Kentucky Court Report - SCOKY & COAKY

Punitive damage issue found in professional negligence claim; breach of fiduciary duty and professional negligence claim by accounting firm: PEOPLES BANK OF NORTHERN KENTUCKY V. CROWE CHIZEK AND CO. LLC (COA 6/6/2008)

PEOPLES BANK OF NORTHERN KENTUCKY V. CROWE CHIZEK AND CO. LLC
TORTS: PROFESSIONAL NEGLIGENCE: BREACH OF FIDUCIARY DUTY IN ACCOUNTING AND AUDITING SERVICES
2007-CA-001174
PUBLISHED: AFFIRMING PART, REVERSING IN PART, AND REMANDING
PANEL:  WINE PRESIDING; COMBS, ACREE CONCUR
BOONE COUNTY
DATE RENDERED: 6/6/2008

Peoples Bank (PBNK) appeals entry of summary judgment in favor of Crowe Chizek and its employee on PBNK's professional negligence and breach of fiduciary duty claims, which were dismissed by the TC as barred by the statute of limitations and the release clause in the party's contracts. The relevant facts to this action are as follows: PBNK's largest loan customer was real estate developer Erpenbeck whose accounts were supervised by two of the bank's internal officers (Finnan and Menne). The officers and Erpenbeck develop a close relationship and begin vacationing together. The officers then form a business (JAMS) to purchase properties from Erpenbeck at cost only to create fictitous purchase contracts to reflect a much higher price in order to obtain loans (not from PBNK) for the false amount. The excess loan proceeds were then divided between Erpebeck and JAMS, and Erpenbeck would rent the properties from JAMS while the rental payments were then used to pay the mortgages. Three years later, JAMS has received over half a million in excess loan proceeds on almost $4 million in total loans and was financially dependent on Erpenbeck.

This entire time the two JAMS owners remained officers at PBNK, and during this time they hired Crowe to perform tax services for JAMS (all of its accounts being held at PBNK) although the same Crowe partner was also still overseeing the independent auditing and accounting services for PBNK. Some two years later in 2002, one of the JAMS owner and still officer with PBNK informed the Crowe partner overseeing of Erpenbeck's check diversion and check kiting schemes for which the officers had authorized additional loans through PBNK to cover the the overdraft fees. The Crowe partner advised the officer to inform the bank's board of the officers' and JAMS' relationship with Erpenbeck and potential conflict of interest, which was done. PBNK then notified authorities and hired an independent law firm to conduct an investigation of the matter, which led to both officers' resignation. The adverse publicity essentially forced the bank to close and sell its assets at a substantial loss. Both Erpenbeck and the officers were found guilty of numerous bank fraud charges. PBNK then filed suit against Crowe and the partner asserting a number of causes of action for which it sought compensatory and punitive damages. Four years later, Crowe files a number of motions most notably relying on the release in the contracts and the statute of limitations. The TC agreed and granted each of the motions effectively dismissing all claims.

On appeal, the COA began by affirming the TC's dismissal of PBNK's claim for aiding and abetting the two officers in breaching their fiduciary duty, noting that Kentucky law as never recognized a civil cause of action for this type of claim. The court also found no proof that the Crowe or its partner were active, knowing participants in the officers' misconduct. Next, the COA turned to PBNK's argument that the release clauses in Crowe's engagement letters did not bar its claims since they only released Crowe for any opinion it offered attributable to misrepresentations made by PBNK during the audit. Instead, PBNK argued that its claims were based on Crowe having actual knowledge of the officers' misconduct through its work for JAMS, and thus its losses were due to Crowe's independent negligence. The COA agreed, and held that at a minimum PBNK had offered sufficient proof to create a genuine issue of fact on the matter since any evidence of the bank's misrepresentations would be relevant as comparative fault rather than barring the claims altogether.

The COA then addresses PBNK's argument that the one-year statute of limitations applicable to professional negligence and breach of fiduciary duty claims (KRS 413.245) had not expired by the time suit was filed. The court goes through a fairly detailed analysis of the two different limitations periods contained in this statute, the date of occurrence (accrual rule) and date of discovery (common law discovery rule). Crowe argued that the discovery rule applied to bar the claims since PBNK knew or should have known of the misconduct long before one year prior to suit being filed while PBNK argues that the limitations was tolled during the period of Crowe's continuous representation of the bank. The COA, in reliance on the Supreme Court's recent decision in Queensway v. Cotton & Allen, 237 S.W.3d 141 (Ky. 2007), noted that the discovery limitations period cannot begin to run until the accrual period begins (when negligence and resulting damages have both occurred). The court held that while the alleged negligence in this case occurred with the completion and delivery if each annual audit report, the damage from the officers' breach of fiduciary duty did not become fixed and non-speculative until April 2002 when the Crowe partner compelled the officers to disclose the relationship with Erpenbeck to the bank board. The complaint filed in late March 2003 was therefore timely.

Turning to PBNK's punitive damages claim, the COA ultimately determines that the bank had offered enough evidence to create a jury issue. The court acknowledged PBNK's argument that Crowe should have discovered the conflict of interest during its auditing work for JAMS, and that Crowe's failure to discover and disclose the wrongdoing amounted to concealment causing damage to the bank independent of those due to the wrongful acts themselves. While the COA held that Crowe did not intend to give assistance in the officers' misconduct, the court found that PBNK had met its burden of offering sufficient proof of gross negligence to withstand a motion for summary judgment.

