Opposition Brief — Hofmeister v. Cincinnati Insurance Insurance Co Co. (No. 09-179)
Supreme Court brief2009
Ask Donna
What actually matters in this document.
Text
i ‘Supreme Court uz
aU | SEP 11 2009
No. Q9- | 79 OFFICE OF THI CLERk
Jn The
Supreme Court of the United States
GEORGE HOFMEISTER, er ux
> ’
Re SDOTLCE
On a fition for Writ oO} Certiorari to the
sm J “
Court of Appeals of Kentucky
BRIEF IN OPPOSITION
JOHN T. BALLANTINE RONALD L. GREEN
STOLL KEENON Counsel of Record
OGDEN PLLC BOEFHL STOPHER &
Suite 2000 GRAVES LLP
500 WeEsT JEFFERSON STREBT 444 WesT SECOND STREE'
LOUISVILLE, KY 40202-2274 LEXINGTON, KY 40507
(502) 333-6000 (859) 252-6721
MICHAEL D. Risiey Attorneys for Respondent
STITES & HARBISON PLLC
400 West Market STREE1
SUITE 1800
LOUISVILLE, KY 10202 3352
(502) 587-3400
September 11, 2009
Becker Gallagher + Cincinnau, OH - Washington, D-C + 800 890 S00!
]
TABLE OF CONTENTS
TABLE OF AUTHORITIES
RESPONSE TO PETITION FOR WRIT OF
CERTIORARI
OPINIONS BELOW
JURISDICTION AND FAILURE TO PRESERVE
COUNTERSTATEMENT OF THE CASE 14
ARGUMENT
I. THE OPINION OF THE COUR!T Ok
APPEALS DOES NOT IMPLICATE IN ANY
WAY THE FOURTEENTH AMENDMENT OF
THE CONSTITUTION OF THE UNITED
STATES o0)
Il THE REGULATION OF THE PRACTICE OF
LAW IS NOT WITHIN THE POWERS
DELEGATED BY ‘THE STATES TO THE
FEDERAL GOVERNMENT 24
CONCLUSION 26
APPENDIX
Appendix A: Commonwealth of Kentucky Court
of Appeals, Motion to Strike Portions of the
Court’s Opinion with Request for En Banc
Hearing and Motion for Intermediate Relief,
Pursuant to CR 76.33, to Immediately Strike
Those Portions of the Opinion, dated September
29, 2008 . . lb
Appendix B: Commonwealth of Kentucky Court
of Appeals, Order Denying Motion for Recusal of
Panel and Assignment to New Panel; Denying
Motion for En Bane Hearing; and Granting
Motion for immediate Relhef by Modifying
Opinion Rendered September 26, 2008, dated
October 3, 2008 llb
Appendix C: Commonwealth of Kentucky Court
of Appeals, Opinion Reversing Appeal No. 2004
CA-002296-MR and Dismissing as Moot Appeal
No. 2004-CA-002362-MR, dated October 17,
ZU008 a oo ao... .eD
Appendix D: Supreme Court of Kentucky,
Motion for Discretionary Review, dated
November 6, Quam eee ees ese... 93b
Appendix EF: Supreme Court of Kentucky, Order
Denying Discretionary Review, dated May 13,
2009 .....0e ee a a mor. &i3b
Appendix F: Commonwealth of Kentucky Court
of Appeals, Brief for Appellant/Cross-Appellee,
dated September 6, 2005 ........ A 8 le
Appendix G: Commonwealth of Kentucky Court
of Appeals, Combined Response Brief and
Cross-Appeal for Appellees/Cross-Appellants
George Hofmeister and Kay Hofmeister, dated
January 18, 2006 136b
Appendix H: Commonwealth of Kentucky Court
of Appeals, Combined Reply and Response Bnet
on Behalf of the Appellant, Cincinnati Insurance
Company, dated March 14, 2006 LOob
Appendix |: Commonwealth of Kentucky Court
of Appeals, Reply of Appellees/Cross-Appellants,
George Hofmeister and Kay Hofmeister,
Combined Reply and Response Brief of
Appellant/Cross-Appellee, dated March 23
2OO6 L7Ob
Appendix J: Commonwealth of Kentucky Scott
Circuit Court, Hearing Transcript, dated
October 14, 2002 174b
Appendix K: Letter to Daniel E. Murner from J
Dale Golden |Defendant’s Exhibit 6], dated
June 22, 2000 206b
1V
TABLE OF AUTHORITIES
CASES
Adams v. Robertson,
520 U.S. 88.117S. Ct. 1028 (1997) 5.4 33
Cape rton v. A.T. Massev Coal Co
556 U.S. __, 129 S. Ct. 2252 (2009) 23. 34
Cardinale v. Louisiana,
394 U.S. 437. 89 S. Ct. 1161 (1969) 3
In re Murchison,
349 U.S. 133, (5 S. Ut. 623 (199090) 23
Manchester Ins ra, Indem Os j { 7} mnd\
31 S.W.2d 193 (Ky 1976) 6
Tacon v. Arizona
110 U.S. 3851. 93 S. Ct. 998 (1973) ~~ 3
Withrow v. Larkin,
121 U.S. 35,95 S. Ct. 1456 (1975) . 22,24
Y: SL. Escondido.
503 U.S. 519. 1112S. Ct. 1522, 118 L.. Ed. 2d 153
(1992) er oe Se Aeon, AEE Risa" KS
STATUTES
28 U.S.C. §$ 1257 i ; sae 3
Ky. Rev. Stat. Ann. § 304.12-230 atte la
RULES
OTHER AUTHORITIES
>
Re
RESPONSE TO PETITION FOR
WRIT OF CERTIORARI
The Respondent, Cincinnati Insurance Company,
respectfully submits this Response in opposition to
Petitioners’ Petition for a Writ of Certiorar! to review
the judgment of the Commonwealth of Kentucky Court
of Appeals.
OPINIONS BELOW
The Court of Appeals reversed the judgment of the
Trial Court by an Opinion rendered on September 26,
2008 Pet. App. A. On September 30, 2008,
Petitioners filed Motions to Strike Portions of the
Opinion, for Intermediate Relief, and for an En Banc
hearing. App. A. The Court granted the Motion to
Strike and for Intermediate Relief, but demied the
request for a hearing by a different pane! or en banc.
App. B. On October 17, 2008, the Court of Appeals
rendered a revised Opinion, again reversing the
judgment of the Trial Court. App. C. No Petition for
Rehearing was ever filed. On November 6, 2008,
Petitioners filed a Motion for Discretionary Review
with the Kentucky Supreme Court. App. D. That
Motion was denied on May 13, 2009, and the order
denyirg the motion further ordered that the Court of
Appea.s’ Opinion was not to be published. App. E. No
reason was given for the order de-publishing the
Opinion, but since the “offending” portions had been
struck, the reason could not have been a concern about
Petitioners’ attorney’s allegedly injured feelings.
7)
JURISDICTION AND FATLURE
TO PRESERVE
The Petition lists four questions presented, but as
the Argument reveals, the first and second Questions
are in fact the same, while the third and fourth
Questions also combine to be one. The Petition does
not anywhere attempt to address the requirement
(whether jurisdictional or premised on comity) that the
alleged federal question being presented be preserved
for review in the state Court as required by Sup. Ct.
Rule 14(1)g)0) which provides as follows:
If review of a state-court judgment is sov zht,
specification of the stage in the proceedings,
both in the court of first instance and in the
appellate courts, when the federal questions
sought to be reviewed were raised; the method
or manner of raising them and the way in which
they were passed on by those courts; and
pertinent quotations of specific portions of the
record or summary thereof, with specific
reference to the places in the record where the
matter appears (e.g., court opinion, ruling on
exception, portion of court’s charge and
exception thereto, assignment of error), so as to
show that the federal question was timely and
properly raised and that this Court has
jurisdiction to review the judgment on a writ of
certiorari. When the portions of the record
relied on under this subparagraph are
voluminous, they shall be included in the
appendix referred to in subparagraph 1(i).
