Court reversed and reinstated the summary judgment.

In its ultimate effect, the Court held that the immunity granted is broader than the duty to report. The duty to report is based on knowledge or reasonable cause to believe that dependency, neglect or abuse was present. The immunity, however, extends also to those who act under that duty in a good faith belief that dependency, neglect or abuse was present. In other words, the fact that it turns out that there was not reasonable cause, or a mistake was made about whether there was reasonable cause, does not deprive the actor of immunity so long as he or she acted in good faith.

Kentucky Supreme Court
Professional Liability - Medical - Relevance of Expert Testimony
Tucker v. Women's Care Physicians of Louisville, P.S.C., 381 S.W.3d 272, 2012 WL 5274577 (Ky. October 25, 2012)

The decedent was admitted for the delivery of her third child. The attending physician had a standing order which required that in all C-sections 2 grams of Cefotan be prepared for infusion at the time of cord clamping. The nurse failed to obtain the drug for administration. Subsequent to the delivery, the decedent succumbed to an infection. The estate had sought to introduce expert testimony concerning the meaning of the standing order.

The Court first noted that the only purpose of any expert testimony is to assist the trier of fact in understanding the evidence or determining what the facts are. Expert testimony that does not explain or clarify a complicated matter so a juror could more easily understand it is irrelevant. The estate sought to prove that the order only required the preparation of the drug, as opposed to it being given. This proof was deemed irrelevant since there was no confusion as to the meaning of the order by the people involved. Likewise, the Court rejected the attempt to show that the order should have required the drug be given since the nurse in question would never have been the one to administer the drug anyway.

Overuse and/or misuse of experts on false issues is a real problem in modern trial practice. This opinion provides some assistance in fighting such abuses. However, the value of the opinion is reduced by the fact that it was a 4-3 decision.

Kentucky Court of Appeals
Insurance – UIM – Motorcycle Exclusion
Hoskins v. Kentucky Farm Bureau Mutual Company, ___ S.W.3d ___, 2012 WL 4841094 (Ky.App. October 12, 2012), motion for discretionary review granted June 12, 2013 (2012-SC-000731-DG)

In this 2-1 opinion the Court held that a motorcycle exclusion in an underinsured motorist {UIM] policy did not exclude a claim for UIM benefits based on a spouse's alleged loss of consortium. The opinion stipulates that the husband, who was operating a motorcycle at the time of the accident, could not recover under the policy. The opinion's reasoning is a little muddled so tis not clear what the majority thought controlled its decision. The opinion did not deal at all with the rather obvious fact that, on the surface at least, this holding is inconsistent with other holdings treating the primary claim and the loss of consortium claim as one for purposes of policy limits. While the opinion discusses the "independent" nature of such a claim, that concept deals with who can bring it. After all, a loss of consortium claim cannot arise at all without the commission of a tort against a spouse, and is not based on an independent duty owed to a spouse.

If the result reached by the majority has merit, it is because of the language of the exclusion itself. Regardless of the theoretical underpinnings of a loss of consortium claim, the spouse is a separate insured under the policy. The exclusion in this policy, if read in isolation, suggests that it applies if the insured is occupying or operating a motorcycle. While the Supreme Court may review the case, it may be that the industry will have to accept this unintended risk or modify the Kentucky endorsement for this coverage.

Kentucky Court of Appeals
Arbitration – Power of Arbitrator to Modify Award
Swetnam Design Construction, Inc. v. Saurer, 382 S.W.3d 73, 2012 WL 4838991 (Ky.App. October 12, 2012)

This was a construction dispute which was submitted to arbitration. While the opinion does not reveal the nature of any agreement to arbitrate, the Court applied state law to the case. The arbitrator made an award in favor of the contractor, and then in response to a motion to reconsider, reduced the award primarily by giving the owner a credit on other payments previously made. The trial Court confirmed the modified award, and the contractor appealed the confirmation.

The Court of Appeals panel reversed, holding that the modification exceeded the arbitrator's power under the Kentucky Uniform Arbitration Act. The arbitrator's power to modify an award is established by KRS 417.130. That statute incorporates by reference two subsections of KRS 417.170(1)(a) & (b). Subsection (a) allows modification in the case of a "miscalculation of figures or an evident mistake in the description of person, place or thing". The Court determined that this power is limited to patent mistakes, the correction of which do not affect the merits of the award.