In conclusion, the COA ruled in favor of PBNK as follows: summary judgment was not appropriate on its professional negligence and breach of fiduciary duty claims as neither barred by the statute of limitations or the releases in the contracts between the parties; and these contracts did not bar PBNK's damage claims arising from Crowe's negligence prior to the auditing period covered by the contracts. But, the COA found summary judgment was appropriate on PBNK's aiding and abetting claim, and the bank's alleged damages arising from Erpenbeck's conversion of checks not payable to him (since the check diversion scheme was not a foreseeable consequence of Crowe's alleged negligence and Erpenbeck's criminal conduct as well as bank's own negligence in cashing the checks were superseding causes of the injury).


Digested By Chad Kessinger
Schiller Osbourn Barnes & Maloney

Dismissal remanded on school personnel's duty to report due to failure to include lower court's reasoning in summary judgment: NELSON V. TURNER (COA 6/6/2008)

NELSON V. TURNER
TORTS:  Dismissal remanded on school personnel's duty to report due to failure to include lower court's reasoning in summary judgment
2007-CA-000489
PUBLISHED: VACATING AND REMANDING
PANEL: CLAYTON PRESIDING; MOORE CONCURS; COMBS CONCURS IN PART, DISSENTS IN PART
FAYETTE COUNTY
DATE RENDERED: 6/6/2008

CA affirms in part and vacates and remands in part entry of SJ against parent regarding claims of negligent supervision and failure to report sexual assault.

Nelson's 5-year-old daughter was in kindergarten at a public elementary school in Fayette County; her teacher was Turner. The child reported to her mother a sexual assault against her by another female kindergarten student during regular school hours. Nelson reported the incident to Turner, who took steps to advise the teaching assistant to keep the children separated; to admonish the other child; to assign the children seats; and to prevent them from attending the restroom at the same time. Turner made no report to local law enforcement officials. That same day, the child reported another assault; the teacher questioned the other child, who admitted the contact. Turner unsuccessfully sought out a school administrator for advice as to how to handle the situation. No report was made to local law enforcement. Nelson spoke to the principal the following day. The principal immediately investigated and believed the contact had occurred "by accident" and did not report the incident to authorities. At the end of that same school day, the child reported another, more extensive, sexual assault against her by the same student, which allegedly occurred in the classroom. Nelson to the child to a hospital for an exam where some small irritation of the vagina was noted. Medical personnel reported the incident to police. The child did not return to school and an internal investigation followed.

Nelson filed suit against KSBIT alleging unfair claims settlement practices; failure to timely respond and complete an investigation; unfair or deceptive acts; and several other claims, including intention infliction of emotional distress. This action was dismissed, but Nelson immediately filed an amended complaint renewing these claims and also alleging failure to supervise and report the abuse against Turner and the Board. Nelson also alleged outrageous conduct. Defendants alleged governmental and qualified official immunity. Turner contended her supervision was a discretionary act and she was not required to report under KRS 620.030.

As to Turner's duty to report, CA remands to the TC because, though the court found the duty to report to be discretionary, the opinion did not include the court's reasoning for the CA to review. CA affirms as to the dismissal of the outrage claim. CA cannot affirm the dismissal of bad faith against KSBIT until Turner's liability is established.

Digested by John Hamlet


Digested by John Hamlet

Inferred intent and effect on insurance coverage: KFBM V. COYLE (COA 5/16/2008)

KENTUCKY FARM BUREAU MUT. INS. CO. V. COYLE
INSURANCE:  INFERRED INTENT DOCTRINE AND ITS EFFECT ON COVERAGE
      2006-CA-001335
     PUBLISHED:  AFFIRMING
      PANEL: HENRY PRESIDING; ACRE AND LAMBERT CONCUR
      HARDIN COUNTY
      DATE RENDERED: 5/16/2008

      KFB appeals TC judgment upon jury verdict that a homeowner's policy issued to its insured Tweed provided coverage for the shooting of Elliott by Tweed's husband, Coyle. The shooting occurred when Elliott (who worked with Tweed and had apparently developed a strong attraction for her) was caught driving by Tweed's home in Nelson County and was pursued by Coyle. Coyle caught up with Elliott and forced him to stop, but Elliott again sped away which led Coyle to fire two shots at the vehicle with a pistol he had brought with him from the home. Coyle continued his pursuit and again caught up with Elliott in a parking lot in Hardin County. The same scenario again unfolded only this time Coyle struck Elliott with one of the shots fired into the vehicle window on this second occasion. Elliott thereafter filed a personal injury suit against Coyle alleging assault and battery. KFB eventually intervened seeking a determination that the policy issued to Tweed did not cover the intentional acts of Coyle, who admittedly was an insured under the policy as a household resident. KFB argued there was no "occurrence" under this factual scenario and that alternatively, the policy exclusion applied since the injury was expected or intended by Coyle. The TC denied both of KFB's MSJ's and submitted the question of intent to the jury by tendering the following instruction: Do you believe from the evidence that Coyle intentionally fired a pistol at or in the general direction of Elliott with the expected result of wounding/harming Elliott and was not an "accident" in the sense of being merely negligent and unintended? The second instruction read as follows: Do you believe from the evidence that Coyle understood the physical nature of the consequences of his actions and intended to shoot or expect to injure Elliott upon discharge of the firearm ..., and was not an "accident" in the sense of being merely negligent and unintended? The jury answered "No" to both thereby concluding Coyle's shooting was a negligent and unintended accident.
      