The Petition contains no such statement, and in fact
the Petition is the first mention ofany federal question
germane to the Petition
This Court on many occasions has stated that “|wle
cannot decide issues raised for the first time here.”
Tacon v. Arizona, 410 U.S. 351, 352, 93S. Ct. 998, 998
(1973) (citing Cardinale v. Louisiana, 394 U.S. 437, 89
S. Ct. 1161 (1969)). The petitioner in that case did not
raise the questions below and the Arizona Supreme
Court had therefore been unable to pass upon those
issues. Jd. Petitioners here carry the burden of
showing that they properly presented the claims they
raise here before both the Kentucky Court of Appeals
and the Supreme Court of Kentucky. Most recently,
this Court examined this fundamental principle in
Adams v. Robertson, 520 U.S. 838, 117 S. Ct. 1028
(1997). Unable to improve on the Court's description
of the basic principles, Respondent incorporates thi:
Court’s assessment as follow:
With “very rare exceptions,’ Yee v. Escondido,
503 U.S. 619, 633, 112 S.Ct. 15Z2Z, 1531, 118
L.Ed.2d 153 (1992), we have adhered to the rule
in reviewing state court judgments under 28
U.S.C. § 1257 that we will not consider a
petitioner’s federal claim unless it was either
addressed by, or properly presented to, the state
court that rendered the decision we have been
asked to review. As petitioners concede here
the Alabama Supreme Court did not expressly
address the question on which we granted
certiorari.
Nor have petitioners met their burden of
showing that the issue was properly presented
to that court. When the highest state court is
silent on a federal question before us, we
assume that the issue was not properly
presented, and the aggrieved party bears the
burden of defeating this assumption, by
demonstrating that the state court had “a fair
opportunity to address the federal question that
is sought to be presented here. We have
described in different ways how a petitioner
may satisfy this requirement. In some cases, we
have focused on the need for petitioners cither
to establish that the claim was raised “at the
time and in the manner required by the state
law,”, or to persuade us that the = state
procedural requirements could not serve as an
independent and adequate state-law ground for
the state court’s judgment. In other cases, we
have described a_ petitioners burden as
involving the need to demonstrate that it
presented the particular claim at issue here
with “fair precision and in due time’
Id. at 86-87, 1175S. Ct. at 1029-30 (citations omitted).
The Petitioners have utterly and totally failed to even
address this requirement, and had they addressed it,
the Petition would make clear that the requested writ
cannot and should not be issued
In the original state court appeal, the Respondent
was the Appellant, but the Petitioners filed a cross
appeal. While the first two questions presented could
not be raised until after the first opinion was issued, it
is Clear from the Kentucky Court of Appeals opinion
that no federal question was presented as to the
attorney-chent relationship in Kentucky. Four briefs
were filed by the parties in the Kentucky Court of
—~
Appeals, and in none did any party suggest that the
practice of law was a federal issue.’
The Petitioner did not file a Petition for Rehearing
with the Kentucky Court of Appeals asserting tha® its
Opinions raised a question under the United States
Constitution as would have been appropriate under
the Kentucky Rules of Civil Procedure, Rule 76.32
Instead, Petitioners filed a Motion to Strike which was
treated as three separate motions by the Kentucky
Court of Appeals. App. A. The first and primary
request was to strike two passages from the Kentucky
Court of Appeals opinion which allegedly offended
Petitioner’s counsel. The two passages are set forth in
the Petition at page sixteen.
The first passage simply noted that, in attempting
to fabricate a bad faith claim, Petitioners’ attorney
may be the type of attorney the Kentucky Supreme
Court had referred to in a prior case when cautioning
about the improper use of “bad faith” actions to simply
extort a larger settlement. At the outset, it should be
noted that this is an accurate assessment of the
misconduct by counsel in the handling of this case at
trial as demonstrated by the record and the Kentucky
‘To demonstrate this fact the most efficiently, the Respondent has
attached partial briefs hereto. Each partial brief contains the
Table of Points and Authorities (if applicable) and the portion of
the brief addressing the issue. The Trial Court had ruled and
instructed the jury that defense counsel was the agent of the
insurer. Appellant Brief, App. F, Combined Brief from
Appellees/Cross-Appellants, App. G; Combined Brief from
Appellants in Reply and Cross Appellees, App. H; and Cross
Appellant Reply Brief, App. |
6
Court of Appeal’s opinion.* Petitioners’ complaint
about this passage had nothing to do with due process,
but instead was that “this portion of the opinion is
nothing more than a personal attack against attorney
Golden, and could be seen as evidence of bias or
personal animosity on behalf of the involved judges.”
App. A at 5b. Further, in terms that fully disclose the
lack of respect for the judicial process that runs
rampant through the facts of this case, counsel wrote
Judge Acree described the factual basis, at least in part as
follows
On February 9, 2001, Golden wrote a peculiar letter’™™’
to Murner ostensibly attempting to settle one portion only
of his chents’ claims. The letter did not present any offer
to settle. On the contrary, Golden was attempting to
resurrect and accept one portion of Dasher’s June 22,
2000, offer that Hofmeister rejected in toto cight months
earlier. With still no proof of future medical expenses,
Golden, on behalf of the Hofmeisters, wanted now to
accept that portion of Dasher’s previous offer. He wanted
Murner to explain the “decision to withdraw the offer of
settlement of $25,000[.1” He also wanted to know why
Hosmeister could not accept one portion of the offer
without accepting the other portions. In Golden’s opinion,
this violated Kentucky’s UCSPA. Using the same wording
as KRS 304.12-230(13), Golden claimed this amounted to
“failing to promptly settle a claim where liability has
become reasonably clear under one portion of the
insurance policy coverage in order to influence settlement
under another portion of the coverage afforded by [CIC}.”
Pet.App.A at 19-20.
“The oddity of Golden's letter surpasses the “curious
letter” described in Manchester Ins. & Indem. Co. v
Grundy, 531 S W.2d 498, 495 (Ky. 1976), which is similar
to some of Golden's other correspondence
Unfortunately, as this Court is surely aware,
there is a class of jurists who exhibit a personal
bias against attorneys who zealously advocate
for their clients, be it Plaintiffs or Defendants.
‘his Opinion, penned by Judge Acree and joined
by Special Judge Knopf, left unchanged, would
not exclude Judge Acree or Special Judge Knopf
from this class of jurists.
App. A at 6b (footnote omitted). There was no mention
of any federal issue.
‘he second passage was simply a factual statement
concerning the fact that attorney Golden also
represented the Respondent’s insured’s employee even
though he had just sued him in the underlying action
in this case, and that they had also filed a “bad faith”
action against the Respondent. While it was claimed
that this unusual and likely unethical conduct was not
vermane to the issues on appeal, this was simply
untrue. Even more importantly, the Petitioners,
through attorney Golden, suggested that removal of
these two passages would satisfy them. In their
motion they said:
For these reasons, so as to make clear that the
panel had no intention of besmirching either the
character of attorney Golden as a zealous
advocate for his clients, or the character of
Judve Acree and Senior Judge Knopf as fair and
impartial jurists, and to leave no doubt as to the
Court’s pronouncements on matters not
properly before the Court, the above-referenced
sections of the Opinion should be_ stricken
immediately.
8
App. A at 7b. There was no mention of any federal
issue. The other requests made in the motion were
procedural and offered the Court no additional legal
issues to consider. Contrary to the assertion in the
Petition, the decision to strike those two passages was
made by the same panel which rendered the original
Opinion, most likely based on the representation that
such action would satisfy attorney Golden’s concerns.
