Kentucky Supreme Court
Limitations - Borrowing Statute
Abel v. Austin, 411 S.W.3d 728, 2013 WL 5763071 (Ky. October 24, 2013)

This is another case arising out of the Fen-Phen debacle. The Boone Circuit action is referred to as the Moore case, while a similar case was pending in Alabama known as the Stevens case. A settlement was reached in the Stevens case, but to qualify the Alabama attorney defendants had to certify that they had a certain number of eligible clients, and they did not have a sufficient number. The Alabama attorneys made a deal with one of the Kentucky attorneys from the Moore case to transfer fifty three clients from the Moore case to the Alabama Stevens case. A different Kentucky attorney was brought in to represent the fifty three clients, and when he distributed the settlement funds to the Kentucky clients he shortchanged them as well as told them they could not speak of the settlement without risking jail.

The Court of Appeals held that under the Kentucky borrowing statute, KRS 413.320, required the application of the Alabama statute of limitations, which had a repose provision. By its terms, however, KRS 413.320 only applies to a "cause of action [which] has arisen in another state or country". The Supreme Court held that this case arose in Kentucky, not Alabama, and accordingly the Kentucky statute of limitation applied.

The Court acknowledged that most of the facts occurred in Alabama, but also noted that those facts did not create any harm. In fact, the settlement obtained in Alabama was quite generous given that the clients in question had no actual injury. It is the fact(s) that cause the harm that give rise to the cause of action, and in this case that fact was the incorrect distribution of settlement funds. That occurred in Kentucky, the Court held, and therefore KRS 413.320 did not apply. Accordingly, Kentucky statute of limitations was to be applied.

Kentucky Supreme Court
Limitations - Professional Liability
Abel v. Austin, 411 S.W.3d 728, 2013 WL 5763071 (Ky. October 24, 2013)

This case arose from the mishandling of settlement funds and misrepresentations intended to avoid discovery by the clients. Suit was filed six years after the tortious conduct. The attorneys argued that the claim was barred by the five year limitation set out in KRS 413.120(7). This was a patently frivolous argument, as such an action is clearly governed by KRS 413.245 as the conduct in question was undeniably professional services. The rationale of the Court is less than satisfying, however, as it is a simple of matter of reading the language of the statute. The Court says in obitur dictum that all claims arising out of the attorney-client relationship are governed by KRS 413.245. While this may be true almost all of the time, this is not true if KRS 413.140. By the same token, the Court erroneously determined that the professional liability statute was more specific, but should have found that KRS 413.120(7) did not apply at all.

Kentucky Court of Appeals - Unpublished
Employment - Wrongful Discharge - Ethical Rules
Gadlage v. Winters & Yonker, Attorneys at Law, PSC, 2013 WL 5749547 (6th Cir. October 24, 2013)

In this case an attorney claimed that he was discharged because he refused to violate ethical rules, while the employer claimed the discharge was due to incompetence and poor work ethic. He claimed wrongful discharge in violation of a well-established public policy. Prior cases required that the public policy be evinced by constitutional or statutory provision. The Court agreed that rules of ethics do not satisfy that requirement.

Kentucky Court of Appeals
Arbitration
Kindred Healthcare, Inc. v. Cherolis, ___ S.W.3d ___, 2013 WL 5583587 (Ky.App. October 11, 2013), motion for discretionary review filed November 11, 2013 (2013-SC-759-D)

In this case, the Court of Appeals concluded that a power of attorney can provide authority for the execution of an arbitration agreement in the nursing home context, notwithstanding the Supreme Court decision in Ping v. Beverly Enterprises, 376 S.W.3d 581 (Ky. 2012). This panel held that the Ping decision turned on language in the power of attorney limiting the broad powers to those named subjects (property, finances and health care) and the fact that it involved a wrongful death claim. The power of attorney in this case had no such limitation but was a truly general power, and the claim was for personal injury. We doubt that the Supreme Court will agree with the distinctions drawn, but if taken the case will give the Court a chance to revisit the Ping decision and perhaps clarify its scope.

Sixth Circuit of Appeals
Insurance - Bad Faith
Philadelphia Indemnity Insurance Company v. Youth Alive, Inc., 732 F.3d 645, 2013 WL 5583588 (6th Cir. October 11, 2013)

Philadelphia issued a CGL and excess policy to Youth Alive, a non-profit which provided mentoring services to at-risk youth. After an event, an employee of Youth Alive asked a participant to provide a ride home to four other participants. It turned out that the driver did not have a license, and was driving a stolen vehicle. The four passengers were killed following a police chase. Philadelphia reserved its rights based on a provision including a volunteer as an insured, and filed a declaratory judgment action. While the action was pending, the insurer settled the tort claims. Youth Alive nonetheless continued with its "bad faith" action.

The single most important aspect of the decision lies in its recognition that an insurer is not in bad faith for pursuing a coverage defense and declining to settle while that is being determined. The Kentucky Court has not yet said such a thing, and it cannot be assumed that it will agree. But this opinion is a good start. Of course, this principle assumes a bona fide defense to coverage.

The District Court found against the insurer on the CGL issue but agreed that there was no coverage under the excess policy. The Circuit Court noted, however, that the uncertainty as to the application of an insurance policy is a reasonable basis for litigating coverage. The Philadelphia policy defined a volunteer as an unpaid non-employee who donates work and acts at the direction of the insured. Youth Alive pointed to definitions of volunteer used by Youth Alive in various contexts, but this argument was rejected by the Court. Instead, the Court insisted that the terms of the contract must be construed in the context of the contract usage and definition, not extraneous definitions from other contexts. The Court also noted that Kentucky had never construed such provisions, so the issue litigated by the insurer was a question of first impression. The Court held that the insurer's position was reasonable as a matter of law and thus could not constitute "bad faith".

One minor point is worth noting about the opinion. It suggests that two claims were asserted, one based on common law bad faith and the other based on the Unfair Claims Settlement Practices Act, KRS 304.12-230(2). Kentucky has not yet adopted a common law claim by an insured under a liability policy beyond the claim of failure to settle within policy limits, which would have no application under these facts. Secondly, while the UCSPA does apply to a dispute between the insured and a liability carrier, these facts do not implicate section (2). It was not alleged that Philadelphia misrepresented any term of the policy, and the dispute related to the interpretation of the policy. We do not know if these issues were raised, or simply not addressed because the Court chose different grounds for its decision.