      On appeal, KFB argues that summary judgment should have been entered on the basis of the inferred intent doctrine. The COA acknowledged this exception to the general rule that if the injury was not actually and subjectively intended or expected by the insured, coverage is provided even though the action giving rise to the injury itself was intentional and the injury foreseeable. Under the inferred intent rule, however, the actor's intent to cause harm can be reasonably inferred from the facts and the nature of the action without having to resort to proof of that intent. The COA noted that Kentucky courts have applied this doctrine in the specific context of child molestation and even where the insured established a mental incapacity that precluded him from forming an intent to cause harm. The COA then highlights the reasoning from a number of decisions in which the doctrine was applied to deny coverage, particularly the recent COA decision in Nationwide Ins. Co. v. Pelgen (2007) where the insured who shot his wife had a mental incapacity. The COA reiterated the general view that the inferred intent rule is supported by sound public policy principles. As applied to the subject case, the COA held that Coyle's admission that he intentionally pointed a firearm at Elliott with the intent of discharge a bullet at him was not an "occurrence" as contemplated by even a liberal reading and broad application of the terms of the policy. As such, the COA reversed the TC judgment and remanded for entry of judgment in favor of KFB.


      Digested By Chad Kessinger
      Schiller Osbourn Barnes & Maloney                     

      

Multiple issues addressed in medical negligence case dealing with evidentiary challenges and denial of mistrial; evidence of decedent child's genetic defect admissible on earning capacity: WOOLUM, M.D. v. HILLMAN (COA 5/2/2008)

WOOLUM, M.D. V. HILLMAN
MEDICAL NEGLIGENCE: EVIDENTIARY CHALLENGES, DENIAL OF MISTRIAL
2007-CA-000376 - 516
PUBLISHED: AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
PANEL: STUMBO PRESIDING; ACREE CONCURS, GRAVES DISSENTS FILING SEP. OP.
BELL COUNTY
DATE RENDERED: 5/2/2008

This appeal and cross-appeal stem from a medical negligence wrongful death action. Lisa Ann Hillman was the patient of Dr. Jerry Woolum during her pregnancy with Caitlynn Hillman. Complications occurred during her pregnancy and Caitlynn was stillborn. A jury found medical negligence on the part of Dr. Woolum and awarded Mr. and Mrs. Hillman a total of $500,000 for their loss of companionship claims ($250,000 each) and $600 for funeral expenses, but chose to award $0 for the child's permanent earnings impairment. The TC later ordered a new trial on the issue of the $0 verdict for permanent impairment. Following the court's ruling on motions in limine in regard to certain evidentiary issues concerning the second trial, the parties entered into an agreement stipulating that the loss to Caitlynn's estate was $475,000 and this appeal followed.

On appeal, Dr. Woolum argued that the TC made several evidentiary mistakes and errors in certain rulings, most notably as follows: 1) it erred in denying his motion for directed verdict; 2) it erred in not declaring a mistrial during the first trial, and 3) it erred by granting the Hillmans a new trial on the issue of damages. The Hillmans cross-appeal and raise two additional issues to be considered by the COA: 1) TC erred by not excluding the testimony of two of Dr. Woolum's experts during the first trial, and 2) it erred by not preventing the jury of the proposed second trial from being informed about the damages awarded to them at the first trial.

TC's Failure to Exclude Evidence of Liability Insurance

Woolum first argued to the COA that the TC erred by admitting evidence of a common med mal insurer between himself and one of his experts, Dr. Butcher. The COA felt that the TC did not abuse his discretion in this admission, noting that Dr. Butcher had shown "extreme bias" toward med mal cases that the jury should be allowed to consider. The COA described Dr. Butcher's "hostility" to med mal cases as extreme (Butcher testified during his depo that be believed there was a direct link between med mal cases and insurance rates and that he had left one state because of alleged collusion between judges and lawyers in med mal cases) and when considering his personal relationship with Woolum (they had practiced together at the same hospital for over 20 years) the TC had sufficient basis to admit the testimony concerning the common malpractice insurer.

TC's Failure to Exclude Introduction of Ultrasound Video

Woolum next argued error in the TC permitting the video of Hillman's ultrasound to be shown to the jury during Hillman's testimony on the basis that it was not properly authenticated by a medical professional. Woolum also alleged that permitting the video to play while Hillman cried on the stand during her testimony was extremely prejudicial, and finally that the video was unnecessary and cumulative since the ultrasound report had already been introduced as evidence. The Hillman's countered that the video was necessary to show that at 7 months the child was healthy and moving around, and to demonstrate the love and affection the Hillman's had for their deceased child.

The COA begins notes that a video is considered a photograph per KRS 1001(2), and that for such evidence to be introduced it must satisfy 3 factors on admissibility per Gordon v. Hunt (2000): it shall be properly authenticated, it must be relevant by tending the make the existence of any fact in question more or less probable, and it's probative value must not be substantially outweighed by the danger of undue prejudice or be considered needless presentation of cumulative evidence. The COA held that the ultrasound video satisfied all 3 factors and therefore was not an abuse of discretion for the TC to permit its introduction even if it could be considered cumulative.

TC's Failure to Grant Motion for Directed Verdict

Dr. Woolum next argued the TC erred by denying his motion for a directed verdict since the Hillman's failed to present proof of the viability of the deceased child (Woolum's defense was that the death was due to an unknown genetic defect). After briefly setting out relevant testimony from one of Hillman's experts that the child was viable had she been born during the month time period preceding the stillborn birth, the COA held that there was sufficient evidence of viability to submit to the jury.

TC's Failure to Grant Mistrial

Woolum contended on appeal that the TC erred by not declaring a mistrial due to inadvertant jury misconduct stemming from two of the jurors becoming ill from high blood pressure and heart problems and having to be transported to the hospital during the deliberations. Woolum felt that since the nature of the juror's problems were due to the very same issue in the case (high blood pressure), these two jurors could have become biased against him as well as the other jurors who witnessed the two jurors' illnesses. The COA noted that the judge gave admonitions to the jury on a daily basis throughout the trial as well as immediately after the jurors fell ill and again before deliberations resumed several days later, and that juries are presumed to follow a court's admonitions. Without some specific evidence to the contrary, the COA ruled that a mistrial was not warranted.