Based on Petitioners’ subsequent actions, the above
statement in the Motion to Strike was simply one more
instance of a misrepresentation tothe Kentucky Court.
In Kentucky, the actions of the court of general
jurisdiction, the Circuit Court, are reviewable as a
matter of right by the Kentucky Court of Appeals.
Access to the Kentucky Supreme Court depends on the
discretion of that Court, which is triggered by filing a
Motion for Discretionary Review. On November 6,
2008, Petitioners filed a Motion for Discretionary
Review with the Kentucky Supreme Court. App. D.
The filing of such a motion is governed by Kentucky
Rules of Civil Procedure, Rule 76.20. That Rule
provides in pertinent part as follows:
(3) The Motion.
The motion shall designate the parties as
Movant(s) and Respondent(s), shall not exceed
fifteen (15) pages in length, unless otherwise
authorized by the Court, and shall contain the
tollowing:
(d) A clear and concise statement of G1) the
material facts, {i1) the questions of law involved,
9
and (111) the specific reason or reasons why the
judgment should be reviewed .. . .
in this case, the Petitioners did in fact list the legal
issues as to which they sought review, which were as
follows:
1. Asset forth in the Court of Appeals Opinion,
“Iwjhat legal relationship exists between an
insurer and legal counsel hired to defend its
insured? Surprisingly, Kentucky has never
addressed this question squarely, but the
answer is crucial to resolution of this case.”
2. Is the relationship of an insurance company
with its defense counsel hired to defend its
insured, that of an independent contractor,
agent or otherwise, and what is_ that
relationship when the attorney conducts the
settlement negotiations on behalf of the
insurance company?
3. Can a party preserve all objections by a
general reference to motions for summary
judgment, motions for directed verdict and post-
trial motions; or must a party comply with KRE
103 and make an objection or preserve the error
by a motion in dimine, and cite the record to the
place where the errer was preserved?
4. Did CIC “open the door” to litigation conduct
by naming all four of the attorneys to the
underlying tort claim on its Witness List and
allowing Murner to testify without objection?
Also, can CIC delegate its non-delegable duties
under the UCSPA”?
10
5. Are opjections to jury instructions preserved
pursuant to CR 51(3) when the first objection to
the jury instructions on the record appears
immediately after the trial transcript indicates
that the jury had already left for deliberations?
6. Was Murner CIC’s agent for settlement
purposes?
7. Did the Court of Appeals err in finding that
the trial court should have entered a directed
verdict in favor of CIC on the claim of violations
of the UCSPA and the issue of fraudulent
misrepresentation?
8. Whether the Court of Appeals erred in its
ruling that the jury’s verdict was affected by the
cumulative effect of Plaintiffs’ counsel’s
behavior.
9. Whether the Court of Appeals erred in its
ruling that the Hofmeisters failed to prove
economic loss caused by CIC?
10. If an insurance company increases its
reserve to $1 million on June 9, 2000 because it
finds that an employee was acting within the
scope of his employment with the insured
employer, and waits almost 2-1/2 years to offer
the $1 million limits, is the trial court’s decision
to uphold the bad faith verdict on motion for
directed verdict clearly erroneous or palpably or
flagrantly against the evidence?
11. Isit appropriate for the Court of Appeals
to resurrect, analyze, argue, and use issues that
11
were decided by the trial court in its September
13, 2002 summary judgment order, an order
that was never appealed, to create a reasonable
basis for the delay in CIC’s payment of its limits
to Hofmeister?
52. Isa 1.8 ratio of compensatory to punitive
damages sufficiently high to warrant a
reduction in punitive damages?
13. In the Hofmeisters’ claim, was it
appropriate for the trial judge to disallow any
jury instructions fuer future economic harm?
14. Isit still the law in Kentucky that when
a fraud has been perpetrated to induce a party
to enter into a contract, that the injured party
may elect to affirm the contract and recover
damages in tort, or disaffirm the contract and
recover the consideration with which he has
parted?
15. Are Kentucky citizens, such as George
Hofmeister, injured in a motor vehicle collision,
third-party beneficiaries to the insurance
contract between the tortfeasor and_ its
insurance company, thereby creating rights by
operation of law pursuant to Central Mut. Ins.
Co. v. Pippen?
16. Can an attorney step outside the bounds
of being an independent contractor for purposes
of establishing liability against an insurance
company and can an attorney opine that an
employee is acting witnin the scope of the
employee’s employment and then file a
12
crossclaim against that same employee with the
insurance company having full knowledge of the
conduct and the insurance company avoid
lability?
17. Can CIC successfully secret documents
exchanged between CIC and Murner_ by
claiming that those documents are subject to
the attorney-client privilege or is CIC now
judicially estopped from claiming that Murner
was not CIC’s attorney/agent?
18. Did Murner have implied, apparent or
ostensible authority in dealing with the
Hofmeisters to the extent that the Hofmeisters
would suffer a loss were CIC allowed to escape
from the consequences of a situation which it
caused or permitted?
19. Does CIC have independent non-
delegable duties under the UCSPA or, in the
alternative, is CIC responsible for Murner’s
settlement offers pursuant to Restatement
(Second) of Agency §§ 251(a) and 255?
20. Because it is undisputed that CIC’s
$500,000.00 offer went to $1 million within five
minutes, is the trial court’s decision to uphold
the bad faith verdict on motion for directed
verdict clearly erroneous or palpably” or
flagrantly against the evidence?
ok: Is a jury trial still available for claims
under the UCSPA?
13
App. D at 104b-109b. There is absolutely no mention
of either the Kentucky or United States Constitution,
nor is there any mention that Petitioners thought they
had been denied their appeal rights under the
Kentucky Constitution. While the Petitioners did ask
the Kentucky Supreme Court to adopt their view of the
attorney client relationship in the tripartite context,
they at no time suggested that a federal question was
presented. In short, there is no legal issue listed
which can fairly be said to be analogous to any
Question Fresented in the Petition. Accordingly, this
Court’s comments in Adams are equally apposite here,
to-wit:
Petitioners having thus failed to carry their
burden of showing that the claim they raise
here was properly presented to the Alabama
Supreme Court, we will not reach the question
presented. We need not decide in this case
whether our requirement that a federal claim be
addressed or properly presented in state court
is jurisdictional or prudential, because even
treating the rule as purely prudential, the
circumstances here justify no exception.
520 U.S. at 90, 1175S. Ct. at 1031 (citations omitted).
for this reason the Petition should be summarily
denied.
Additionally, it should be noted that as _ to
Questions three and four, no federal question is
alieged. While the questions both contain the word
“constitution” in one form or another, there is no
suggestion that the United States Constitution is
implicated. Even more important, in the argument
associated with these questions, there is no mention of
14
any constitution. Pet. at 24-34. Even if it is assumed
that Petitioners were intending reference to the United
States Constitution, the Petition does not identify any
particular constitutional right which is offended when
States make their own rules concerning the practice of
law. Accordingly, this portion of the Petition should be
dismissed for want of jurisdiction due to the absence of
a federal question.
COUNTERSTATEMENT OF THE CASE
The Petition sets forth facts which Petitioners
suggest demonstrate the “bad faith” on which their
claim is based. These facts are only germane to the
issues set forth in the Petition to the extent they bear
on the accuracy of the two passages in the first
Opinion to which attorney Golden objected. The
reality is that the “bad faith” case asserted by
Petitioners, like the business of Mr. Hofmeister, was a
house of cards destined for collapse independent of this
case. The briefs which Petitioners filed with the
Kentucky Court of Appeals were replete with
misrepresem ations and/or exaggerations of the record,
which substantially complicated the task undertaken
by the panel below. That behavior has continued to
manifest itself in Petitioners’ pleadings to the
Kentucky Supreme Court and this Court, as the
examples below will demonstrate.