Kentucky Court of Appeals
Insurance – Existence of an Ambiguity
Heffron v. Royalty Company, Inc., ___ S.W.3d ___, 2012 WL 4746161 (Ky.App. October 5, 2012), motion for discretionary denied June 20, 2013.

Some discussion of the facts is necessary to understand the significance of this opinion. Royalty operated a taxi business under the assumed name of American Taxi in Lexington. A liability policy was purchased to cover the fleet with combined single limits (CSL) of $100,000.00. In 2004, the owner of Royalty decided to operate at the local airport (LEX), and the airport board required 100/500/100 limits, and applied for a policy which covered several taxicabs in the name of another company, Detroit Coney Island, which operated under an assumed name All American Taxi The taxi which was involved in the subject accident was added to the Royalty policy. The endorsement contained a block which had to lines, one for occurrence and one for aggregate. The underwriter inserted $100,000.00 on the line that said occurrence, but the line that said aggregate was blank. To the untrained eye, it may have appeared that this meant no aggregate, but to one who understands insurance it was clear that the aggregate was the same as the occurrence, because the policy was a CSL policy. Nonetheless, several insurance companies who had underinsured motorist (UIM) exposure argued the endorsement was ambiguous in an effort to avoid the payment of benefits under their policies.

The issue thus was whether the interpretation urged by the UIM insurers was reasonable. The Court agreed with the insurer that this construction was not reasonable. First, the UIM insurer's construction would have led to a coverage which violated Kentucky's financial responsibility law since there would have been no coverage for property damage. Second, the Court held that the endorsement had to be read in conjunction with the rest of the policy. There was no evidence that the insured asked for a change in limits. By the same token, it did not make sense to have different limits on one vehicle in the fleet. Third, the premium charged was consistent with the vehicles on the Royalty policy, while the higher limits of the Detroit Coney policy were accompanied by a higher premium. The Court held that the endorsement was clear and unambiguous.

The case had another interesting argument that was soundly rejected. The insured altered proof of insurance documents so that taxicabs operating under the lower limits of the Royalty policy could operate at the airport. It was not clear if airport personnel were complicit in the fraud, but they could have easily discovered it had they just looked. However, it was clear that neither the agent nor the insurer was complicit. The UIM insurers tries to argue that somehow the Royalty policy limits should have been reformed to reflect the airport requirements. The Court saw the argument for what it was – a frivolous attempt to avoid their own liability.

By way of editorial, one has to wonder what the UIM insurers were thinking. Had they been successful, they would have been responsible for an opinion that in future cases would have created all kinds of problems for carriers like them. Somebody lost sight of the big picture in pushing this case, but fortunately for them, they were unsuccessful.

Kentucky Court of Appeals - Unpublished
Professional Liability – Medical – Prior Discipline
Ira Branham v. Rock, 2012 WL 4743138 (Ky.App. October 5, 2012), motion for discretionary review granted June 20, 2013 (2012-SC-707-DG)

Following an automobile accident, Ms. Branham was seen in the emergency room by Drs. Rock and Bruitt. She was there several hours and Drs. Rock and Bruitt interacted with her several times. Radiology suggested a chest CT but Drs. Rock and Bruitt concluded it was not medically indicated due to the absence of pain. About 36 hours after discharge Ms. Branham died at home as a result of an aortic injury.

The plaintiff sought to introduce evidence that Dr. Rock had entered into an agreed order entered by the licensure board disposing of a charge that he had prescribed medications to non-patients. The trial Court excluded the disciplinary history under KRE 611(b) on the ground that it was a collateral matter. Then Court of Appeals affirmed, noting the absence of a nexus between the prior discipline and the proffered testimony or conduct at issue. The Court rebuffed efforts to bring the evidence in under the guise of relating to credibility or knowledge of the standard of care.

Then Court rejected a similar effort by plaintiff directed at Dr. Bruitt. In 2000 and 2001, Dr. Bruitt allegedly failed to pass his medical licensing examination. For much the same reasons the Court of Appeals affirmed exclusion of this evidence, particularly where six or seven years had elapsed.

The opinion also discusses the proper instruction of the jury in an MPL case, and while not sufficiently novel to warrant an analysis, the opinion, may prove a helpful read for those handling this type of case.