TC's Grant of New Trial

Woolum argued that the TC erred by overruling the jury's verdict and granting the Hillman's a new trial on damages (concerning the wrongful death claim) since evidence presented in regard to the child's genetic defect could have permitted the jury to find that the child had no ability to earn money. In response, the COA reiterated the Supreme Court's decision in Turfway Park Racing Ass'n v. Griffin (1992) that only evidence of a disability so profound as to render the child incapable of earning money can defeat a permanent impairment claim. While Woolum contended that the unknown genetic abnormality prevented the placenta from developing properly thereby resulting in stillbirth, the COA noted that none of its experts had any evidence to indicate that the child would grow up to be anything but normal. The COA thus concluded that the TC's grant of a new trial on impairment damages was not clearly erroneous.

TC's Refusal to Permit Evidence of Lack of Earning Capacity

Woolum finally argued that the TC erred in ruling in limine that Woolum could not present evidence that the child had no earning capacity on the basis that the "law of the case doctrine" precluded such evidence since none was presented at the first trial. The COA agreed with Woolum and determined that the doctrine was inapplicable since the jury in the first trial was not asked to determine whether a genetic defect existed or whether it caused the child's death, only whether Woolum was negligence in his care of Hillman and the child. Further, this doctrine applies to rulings of law, not issues of evidentiary admission, and the TC never made a ruling that could be construed as determinative on the issue of the child's earning capacity. Thus, the COA concluded Woolum could present evidence of genetic defect and the child's lack of earning capacity at the new trial on damages.

CROSS-APPEAL

TC's Failure to Exclude Proffered Testimony of Genetic Defect

On cross-appeal, the Hillman's argued that the TC erred by permitting Woolum's two experts to offer their theory that the child's death was proximately due to an unknown genetic abnormality in violation of Daubert. The COA discusses the factors a trial court must consider in weighing the reliability and relevancy of proffered testimony, and its ruling is not clearly erroneous so long as the decision is supported by substantial evidence. The COA stated that just because the genetic defect in this case fell in the "unknown" category did not mean it should be automatically excluded, and determined that the qualifications of Woolum's two experts along with the medical evidence presented by Woolum was sufficiently reliable to be heard by the jury. Without question, the proffered expert testimony was relevant since it was the heart of Woolum's defense. Thus, the testimony was properly allowed by the TC.

TC's Refusal to Preclude Evidence of Awarded Damages at Second Trial

The Hillman's last argued that it was error for the TC to deny their motion to limine to exclude the introduction of damages awarded in the first trial at the second damages trial. The COA ruled that the Supreme Court in Turfway Park has recognized that the jury at a second retrial should be informed of damages for loss of companionship awarded at an earlier trial involving the same event and allegations, and thus the TC's ruling on this issue was proper.

Conclusion

The COA affirmed the TC in all respects except that it held that Woolum should be permitted to present evidence of the child's lack of earning capacity at the new trial on damages concerning the wrongful death claim.

Digested By Chad Kessinger
Schiller Osbourn Barnes & Maloney 

Individual (not a dealer) seller does not have duty to verify buyer has insurance and thus not owner for insurance purposes for subsequent collision: GRAHAM V. ROGERS (COA 4/25/2008)

GRAHAM V. ROGERS
INSURANCE:  Transfer of ownership between non-dealers and proof of insurance
Commonwealth Of Kentucky - 498 
NOT PUBLISHED: 36
DATE RENDERED: 4/25/2008

CA affirms TC entry of SJ, holding that defendant was not the owner of the car at the time of collision.

Loudon sold his car to Rogers for $400; he accompanied her to the local county clerk's office, signed the back of the title (in both the "transfer" and "application for title" sections); his signature was notarized by county clerk staff; he turned over possession of the title and the car to Rogers. The car was involved in a hit-and-run approximately 7 weeks after the sale. A witness recorded the license plate number, which was traced to Loudon. Rogers had apparently failed to obtain insurance, submit the application for new title, or re-register the car. With the help of hit-and-run detectives, Loudon got Rogers to execute a bill of sale reflecting the original sale date. Loudon also contacted the clerk's office to notify them of the sale. Graham filed this claim for property damage, alleging "negligent entrustment" against Loudon and arguing that since Loudon was listed as the owner by the clerk, he was still the owner for insurance purposes. The trial court concluded that Loudon had taken all steps necessary under KY statutes to transfer ownership to Rogers, therefore finding that Rogers was legal owner of the car at the time of the accident and dismissing all claims against Loudon (and State Farm).

   

CA affirms, holding that statute cited by Graham applies to change in registration and issuance of new title after transfer of ownership takes place. There is no affirmative duty upon the seller to verify buyer has insurance. Also, statute does not place duty upon seller to verify that buyer has timely submitted the necessary documents for transfer of title.

Digested by John Hamlet

No fault act precludes assignment of PIP benefits to provider and a direct cause of action by provider against PIP insurer: NEURODIAGNOSTICS V. KENTUCKY FARM BUREAU MUT. INS. CO. (SC 4/24/2008)

NEURODIAGNOSTICS V. KENTUCKY FARM BUREAU MUT. INS. CO.
INSURANCE:  No fault PIP benefits and assignment of benefits
2006-SC-000857-DG.pdf
PUBLISHED: AFFIRMING
OPINION BY MINTON; SCHRODER NOT SITTING
FAYETTE COUNTY
DATE RENDERED: 5/22/2008 -75

At issue in this case is whether, under the Kentucky's Motor Vehicle Reparations Act FN1 (MVRA), a medical provider can have a direct right of action against an automobile insurer for basic reparation benefits (BRB) by assignment from the insured.  The SCOKY concluded, consistent with the lower courts that have addressed this issue, that under the old law, it could; but under the current law, it cannot and thus affirmed the COA decision.