1. On page 5 of their Petition, the Petitioners state
that “Carl Sumner could not explain CIC’s offers
in the underlying tort claim...” In the Kentucky
Courts below, the Petitioners claimed that Mr. Sumner
was their main witness. Mr. Sumner had been
identified by Respondent as a possible expert witness,
but was not called by Respondent at trial. Instead the
15
witness was called by the Petitioners. The Petitioners
then attempted to prove facts by suggesting that Mr.
Sumner was not aware of those facts. The Petitioners’
burden of production could not be met by simply
asserting that Mr. Sumner had no knowledge of some
fact. More important, however, is the fact that this
representation of the record is simply false, as Mr.
Sumner testified at some length that the rationale, as
expressed by the testimony concerning the various
offers, was reasonable.
2. On page 5 and 12, the Petitioners describe the
offers made by Dasher by reducing them by
$150,000.00 in an effort to make them look less
substantial than they were. In footnotes 12 and 19,
Petitioners do at least mention the alleged basis for
the reduction. However, there are no circumstances
under which a no-fault insurer or an underinsured
motorist insurer would be entitled to any portion of the
sums paid by another tortfeasor under Kentucky law.
This is a prime example of the tendency on the part of
the Petitioners to simply make things up and staté' ”
them as fact.
3. On pages 6 and 8, the Petition refers to a
Reserve Increase Memorandum. The Trial Court
excluded the proof concerning the setting of reserves,
and no appeal was taken by the Petitioners as to this
issue. That ruling is now the law of the case, and how
or why reserves were set at any particular time is not
material to any issue presented by the Petition.
Furthermore, at the time in question Respondent
knew that the claim involved a substantial economic
loss portion, and did not yet Know that tinis was just a
self-assessed bonus and that Petitioners would be able
to produce no documentation to support such a claim
16
4. At the top of page 7, the Petition asserts that
“Mr. Hofmeister’s W-2 earnings decreased by
approximately $5 million from 1998 to 1999.” This
statement is technically true (absent the assertion of
causation), but the Petition fails to mention that there
was a bonus Mr. Hofmeister paid himself in 1998, but
did not pay himself in 1999.
o. On page 8, the Petition asserts that “CIC never
brought a declaratory judgment action on the
scope of employment issue due to the fact it, as
well as Murner, had concluded that Clark was
acting within the scope of his employment.”
There is simply no factual basis for such a statement.
The Petition itself reflects the fact that scope and
course was disputed until the trial Court granted
summary judgment on September 13, 2002. Pet. at 12.
Likewise, had it been “concluded” that Clark was in
the scope of his employment, Clark’s personal carrier,
‘Travelers, wou!d not have been providing a defense, or
offering to pay its limits. This misrepresentation is
repeated at page 12, footnote 18.
6. At the bottom of page 8, the Petition asserts
that “Murner participated in resolving the
coverage issue.” As the Court of Appeals found at
page 46 of its Opinion, there is no basis for this
allegation. Murner’s role with respect to the issue was
limited to whether his client was vicariously liable for
the conduct of its employee. While the question of
whether Clark was an insured under the policy may
have turned on the same or similar facts, there is no
evidence that Murner was ever consulted about, or
gave advice with respect to, coverage.
17
7. On pages 8 and 9, the Petition states that the
filing of a cross-claim by Dasher “was designed to
raise questions in the mind of the Hofmeisters
and manufacture an ostensib]~ reasonable basis
for CIC to make low-ball offers”. There is no
evidence that attorney Murner ever discussed the
application of coverage to Clark with attorney Golden,
or that Golden ever made an inquiry. The Petitioners
had access to the same facts concerning scope of
employment as did attorney Murner or Respondent,
and were fully capable of drawing their own
conclusions. The Petitioners apparently felt that there
was some issue on the point in that they accepted
limits from Clark’s personal automobile insurer, which
would not have been payable if Clark was in the scope
and course of Dasher as alleged. If Petitioners’ counsel
interpreted the filing of a cross claim by Dasher
against Clark, where Clark was being separately
defended by his personal insurer, as a representation
concerning coverage, and there is no evidence that he
actually did, then this reflects on their counsel’s poor
judgment, not fraud on the part of attorney Murner.
8. The Petition further asserts on page 9 that the
omission of Fireman’s Fund (the excess carrier)
from the release tendered in June of 2000
supports the claim that attorney Murner
misrepresented the existence of the excess policy since
Fireman’s Fund was included in a release tendered in
2002. The uncontroverted proof is that attorney
Murner was not aware of an excess policy in June of
2000, but subsequently learned of it and then advised
the Petitioners’ counsel of said fact. Opinion at 55-56.
In fact, when the case did settle, the discussions were
on the record. The existence of the excess policy was
well known and Petitioners’ counsel showed no sign of
18
surprise and continued with the negotiations. Opinion
at 55-56; Tr. Oct. 14, 2002, App. J. Thus, the tendered
releases actually undermine the Petitioners’ key
claims rather than support them.
9. In the Petition at pages 10 and 11, the
Petitioners continue to insist that they did not
withdraw their $1 million demand. No matter
what any witness said or recalled at the time he was
asked, the demand was withdrawn in writing, which
writing was a trial exhibit. See App. K (June 22, 2000
letter from attorney Golden to attorney Murner). The
same day the initial offer was made, instead of making
any kind of counter proposal, attorney Golden wrote:
IT am in receipt of your June 22, 2000
correspondence regarding the above-referenced
matter. Please be advised that your proposed
settlement offer is rejected and that we hereby
withdraw our offer to settle this matter for the
policy limits of $1 million.
Quod erat demonstrandum., There is no evidence of
record as to when, if at all, the demand was
supposedly reinstated, but it is clear that it was the
Petitioners, not Respondent or attorney Murner, who
refused to negotiate. This was part and parcel of
attorney Golden’s attempt to create a “bad faith” claim
where none really existed.
10. On page 11, the Petition asserts that
“Hofmeisters’ financial outlook ... was so bright that
Mr. Hofmeister was negotiating for a $25 million
‘unsecured’ line of credit.” The letitioners fail to
advise this Court of the uncontroverted proof that the
loan was rejected for reasons unrelated to the accident
19
with Clark. How an unsuccessful negotiation for a
loan demonstrates a “bright financial outlook” remains
unanswered,
11. On page 12, Petitioners state that the summary
judgment in the underlying action which decided that
Clark was in the scope and course of his employment
was not contested, but this is only because Respondent
decided to settle that underlying case.
12. On page 15, the Petition suggests that one of
Mr. Hofmeister’s creditors, Allied Capital,
intervened at the request of Murner. As is
common in such cases, attorney Murner was aware of
some of the many creditors who were obtaining
judgments against Mr. Hofmeister, but there is no
evidence that attorney Murner directed or had any
other connection to any creditor and how they chose to
enforce their judgments. Furthermore, there is no
evidence that this information was shared with
Respondent.
The foregoing are simply the most flagrant
misrepresentations or misstatements found in the
Petition, and it should not be inferred that any
statement not listed here is therefore true and correct.
Remove the misrepresentations and misstatements
and the underlying action was a typical litigation
which changed over time and was ultimately settled.
The only “bad faith” was on the part of the Petitioners
in resisting discovery, refusing to substantiate their
claims, and playing games with settlement
discussions. Any judge would be justified in reaching
the conclusions reached by Judge Acree as set forth in
the two passages
20
ARGUMENT
.. THE OPINION OF THE COURT OF APPEALS
DOES NOT IMPLICATE IN ANY WAY THE
FOURTEENTH AMENDMENT OF THE
CONSTITUTION OF THE UNITED STATES.
The two passages to which Petitioners point do not
show bias towards Petitioners’ counsel, and there is no
basis for suggesting that the Opinion of the Court of
Appeals was incorrectly decided, let alone in violation
of any provision of the United States Constitution.