This opinion involves two lawsuits filed by Neurodiagnostics, PSC, d/b/a Lexington Diagnostic Center (LDC), in district court. Both cases involved payment for medical services provided by LDC to individuals who had sustained injuries in automobile accidents. The Court of Appeals consolidated the two cases for the purposes of appeal because they involved the same substantive issue: whether LDC could pursue direct rights of action for payment of BRB against automobile insurers of its patients by assignment from the patients.

The assignment provisions of the LDC contract are unenforceable because they are no longer permitted under the MVRA.  SCOKY could not agree with LDC's contention that KRS 304.39-240 was actually a limitation on the ability to assign rights, and the legislature removed the limitation when it repealed KRS 304.39-240.  The plain language of KRS 304.39-240 indicates that assignments were unenforceable with two limited exceptions. And with the express repeal of KRS 304.39-240, any assignment of benefits under the MVRA is unenforceable.

Finally, on the issue of assignment, the Court addressed LDC's reliance on Phoenix Healthcare of Kentucky, L.L.C. v. Kentucky Farm Bureau Mut. Ins. Co.,FN14 a Kentucky Court of Appeals case decided after the repeal of KRS 304.39-240 in which Phoenix Healthcare filed a cause of action against the reparation obligor under an assignment from the insured. Consistent with the conclusion of the Court of Appeals in this case, SCOKY held the Phoenix Healthcare decision does not apply here because the opinion did not address the validity of the assignment. The issues presented for the court's consideration were whether the MVRA provided the exclusive remedy for the insurer's late payment or whether the appellant could recover punitive damages under the Unfair Claims Settlement Practices Act.  And since the issue was neither presented nor ruled upon, it does not constitute persuasive authority in this case.

Digested by Michael Stevens

Sheriff entitled to county's sovereign immunity which is waived per KRS 70.040 for actions or omissions of his deputies: JONES V. CROSS (SC 4/24/08)

JONES V. CROSS
TORTS:  Sheriff entitled to county's sovereign immunity which is waived per KRS 70.040 for actions or omissions of his deputies
2005-SC-000854-DG
PUBLISHED: AFFIRMING
OPINION BY SCHRODER; ABRAMSON CONCURRING BY SEPARATE OPINION
DATE: 4/24/2008
BARREN COUNTY

The split between the majority opinion and the concurring opinion is more interesting than either the facts or the holding of the opinion itself. The opinion itself is limited to two questions. The first is whether a County Sheriff is entitled to the county’s sovereign immunity? The majority opinion holds yes. The concurring opinion says, “No.”

The second is the rather narrow question of whether KRS 70.040 waives a County Sheriff’s sovereign immunity. Again, the majority holds that it does and the concurring opinion says, “No.”

 

KRS 70.040 provides in pertinent part:

The sheriff shall be liable for the acts or omissions of his deputies; except that, the office of sheriff, and not the individual holder thereof, shall be liable under this section.

The majority finds that the “literal or plain reading of the statute clearly imposes liability” on the sheriff, which leads the Court to conclude “that the legislative waiver of immunity is very clear, and that the plain language of KRS 70.040 leaves no room for any other reasonable construction than a waiver of the sheriff’s official immunity (the office of sheriff) for the tortious acts or omissions of his deputies.”

In her concurring opinion, Justice Abramson argues that the majority’s holding is contrary to Grayson County Board of Education v. Casey, 157 S.W.3d 201 (Ky.2005). As you may recall, Casey holds that a statute “authorizing boards of education to insure against the negligence of school bus drivers” does not constitute a waiver of the school board’s sovereign immunity despite language “expressly requiring that insurance policies issued pursuant to the statute ‘shall bind the company to pay any final judgment rendered against the insured.’”

Being biased against immunity, I certainly favor the majority opinion. But I should note that the stark differences between the holdings in Jones and Casey could lie in the fact that Jones concerns a waiver of a County’s sovereign immunity whereas Casey concerns a waiver of the Commonwealth’s sovereign immunity. That is, Casey implicates payments out of the State Treasury, and, hence, Section 230 of the Kentucky Constitution, and Jones does not. In other words, Jones could stand for the proposition that waiver of County sovereign immunity is subject to a lesser test than waiver of the State’s sovereign immunity. 

 

By Hays Lawson at www.PedlyLaw.com

Daubert hearing, findings of fact, sufficiency of causation in scientific evidence, and learned intermediary instruction in medical negligence and products liability case involving punitives: HYMAN & ARMSTRONG PSC V. SANDOZ PHARM. (SC 4/24/2008)

HYMAN & ARMSTRONG, P.S.C. & SANDOZ PHARMACEUTICALS V. GUNDERSON, ET AL.
MEDICAL NEGLIGENCE & PRODUCTS LIABILITY: DAUBERT CHALLENGES OF MEDICAL DATA; LEARNED INTERMEDIARY INSTRUCTION
http://opinions.kycourts.net/SC/2006-SC-000175-DG.pdf
PUBLISHED: OPINION AFFIRMING
AUTHORED BY JUSTICE SCHROEDER
COUNTY: JEFFERSON
DATE RENDERED: APRIL 24, 2008

In this well-publicized case, a Jefferson County jury awarded Gunderson's estate, her surviving husband and two minor children a total of almost $19.1 million ($6 million for loss of parental consortium and approx. $1.85 million for loss of earning power and services along with $11.25 million in punitives) in February 2004 against Dr. Lynn Armstrong and Sandoz Pharmaceuticals (90% of compensatorys and all of punitives assessed to Sandoz) stemming from the sudden death of Gunderson in October 1993 while taking Parlodel postpartum (to stop lactation) as prescribed by Dr. Armstrong and manufactured by Sandoz. On appeal, the COA affirmed the compensatory damages award, but vacated the punitives award based on its determination that the TC failed to instruct the jury that punitives could not be based on conduct of Sandoz that occurred outside Kentucky. By opinion dated October 21, 2005, the COA remanded for a new trial on the amount of punitives only. Dr. Armstrong and Sandoz filed separate motions for discretionary review, which were granted and consolidated for the Supreme Court's review.