Furthermore, the passages, to the extent they reflect
anything, relate to the conduct at issue in the case
under review. Perhaps, to some extent, any judge
develops bias in favor of one party or another in
forming his or her opinion in the case, but this is not
bias in the sense described by this Court in the context
of due process. ‘I'he cases describe an entirely different
type of bias, usually one that precedes the formation of
the opinion or based on facts unrelated to the case
under review.
The statement that attorney Golden may fall into
the class which the Kentucky Supreme Court had
identified as abusers of the “bad faith” cause of action,
in addition to being truce, reflects a rea! problem in
Kentucky. Kentucky is one of a handful of states
which has made the mistake of converting the Unfair
Claims Settlement Practices Act, Ky. Rev. Stat. Ann
§ 304.12-230, into a private cause of action which can
be brought by a person who has no rights under the
21
insurance policy.’ It has become frequent for some
attorneys to add a claim against the insurer without
any real basis for the sole purpose of trying to enhance
the value of the case." Occasionally, but not as
frequently, some attorneys will do what was done by
attorney Golden here; actually try to fabricate a “bad
faith” claim. This type of lawsuit has become a cancer
on the tort system, and the Kentucky Court is just
beginning to recognize that fact. Thus, the comment
by the Court of Appeals was germane to this case.
The significance of the second comment concerning
attorney Golden’s representation of the driver Clark is
more difficult to discern. The Court stated that it
seems strange that a person that attorney Golden sued
would retain him to bring a “bad faith” claim against
the same insurer. This is simply a true statement.
There must. be facts which are known only to attorney
Golden which make this suggestion more than it is.
Perhaps he knows that this relationship arose out of
improper conduct on his part, or perhaps he is just
hyper-sensitive. There is no objective reason that the
Kentucky Court even meant for it to reflect on
attorney Golden personally or professionally, but even
if it did it arises out of the facts of the case, not any
extrancous bias.
* The statute was intended to protect the consumer, but when
extended in this way it actually deprives the consumer of his or
her rights in favor of those held by a stranger to the contract
* Most often the actual “bad faith” claim ts never pursued, but
instead is used to seek discovery that the Plaintiff could not have
received from the Defendant/Insured, or, to increase the cost of
defense which thereby increases the nuisance value of an
otherwise dubious or exagyerated claim
22
It is abundantly clear that under Kentucky law the
comments do not reflect bias that would be considered
a denial of the constitutional right to an appeal in
Kentucky. This is buttressed by Kentucky’s rules
concerning bias. “Dislike ofa party or a party’s lawyer
does not, by itself, constitute a personal bias or
prejudice.” Ky. Sup. Ct. R. 4.300; Model Code of
Judicial Conduct Canon 3(E)(1)(a) (2004)
(Commentary). There is simply no authority for the
proposition that under Kentucky law Petitioners were
denied their right to appeal. Further, the Kentucky
Court of Appeals was not asked to consider the
question, nor did Petitioners bring this issue to the
attention of the Kentucky Supreme Court in their
Motion for Discretionary Review.
While it should be made clear that the Respondents
reject the idea that there was anything improper about
any aspect of the Kentucky Court of Appeals opinion,
it is equally clear that the complaints of the
Petitioners asserting bias fail to rise to the level that
would implicate due process, even if every assertion
and contention by attorney Golden were taken as true.
In Withrow v. Larkin, 421 U.S. 35, 47, 95 S. Ct.
1456, 1464 (1975), this Court addressed actual bias
and described situations to be considered applicable as
“those in which the adjudicator has a pecuniary
interest in the outcome and in which he has been the
target of personal abuse or criticism from the party
before him.” /d. In the case at hand there are no
allegations of any pecuniary interest in the outcome or
that the Kentucky Court of Appeals judge had been the
target of personal abuse or criticism by either the
Petitioners or their counsel prior to the issuance of the
initial Opinion.
23
A fair trial in a fair tribunal is a_ basic
requirement of due process. Fairness of course
requires an absence of actual] bias in the trial of
cases. But our system of law has always
endeavored to prevent even the probability of
unfairness. To this end no man can be a judge
in his own case and no man is permitted to try
cases where he has an interest in the outcome.
In re Murchison, 349 U.S. 133, 136, 75 S. Ct. 623, 625
(1955). Petitioners were granted a fair appeai in a fair
tribunal, and in fact this Petition does not even
attempt to advance the interests of the Petitioners, but
reflects instead the private interests of counse!.
Petitioners have pointed to no evidence of actual bias
or any interest in the outcome on the part of any judge
who participated in the appeal.
Recently, this Court found that proof of actual bias
is not always required to justify recusal. Caperton v.
AT. Massey Coal Co., 556 U.S. __, 129 S. Ct. 2252
(2009). In that case, a West Virginia Supreme Court
of Appeals judge had received substantial campaign
contributions from the Chief Executive Officer of a
party, Massey Coal Co. Jd. at 2257. This Court found
that “[t}he facts now before us are extreme by any
measure. The parties point to no other instance
involving judicial campaign contributions’ that
presents a potential for bias comparable to the
circumstances in this case.” Id. at 2265. Again, the
bias was related to conduct outside the facts that were
presented on appeal. In discussing the circumstances
under which recusal would be required, this Court
stated that “|u]nder our precedents there are objective
standards that require recusal when ‘the probability of
actual bias on the part of the judge or decisionmaker
24
is too high to be constitutionally tolerable.” Jd. at 2257
(citing Withrow v. Larkin, 421 U.S. 35, 47 (1975)). In
its opinion in Caperton, this Court makes several
references to the extraordinary situation or extreme
facts that have led the West Virginia Court to order
recusal. The Court stated that “[t}his Court’s recusal
cases are illustrative. In each case the Court dealt
with extreme facts that created an unconstitutional
probability of bias that ‘cannot be defined with
precision.” /d. at 2265 (internal citations omitted).
This is not the case with the Petitioners. There are no
such extreme or extraordinary circumstances that
would require the Kentucky Court to order recusal
because there is no evidence of any actual bias or
partiality. Courts are often called upon to assess
alleged misconduct by a party and/or counsel. Such
was the case herein. If it were an indication of bias to
describe attorney misconduct in factually accurate
terms, attorney misconduct could never be passed
upon by a judge. There is no federal question raised by
this Petition concerning the Petitioner’s right to appeal
under the Kentucky Constitution and therefore the
Petition should be denied.
Il. THE REGULATION OF THE PRACTICE OF
LAW IS NOT WITHIN THE POWERS
DELEGATED BY THE STATES TO THE
FEDERAL GOVERNMENT.
It is very difficult to formulate a response to this
aspect of the Petition because the Petition simply
asserted that there are two ways to view the triparte
relationship and that Petitioners think one is better
than the other. In other words, the entire country
should abandon federalism so attorney Golden can win
his case. Even this concept is fallacious since there ts
20
no reason to believe that, were Kentucky forced to
adopt what Petitioners refer to as the “Dual Client
Model,” the result in this case would change. The lack
of vicarious liability as set forth in the jury
instructions was just one of many grounds for reversal.
There is nothing in the Opinion to suggest that the
result would have been different had Respondent. been
held responsible for every strategic and/or litigation
decision made by attorney Murner in his defense of the
insured, or that attorney Murner engaged in any
inappropriate conduct, so this entire issue is a red
herring.
Furthermore, the Petition offers no suggestion as to
what provision of the United States Constitution
Petitioners feel is offended by State laws governing the
relationship between client and counsel, inside or
outside the insurance’ context. Accordingly,
Respondents cannot even ascertain what portions of
the Constitution should be discussed. This is just as
well since the Petition does not suggest how this area
of law could ever become a federal question. All that
is said is that Petitioners think it would be better if
the attorney were the client of both the insurer and
insured. It is doubtful that attorney Golden’s
insurance “clients” would agree, and it 1s not clear how
he has reconciled his taking of this position which is
clearly adverse to their interests.” In any event, there
are substantial public policy reasons supporting the
Kentucky rule, not the least of which is that one
lawyer cannot serve two masters. In Kentucky, as
° In his Motion to Strike attorney Golden advised the Court of
Appeals that nearly 100% of his firm’s work is for insurance
defense clients. App. A at 8b.