In its 48-page opinion, the SC addresses a number of issues raised by one or both Appellants as follows:

Lack of Daubert Hearing by TC

Both Appellants argue that the TC never conducted a formal Daubert hearing per their request to determine the admissibility of Gunderson's causation experts, which was error. The SC makes note that a hearing is only required if the record is not complete enough to measure the proffered testimony against the proper standards of reliability and relevance. In this case, the SC notes that the TC had a "mountain" of discovery material, reports, affidavits, scientific studies, etc. as well as extensive briefing by the parties, and devoted an entire day addressing the parties' motions in limine, many of which related to the admissibility of the same scientific evidence being challenged. Thus, the Court felt that the TC did not abuse its discretion in conducting its review of the Daubert motions without a formal hearing.

Lack of Express Findings of Fact on Daubert Ruling by TC

While acknowledging the lack of any written findings of fact to support the TC's decision, the Court reiterated recent Kentucky decisions determining that the only requirement is that the record clearly show the TC effectively conducted a Daubert inquiry. While the SC would prefer trial courts to include findings of fact in their rulings, the failure to do so does not automatically render the rulings arbitrary, unreasonable or unfair and is not grounds for reversal. An appeals court's review standard is clear error to see if the TC's ruling is supported by substantial evidence in the record.

Reliability and Relevance of Causation Evidence

The general basis for the Appellants' challenges to the various pieces of scientific evidence (case reports, animal studies, chemical analogies) relied upon by Gunderson's causation experts was that they were unreliable and/or irrelevant because the evidence failed to prove that Parlodel causes seizures in women taking the drug specifically for postpartum lactation suppression (PPLS). Instead, the Appellants suggested that the only reliable method of proving this theory is an epidemiological study, and since the only 2 such studies done found no significant link between the drug and such seizures the evidence cited by Gunderson's experts was unreliable. In response, the SC spends a good deal of time in tracing the history of Parlodel, the reported cases of new mothers suffering seizures, strokes and heart attacks while taking the drug (especially those women who had hypertension during the pregnancy), and pointing out the bias and unreliability of the two referenced epidemiological studies. The Court acknowledged the fact that the great majority of courts from other jurisdictions addressing the same Daubert issues relating to the same scientific evidence presented by the Gunderson's have ruled that such evidence was inadmissible. However, the Court felt the reasoning expressed by the U.S. District Court in Alabama was more on point in its determination that the majority courts had created too high a standard of admissibility under Daubert by equating reliability with scientific certainty. The SC highlighted the Alabama court's view that while an epidemiological study may be the best evidence on the issue at hand, Daubert requires only that reliable evidence be presented and that the evidence at issue (animal studies, case reports, medical literature reviews) met that standard as being routinely used by scientists. In the end, the Court reiterated the TC's view that while any one of the individual pieces of evidence may not definitely prove that the drug causes postpartum seizures, when considered together as an aggregate body of evidence all of it was reliable enough to put before the jury.

Sufficiency of Causation Evidence

Dr. Armstrong next argued that the Appellants were entitled to a direct verdict because there was insufficient reliable evidence that Parlodel caused the decedent's alleged seizure (there was some issue about the exact cause of her death since the state medical examiner found no anatomic cause of death initially and only after further research into Parlodel and its reported effects on PPLS women concluded that death was attributed to seizure ). The SC again highlights generally the nature of the pieces of evidence relied upon by Gunderson's expert and agreed with the TC that when viewed together they tend to show that the drug can cause seizures in women taking it for PPLS, and even referenced Sandoz' internal memos from 11 years pre-death that acknowledged a connection between the drug and postpartum hypertension and seizures.

The second part to this issue was whether the Gunderson's presented enough evidence of specific causation - that death was actually caused by a seizure due to the ingestion of Parlodel. The SC noted that all 3 of their medical experts used the differential diagnosis methodology to reach their independent conclusions that the drug caused the seizures that led to Gunderson's death, and analyzed the respective investigations and bases for the opinions of each of the experts before concluding that the Gunderson's had met their burden of proof on this issue submit for a jury to determine.

Failure of TC to Give Learned Intermediary Instruction

3 months after the trial in this case, the SC adopted the learned intermediary doctrine from the Restatement (Third) of Torts in Larkin v. Pfizer, Inc., which relives a drug manufacturer from liability to the ultimate consumer if it provides adequate warning about the drug to the prescribing physician. Sandoz argued information in the package insert for Parlodel and the PDR, as well as direct letters to doctors, sufficiently noted the risks and seizure and hypertension for postpartum patients and therefore constituted an adequate warning entitling it to the instruction. Despite acknowledging the evidence presented of Sandoz's alleged deception and continued marketing of Parlodel even after the FDA asked it to withdraw its indicated use for PPLS, the SC held that the TC erred in its failure to give the instruction since Sandoz had presented enough evidence of an adequate warning to Dr. Armstrong of the risks of the drug. However, the SC ruled that the Gunderson's had met their burden of demonstrating no prejudice resulted from the error given the "abundant" evidence they presented of Sandoz's efforts to deliberately conceal or downplay the drug's risks and when considering the jury's assessment of almost all of the liability to Sandoz, a fact that severely undercut Sandoz's argument on the drug warning's adequacy.

Failure of TC to Grant Directed Verdict on Medical Malpractice Claim

Dr. Armstrong next argued the TC erred by not directing a verdict on the medical malpractice claim filed against him since the Gunderson's failed to show his treatment of the decedent violated the applicable standard of care. The SC agreed that something more than mere injury from a drug must be shown in order to have a viable med mal claim, but noted that Gunderson's experts had presented sufficient evidence that it was a deviation of the standard of care for Dr. Armstrong to prescribe Parlodel in 1993 (even though it was not when he prescribed it to the deceased after her first pregnancy in 1989) because of the additional information about the known risks of the drug when used for PPLS that had come forth during those four years and the fact that she had suffered from gestational hypertension during the second pregnancy.  The SC reaffirmed the majority view among courts that while information about the drug in the package insert and PDR is relevant and useful information regarding the prescribing doctor's standard of care, it is not the sole determinant of this standard. The Court therefore concluded that the Gunderson's had presented enough evidence for the jury to consider this claim.

Mitigation Evidence on Loss of Parental Consortium Claim

Appellants attempted unsuccessfully to present evidence of the two surviving sons' close relationship with their father's girlfriend of 4 years (at trial time) to mitigate the damages on their loss of parental consortium claims, and argued on appeal that it was an abuse of the TC's discretion to deny the proffered evidence. The TC had felt that the evidence could not be presented on the parental consortium claim where it was arguably admissible without running the risk that it would be considered in connection with the estate's wrongful death claim where it clearly was not admissible. The COA agreed with the TC since the relationship between the decedent's husband and new girlfriend was not of sufficient duration and stability to be admissible.

The SC began its review by noting that the admissibility of such relationships on a parental consortium claim was one of first impression in Kentucky, and then traced the distinctions between spousal and parental consortium claims through Kentucky case law. While not wanting to minimize the loss of a spouse's consortium, the SC held that it is undeniable that a child's loss of parental consortium is often greater and more difficult to recover from over time. The SC thus concluded that the proffered evidence in this case was not admissible on the parental consortium claims (even though it would be on a spousal consortium claim).

Admissibility of Gunderson's Mental Health Counselor Testimony

Appellants challenged the admissibility of any testimony from Dr. Bower, a mental health counselor who had performed a psychological assessment on both children in the lawsuit and concluded that both had been deeply affected by their mother's death. Her testimony included the showing of drawings the children had made and their significance to their mother's death. Appellants filed a motion in limine on grounds that her testimony was too speculative, subjective and inflammatory, and not based on good science or methodology as required by Daubert (since Bowers had not performed any form of objective, standardized testing during her analysis). The SC concluded that Bowers' extensive education and experience in child counseling and the limited purpose of her testimony rendered her testimony sufficiently reliable and therefore admissible on the parental consortium claims under KRE 702.

Admissibility of Evidence of Dr. Armstrong's Cross-Claim against Sandoz

In 1998, Dr. Armstrong's estate (he passed away while the case was pending) filed a cross-claim against Sandoz alleging fraudulent misrepresentation and gross negligence in its marketing of Parlodel and sought damages for injury to his reputation and for indemnification on the Gunderson's claims. Prior to trial, Sandoz entered an indemnification agreement with Dr. Armstrong settling his claims and taking over his defense. The cross-claim was dismissed and Dr. Armstrong offered no evidence against Sandoz. However, the TC ruled that the cross-claim could be introduced as evidence of the Defendants' non-adverse relationship per KRE 408. The Gunderson's discussed the cross-claim during their opening and closing statements and was mentioned during voir dire. Sandoz cites error in the TC's decision since the cross-claim was inadmissible hearsay introduced as substantial evidence against it in violation of KRE 801. The SC notes that while Gunderson had argued at trial that the cross-claim was admissible to show Dr. Armstrong's change in position and the collusive nature of his relationship with Sandoz while on appeal it was argued that the cross-claim was non-hearsay as an admission of a party-opponent (KRE 801A(b)) since Dr. Armstrong admitted therein that the drug was unsafe and caused Gunderson's death, which contradicted his position at trial.

The SC held that while the settlement agreement between the Defendants was admissible per KRE 408 to show the potential bias of the Defendants who were previously adversaries, the cross-claim was not. Although KRE 801A(b)(1) allows introduction of an adverse party's admissions, such evidence can only be used against the declaring party. Here, the SC noted that the Gunderson's clearly used the cross-claim to try and prove Sandoz's liability instead, and even conceded to the TC that the cross-claim tended to exculpate Dr. Armstrong. Thus, the SC ruled that the TC erred in admitting the cross-claim. However, the SC determined the error was not palpable and that no manifest injustice resulted in light of the other voluminous and "quite damning" evidence that certainly was persuasive to the jury.

Punitive Damages

Sandoz appealed the TC's refusal to tender a jury instruction pursuant to the US Supreme Court's decision in State Farm v. Campbell (2003) that specifically precluded the jury from using punitive damages to punish Sandoz for conduct outside Kentucky. The COA ruled this was error and remanded for a new trial on the amount of punitive damages only. On appeal to the SC, Sandoz argued that the COA's decision deprived it of the right to a fair trial because it improperly presumed the Gunderson's were entitled to such damages in the first place. In response, the SC agreed with the COA that the Gunderson's had presented sufficient evidence that Sandoz acted with wanton or reckless disregard for the decedent thereby justifying a punitive damage instruction. However, in accordance with its earlier decision in Sand Hill Energy v. Smith (2004), the SC ruled that Sandoz was entitled to a new trial on liability for punitive damages rather than just a determination of the amount of such damages to be awarded.

CONCLUSION

While the Supreme Court deemed it error for the TC to not give a learned intermediary instruction and to allow the cross-claim's admission, it adjudged both to be harmless errors. It therefore affirmed the COA decision. All Justices concurred (except Justice Abramson who did not sit), with Justice Scott concurring in result only since he did not believe Sandoz was entitled to a learned intermediary instruction.