2.6
with many other states, the “One Client” approach
promotes the interests of the person who is being
represented over the person who has agreed to pay for
the defense. While other States are free to regulate
the practice of law as they see fit (within the
limitation., on state power as set forth in the Bill of
Rights), sois Kentucky. There is no federal interest in
uniformity, and in fact the idea of multiple
laboratories for the incubation of ideas and options is
a basic strength of this country and endorsed by the
Constitution itself. It is respectfully submitted that
the Petition provides no basis for review by this Court,
and the Petition should be dismissed.
CONCLUSION
For the reasons set forth hereinabove it Is
respectfully submitted that the Petition for Writ of
Certiori should be denied.
27
Respectfully submitted,
Ronald L. Green
Counsel of Record
BGEHL STOPHER & GRAVES LLP
444 West Secerid Street
Lexington, KY 40507
(859) 252-6721
John T. Ballantine
STOLL KEENON OGDEN PLLC
Suite 2000, 500 West Jefferson Street
Louisville, KY 40202-2874
(502) 333-6000
Michael D. Risley
STITES & HARBISON PLLC
400 West Market Street, Suite 1800
Louisville, KY 40202-3352
(502) 587-3400
ATTORNEYS FOR THE RESPONDENT,
CINCINNATI INSURANCE COMPANY
APPENDIX
lb
APPENDIX A
COMMONWEALTH OF KENTUCKY
COURT OF APPEALS
NO. 2004-CA-002296-MR
AND
NO. 2004-CA-02362-MR
[Dated September 29, 2008]
CINCINNATI INSURANCE COMPANY
APPELLANT/CROSS-APPELLEE
VS.
GEORGE HOFMEISTER and
KAY HOFMEISTER, His Wife
)
)
)
)
)
)
)
APPELLEES/CROSS-APPELLANTS )
}
MOTION TO STRIKE PORTIONS OF THE
COURT’S OPINION WITH REQUEST FOR EN
BANC HEARING AND MOTION FOR
INTERMEDIATE RELIEF, PURSUANT TO CR
76.33, TO IMMEDIATELY STRIKE THOSE
PORTIONS OF THE OPINION
cskoke chscisols sie
t
Come the Appellees/Cross-Appellants, George and
Kay Hofmeister, attorney J. Dale Golden and the firm
of Golden & Walters, PLLC, and hereby move the
Court for an Order striking portions of the Opinion
2b
rendered on September 26, 2008 in the above-styled
action, and for a hearing of the Motion en banc by the
entire Court of Appeals. In addition, the Movants move
this Court, pursuant to CR 76.33, to immediately
strike those portions of the Court’s Opinion. In support
of these Motions, the Appellees/Cross-Appellants
hereby state as follows:
I. MOTION TO STRIKE PORTIONS OF THE
COURT’S OPINION WITH REQUEST FOR EN
BANC HEARING
A. Factual/Procedural History
On November 3, 1998, Appellee/Cross Appellant
George Hofmeister was involved in a_ serious
automobile accident in Scott County, Kentucky. As a
result of this accident, Hofmeister sustained serious
bodily injuries that affected his activities of daily living
and his ability to manage his various business
interests. At the time of the accident, the tortfeasor,
Eugene Clark, was acting within the course and scope
of his employment with Dasher Express, Inc. On
behalf of George Hofmeister and Kay Hofmeister, his
wife, attorney Dale Golden and the firm of Golden &
Walters, PLLC initially filed suit against Eugene
Clark for automobile negligence and against his
employer, Dasher, for vicarious liability. The
Hofmeisters also filed suit against Kentucky Farm
Bureau Insurance, their insurance carrier, seeking
UIM benefits.
During the course of the litigation, certain events
unfolded that led the Hofmeisters to amend their
Initial Complaint to assert additional claims against
Dasher’s insurance carrier, Cincinnati Insurance
3b
Company (“CIC”), for, among other things, statutory
bad faith. Ina nutshell, the basis of these claims arises
from the fact that CIC concealed the existence of an
excess policy that would have provided additional
coverage to Dasher from the Hofmeisters, thereby
coercing a more favorable settlement from the
Hofmeisters.
Between November 3, 1998 and October 3, 2002,
CIC-made a single offer of settlement. That offer was
on June 22, 2000 in the amount of $109,275.00,
exclusive of liens. That offer excluded any amount for
the Hofmeisters’ economic damages, reserving that
issue for a jury determination. Then, in the eleven
days between October 3, 2002 and the date the trial of
the underlying matter was set to begin, October 14,
2002, CIC inexpheably decreased its offer to
$25,000.00 ($175,000.00 offer of judgment, less
$150,000.00 in Kentucky Farm Bureau liens for
advancement of UIM monies and PIP). This offer of
judgment was made ten days before trial. The offer
was then raised up to $350,000.00 on the morning of
trial, with the condition that it had to be accepted prior
to the Hofmeisters announcing ready for trial. Finally,
after the Hofmeisters had announced ready for trial,
the final $1,000,000 offer was made. This offer
ostensibly represented the limits of insurance proceeds
available to the Defendants (Clark and Dasher). The
fact that the offer of CIC was reduced to $25,000.00
and then raised to $1 million, exclusive of the
$150,000.00 in Kentucky Farm Bureau liens within 11
days carried no weight in the appellate court’s opinion,
but certainly caught the attention of the trial judge
and the jury.
4b
Much ink has been spilled over what transpired
thereafter. For the purpose of this Motion, however, it
suffices to say that the Hofmeisters proceeded with
their bad faith claims against CIC and were ultimately
awarded over $28,400,000 by a Scott. County jury. This
award was appealed by CIC in November 2004. An
Opinion was rendered in this case on September 26,
2008, eighteen months after oral argument was heard,
and nearly four and one half years after the jury
verdict in the Hofmeisters’ favor was rendered. This
Motion follows.
B. Certain portions of this Court’s Opinion
should be stricken because they are not
germane to the legal issues raised by the
parties and appear to be merely
defamatory in nature.’
There are two portions of the Court’s September 26
2008 Opinion that are not germane to the legal issues
raised by the parties, were not the basis of the Court’s
ultimate decision and could be construed = as
defamatory against attorney Golden and his firm,
Golden & Walters, PLLC. As such, it is respectfully
requested that these portions be stricken from the
Court’s Opinion immediately. Fach objectionable
portion is addressed specifically below:
’ This Motion should in no way be construed to indicate that the
Appellees/Cross-Appellants accept or endorse the portions of the
Court’s Opinion not addressed herein. This Motion is meant to
address only the particular portions of the Opinion addressed
herein and should not be construed to waive any other potential
arguments or recourse that the Appellees/Cross-Appellants may
have.
r
5b
i. Page 71, paragraph beginning, “Our
Supreme Court...”
On page 71 of the Opinion, the following excerpt
appears:
Our Supreme Court hos recognized that some
attorneys exhibit a ‘personal bias against
insurance companies in favor of using bad faith
and UCSPA allegations to extort payment of
underlying claims from insurers.’ ‘he manner
in which Mr. Golden zealously represented the
Hofmeisters would not exclude him from this
class of attorneys. (Internal citations omitted.)
Clearly, this language, which is found in the final
paragraph of the Court’s main opinion, has no bearing
on the legal arguments raised by the parties in this
Appeal and, therefore carries no legal weight.