Digested By Chad Kessinger

Schiller Osbourn Barnes & Maloney

SOVEREIGN IMMUNITY: School board employees afforded same immunity, if any, to which agency entitled; discretionary vs. ministerial acts are not bright line and measured against Yanero: PENNINGTON V. GREENUP COUNTY BOARD OF EDUCATION

PENNINGTON V. GREENUP COUNTY BOARD OF EDUCATION
SOVEREIGN IMMUNITY: School board employees afforded same immunity, if any, to which agency entitled; discretionary vs. ministerial acts are not bright line and measured against Yanero
RENDERED: APRIL 11, 28, 2008; 2:00 P
PUBLISHED: AFFIRMING
GREENUP COUNTY
DATE RENDERED: 4/18/2008

Parent of child who was mentally retarded brought action against school and his teacher when child fell and broke his ankle at school outing. The circuit court granted summary judgment to both defendants, holding that the Board of Education is protected from suit by governmental immunity and that Ms. Kelley (teacher) is protected by qualified immunity.

The issue presented on this appeal was whether or not the circuit court erred when it found that Tracey Kelley's actions in supervising Andrew were discretionary rather than ministerial in nature, resulting in the legal conclusion that Ms. Kelley is entitled to the protection of qualified official immunity. COA affirmed.

The child broke his ankle when he reached over and attempted to kiss another student.

The extent to which local school boards and their employees are protected from suit by governmental immunity is an area of law which has received considerable attention in Kentucky's appellate courts in recent years. Yanero v. Davis, 65 S.W.3d 510 (Ky. 2001), the most frequently cited recent Kentucky case relating to governmental immunity, involved a high school student who was injured when he was struck by a baseball thrown by another student on school grounds. In Lamb v. Holmes, 162 S.W.3d 902 (Ky. 2005), our Supreme Court, relying on qualified official immunity, dismissed a 42 U.S.C. § 1983 “strip search” action against school employees.

It is now familiar law in Kentucky that when an employee of a local board of education is sued in her representative capacity, her “actions are afforded the same immunity, if any, to which the agency, itself, would be entitled[.]” Yanero at 522.

The courts cannot make a “bright line” rule of demarcation between discretionary and ministerial acts. The act or acts complained of in each case must be measured against the standards quoted above from Yanero. Consistent application of those standards can prove difficult, as seen in Williams at 150 (teachers' duty to supervise students a ministerial function); Sloas at 479-481 (deputy jailer's supervision of inmates while cutting trees and brush a discretionary function) and Lamb at 909 (search of students by school personnel a discretionary function).

After examining these precedents and others, the COA was unable to conclude that the circuit court erred as a matter of law by granting summary judgment in favor of Ms. Kelley.

For purposes of “discretionary versus ministerial” analysis, it was the COA's opinion that the teacher's decisions required as much personal deliberation and judgment as that exercised by the employees in Sloas and Lamb, and we are unable to rationally distinguish the relevant factual bases of those recent cases from that of the present case.

Digested by Michael Stevens

"Coots" notice requirements can be waived, period to advance not extended by information request: YOUNG V. KENTUCKY FARM BUREAU MUT. INS. CO (COA 4/11/2008)

YOUNG V. KENTUCKY FARM BUREAU MUT. INS. CO
INSURANCE:  Underinsured motorist benefits and notice of subrogationrights - formal requirements of certified mail can be waived by UIM carrier;  inaccurate information in notice does not toll period or vitiate the notice; and UIM's request for additional information does not toll the 30-day period 
2006-CA-001386
PUBLISHED: REVERSING AND REMANDING
PANEL: HENRY PRESIDING; COMBS, STUMBO CONCUR
UNION COUNTY
DATE RENDERED: 04/11/2008

This appeal addresses the waiver by the underinsured motorist carrier of the notice requirements under KRS 304.39-329(3) regarding subrogation rights and offer of limits (eg., the "Coots" Notice). Trial court granted summary judgment dismissing the claim for UIM benefits stating Kentucky Farm Bureau Mutual Insurance Company was not obligated to pay underinsured motorist (UIM) benefits to the Youngs because they failed to comply with the notification requirements contained in Kentucky Revised Statutes (KRS) 304.39-320(3). COA REVERSE the trial court's award of summary judgment to Farm Bureau, and remanded.

The facts briefly were that KFBM received notice by first class mail of the tender of limits and rights of subrogation. The UIM carrier did not advance the proceeds within the 30 day period and wrote back requesting sufficient or additional documentation. The insureds brought action against underinsured motorist (UIM) carrier after settling tort claim and the Court of Appeals held KFBM had waived any defense based on failure to comply with statutory requirement to send notice of tort settlement by certified or registered mail, and the insured's letter notifying carrier of tort settlement provided reasonable and sufficient notice despite potentially misleading content.

Request by underinsured motorist (UIM) carrier for more documentation does not toll thirty-day limitations period for carrier to permit insured to settle tort claim or advance settlement amount.

The letter from the claimant's attorney contained inaccurate information as to the amount of the settlement and may have been grammatically incorrect, it did reference the statute and provide notice. There was no evidence of intent to mislead or bad faith by the attorney writing the letter. Insured's letter with potentially misleading content that insured would receive $100,000 from proceeds of tort settlement provided reasonable and sufficient notice to underinsured motorist (UIM) carrier, and, thus, it was required to consent to settlement or advance settlement amount within thirty days, even though the settlement amount included $25,000 unrelated to tortfeasor's liability policy; due diligence and a telephone call would have resolved the discrepancy, the discrepancy was not decisive to carrier's decision, and the letter did not prejudice the carrier.

By Michael Stevens