Furthermore, this portion of the Opinion does not
provide any factual basis for the Court’s other legal
reasoning and does not logically flow from any of the
Court’s preceding or subsequent arguments. In short,
this portion of the opinion is nothing more than a
personal attack against attorney Golden, and ceuld be
seen as evidence of bias or personal animosity on
behalf of the involved judges.
Pursuant to SCR 4.300, which codifies the Canons
of Judicia) Conduct:
A judge shall perform judicial duties
without bias or prejudice. A judge shall
not, in the performance of judicial duties,
6b
by words of conduct manifest bias or
prejudice...’
In certain circles, the portions of the Opinion identified
above could be construed as an ad hominem attack
against attorney Golden and his insurance defense
firm. Unfortunately, as this Court is surely aware,
there is a class of jurists who exhibit a personal bias
against attorneys who zealously advocate for their
clients, be it Plaintiffs or Defendants. This Opinion,
penned by Judge Acree and joined by Special Judge
Knopf", left unchanged, would not exclude Judge Acree
or Special Judge Knopf from this class of jurists.
C. Footnote 12, Page 24, referencing Clark
v. Cincinnati Insurance Co, No, 2005-
CA-000356-MR
In this section of the Opinion, the Court addresses
the appeal of another matter that, though factually
related to the underlying claim here, has no legal
relevance whatsoever to these proceedings. Mr. Clark’s
subsequent representation by attorney Golden had no
legal bearing whatsoever on the issues raised by the
parties to this Appeal. This dictum could be
misconstrued to give the appearance that the Court
was pronouncing judgment on the propriety of
attorney Golden’s representation of Mr. Clark. This
issue never having come before the Court, it would be
improper for the Opinion to leave the Court’s thoughts
on this issue open to interpretation.
* SCR 4.30, Canon 3(B\5)
’ Judge Keller concurred in result only
7b
For these reasons, so as to make clear that the
panel had no intention of besmirching either the
character of attorney Golden as a zealous advocate for
his clients, or the character of Judge Acree and Senior
Judge Knopf as fair and impartial jurists, and to leave
no doubt as to the Court’s pronouncements on matters
not properly before the Court, the above-referenced
sections of the Opinion should be - stricken
immediately.
D. Due to the nature of the issues addressed
herein, it would be inappropriate for the
original panel to rule on this n. It is
requested, therefore, that this Motion be
referred to an en banc panel of the entire
Court of Ss, or, i e al ative, to
an alternate three-judge panel selected by
the Chief Judge.
Because of the nature of the relief sought in this
Motion, the Appellees/Cross-Appellants believe that it
would be inappropriate for this Motion to be ruled
upon by the original panel assigned to this Appeal.
Certainly, in the eighteen months since the oral
arguments, the judges on this panel have had ample
time to consider the issues raised here and have
undoubtedly formed strong opinions as to the
appropriateness of the objectionable’ language.
Therefore, it is requested that this Motion be
scheduled for an en banc review by the Court of
Appeals as a whole or, in the alternative, be referred
tu a separate three-judge panel chosen by the Chief
Judge.
Sb
Il. MOTION FOR INTERMEDIATE RELIFF,
PURSUANT TO CR 76.33, TO IMMEDIATELY
STRIKE PORTIONS OF THE OPINION.
Due to the danger that the Opinion, as originally
rendered, could be misconstrued in such a manner as
to cause immediate and irreparable harm to the
Appellees/Cross-Appellants and to the business
interests of attorney Golden and the Golden &
Walters, PLLC law firm, pursuant to CR 76.33,
intermediate relief is requested. Specifically, it is
requested that the objectionable portions of the
Opinion be immediately stricken and the Opinion not
be released for final publication until a hearing may be
had on this Motion. In support of this Motion, the
Appellees/Cross-Appellants hereby state as follows:
The language of the Court’s opinion could be
construed to besmirch the character of attorney Dale
Golden and, by association, George and Kay
Hofmeister and the Golden & Walters, PLLC law firm.
Release or publication of the potentially defamatory
portions of this opinion are likely, to cause immediate
and irreparable harm to attorney Golden, his current
clients, including George and Kay Hofmeister, and his
firm.
As this Court is well-aware, Golden & Walters,
PLLC is a fifteen-attorney firm that prides itself on the
zealous representation of each of its clients. Though
devoting almost one hundred percent of its work to
insurance defense clients, Golden & Walters, PLLC
beheves that each of its clents, be them the insureds
of insurance companies, the insurance companies
themselves, or injured Plaintiffs such as George and
Kay Hofmeister, deserve the best representation that
Ob
its individual attorneys can render. Any insinuation or
allusion to the fact that attorney Golden is somehow
biased against insurance companies is utterly without
support. To the extent that the Opinion, as it was
originally rendered, could be construed otherwise, it is
irreparably damaging to the reputation of attorney
Golden and to the future business relations of his firm.
The immediacy of the harm in this instance is
apparent. Though discretionary review will certainly
be sought, the publication of this Opinion in the
widely-read Kentucky Law Summary and online on
Lexis and Westlaw is imminent. To the extent that the
objectionable portions of the Opinion are improper,
only the immediate removal of the Opinion from public
consumption will protect the Appellees/Cross-
Appellants, attorney Golden and Golden & Walters,
PLLC from harm.
Furthermore, once wide-spread publication of this
unedited opinion is made, the harm against the
Appellees/Cross-Appellants and attorney Golden will
be irreparable. Once the potentielly defamatory
comments are widely-circulated, there will be no way
to cure the damage.
Similarly, considering the nature of the issue raised
in this Motion, the Appellees/Cross-Appellants
respectfully request that this request for intermediate
relief, pursuant to CR 76.33, be referred to a non-pane!
judge for review.
WHEREFORE, the Appellees/Cross-Appellants
respectfully request:
10b
1. That the above-referenced portions of the Court’s
Opinion be stricken;
2. That this Motion be referred for an en banc
hearing before the Court of Appeals as a whole, or, in
the alternative, to an alternate three-judge panel
selected by the Chief Judge; and
3. That this Motion, pursuant to CR 76.33, be
assigned to a non-panel judge for review of request for
intermediate relief.
Respectfully submitted,
GOLDEN & WALTERS, PLLC
/s/
J. Dale Goiden
771 Corporate Drive, Suite 905
Lexington, Kentucky 40503
Telephone: (859) 219-9090
Facsimile: (859) 219-9292
Counsel for Appellees /Cross-Appellants,
George and Kay Hofmeister
*K ck OF
[Certificate of Service omitted in
printing of this appendix]
lib
APPENDIX B
COMMONWEALTH OF KENTUCKY
COURT OF APPEALS
NO. 2004-CA-002296-MR
AND
NO. 2004-CA-02362-MR
[Dated October 3, 2008]
CINCINNATI INSURANCE COMPANY
APPELLANT
a
)
)
)
)
GEORGE HOFMEISTER, ET AL )
APPELLEES )
)
APPEAL FROM SCOTT CIRCUIT COURT
ACTION NO. 00-CI-00030
ORDER
1. DENYING MOTION FOR RECUSAL OF PANEL
AND ASSIGNMENT TO NEW PANEL;
2. DENYING MOTION FOR EN BANC HEARING;
AND
3. GRANTING MOTION FOR IMMEDIATE
RELIEF BY MODIFYING OPINION
RENDERED SEPTEMBER 26, 2008
Kk ke ER RK KK
12b
BEFORE: ACREE AND KELLER, JUDGES; KNOPF,’
SENIOR JUDGE.
Appellees have filed a motion for immediate and
intermediate relief by which they seek 1) assignment
of their motion to a panel other than the panel which
rendered the opinion in these appeals on September
26, 2008, which the Court has treated as a motion for
recusal of the panel; 2) in the alternative, an en banc
hearing on their motion by the full Court; and 3) the
striking of certain language on page 71 of the opinion
and the striking of footnote 12 on page 24. Having now
considered that motion, the response of the appellant,
and being otherwise sufficiently advised, the Court
ORDERS that the portions of the motion which
request recusal of the panel and/or an en banc
consideration of their motion by the full Court be, and
they are hereby, DENIED.
The portion of the motion which’ requests
immediate and intermediate relief by striking certain
language on page 71 and footnote 12 on page 24 of the
opinion is hereby GRANTED. The opinion rendered in
these appeals on September 26, 2008, is ORDERED
WITHDRAWN. A new opinion reflecting solely this
modification SHALL BE REISSUED in the near
future. Time for filing a petition for rehearing and/or
a motion for discretionary review shall be calculated
from the date on which the modified opinion is
reissued.
' Senior Judge William L. Knopf sitting as Special Judge by
assignment of the Chief Justice pursuant to Section 110(5)(b) of
the Kentucky Constitution and KRS 21.580
L3b
KELLER, JUDGE, AND KNOPF, SENIOR JUDGE,
CONCUR.
ACREE, JUDGE, DISSENTS FROM THAT PORTION
OF THE ORDER WHICH GRANTS MODIFICATION
OF THE OPINION.
ENTERED: 10/3/08 — /s/ ae 7 Sane
JUDGE, COURT OF APPEALS
14b
APPENDIX C
RENDERED: OCTOBER 17, 2008; 10:00 A.M.
TO BE PUBLISHED
OPINION OF SEPTEMBER 26, 2008 WITHDRAWN
Commonwealth of Kentucky
Court of Appeals
NO. 2004-CA-002296-MR
AND
NO. 2004-CA-002362-MR
CINCINNATI INSURANCE COMPANY
)
APPELLANT/CROSS-APPELLEE )
)
Vv. )
)
GEORGE HOFMEISTER AND )
KAY HOFMEISTER )
APPELLEES/CROSS-APPELLANTS | )
)
APPEAL AND CROSS-APPEAL FROM SCOTT
CIRCUIT COURT
HONORABLE PAUL F. ISAACS, JUDGE
ACTION NO. 00-CI-00030
OPINION
REVERSING APPEAL NO. 2004-CA-002296-MR
AND
15b
DISMISSING AS MOOT APPEAL NO.
2004-CA-002362-MR
BEFORE: ACREE AND KELLER, JUDGES; KNOPF,’
SEN!OR JUDGE.
ACREE, JUDGE: This is the appeal and cross-appeal
of a judgment entered in Scott Circuit Court after a
jury found Cincinnati Insurance Company (CIC) liable
to George and Kay Hofmeister for fraudulent
misrepresentation and for violation of the Kentucky
Unfair Claims Settlement Practices Act (UCSPA),
Kentucky Revised Statutes (KRS) 304.12—230. CIC
appeals the trial court’s denial of its motions for
summary judgment, motions for directed verdict and
judgment notwithstanding the verdict, and entry of
judgment awarding the Hofmeisters $10,000,000 in
compensatory damages and $18,405,500 in punitive
damages following a jury verdict. Prior to appeal, the
trial court amended the judgment by reducing the
punitive damages award to $10,000,000. The
Hofmeisters filed a cross-appeal, challenging the
reduction of the punitive damages award. We reverse
the judgment and dismiss the Hofmeisters’
cross-appeal as moot.
This case requires examination of a myriad of
relationships and duties, some created by contract,
others by statute, and still others by common law. It
' Senioi Judge William L. Knopf sitting as Special Judge by
assignment of the Chief Justice pursuant to Section 11005)(b) of
the Kentucky Constitution and Kentucky Revised Statute (KRS)
21.580.
16b
requires examination of settlement negotiations and
litigation strategy and tactics, nearly all of which was
placed in the hands of a jury to assess. Understanding
this case necessitates a detailed examination of a
voluminous record which we will abbreviate wherever
possible.
I. Facts and Procedure
The facts of the underlying automobile claim, which
the jury found CIC settled unfairly, began at 10:00
a.m. on November 38, 1998. Eugene “Gene” Clark, a
delivery driver tor Dasher Express, Inc., had finished
a workshift that exceeded ten hours. He returned his
employer’s vehicle to Dasher’s offices in Lexington,
Kentucky. He then drove home to Frankfort in his
personal vehicle.
Clark was fatigued when he arrived home and
discovered that he still had in his possession the
company’s credit card and the keys to his company’s
vehicle. He called Dasher’s offices, informed the
dispatcher of his mistake, and “indicated he was going
to return the keys to Dasher.” (Trial Court’s Opinion
and Order, September 13, 2002, p.2, quoting testimony
of Dasher employee). Clark took a shower and
changed clothes. Then he got back in his personal
vehicle and Jeft his Frankfort home. Ostensibly, his
sole purpose was to return the Dasher vehicle keys
and credit card.
George Hofmeister was driving his own vehicle and
talking to his wife on a cell phone when he first saw
Clark’s vehicle approaching him from about a
quarter-mile away. Clark’s driving was erratic. In
fact, Clark had fallen asleep despite having gone to a
17b
McDonald’s restaurant for coffee. As the vehicles
approached one another, Clark’s vehicle crossed the
centerline. Hofmeister slammed on his brakes but did
not avoid the collision. Whether it was possible to
have done so was never determined in the record.”
When Clark did not arrive at Dasher’s offices after
indicating he was going to return the keys, a Dasher
employee called his telephone number and
le[ft] a message for Gene, indicating whether or
not he was returning the keys and when they or
whomever [sic] was returning the keys would
have them to Dasher. After that, we received a
call that Gene had been in an accident and
basically were waiting to see how he was and,
you know, what the situation was.
(Trial Court’s Opinion and Order, September 13,-2002,
p.2, quoting testimony of Dasher employee).
The accident did not occur on the most direct route
between Clark’s home and Dasher’s offices. Clark said
the direct route he regularly took would have placed
him on Interstate Highway 64 (1-64) all the way trom
Frankfort until he exited the highway southbound at
the Newtown Pike exit in Lexington. But the accident
site was on US 62 in Georgetown, Kentucky. This
location necessarily required Clark to exit I-64 about
halfway between his home and Dasher’s offices, and to
head away from his business destination. Clark was
“ Mr. Hofmeister testified in the bad faith trial, however, that
there was no place for him to exit the road on which the accident
occurred,
18b
rendered unconscious by the accident, and said he did
not recall exiting I-64 onto US 62 or why he did so.
Hofmeister’s injuries were significant. He
convalesced for a total of eight months, confined to a
wheelchair for five of those months. During that time,
Hofmeister engaged attorney Dale Golden to assist in
recovering his damages.
Golden concentrated his settlement efforts on Clark
and Clark’s insurer, the Travelers Insurance Group.
Travelers offered to pay Hofmeister its policy limits of
$100,000. Pursuant to KRS 304.39-320(3), Golden
sent notice of Travelers’ offer to Hofmeister’s
underinsured motorist (UIM) coverage insurer,
Kentucky Farm Bureau Mutual Insurance Company,
whose policy limits were also $100,000. Farm Bureau
elected to preserve its subrogation rights against Clark
and substituted its own payment of $100,000 to
Hofmeister under the procedure outlined in Coots v.
Allstate Ins. Co., 853 S.W.2d 895 (Ky. 1983).
Additionally, Farm Bureau paid $50,000 in personal
injury protection (PIP) benefits to Hofmeister’s
medical providers. Hofmeister did not waive his right
to file a civil action against Farm Bureau, and he
subsequently did so.
The complaint first named Ciark as a defendant.
The second defendant identified was Farm Bureau.
The claim against Farm Bureau sought to collect an
additional $100,000 in UIM benefits available under
any and all of the Hofmeisters’ policies. Finally, the
complaint named Dasher, asserting that Clark was
acting within the scope of his employment at the time
of the aceident and, therefore, Dasher was vicariously
liable.
19b
Service of the complaint was Dasher’s first notice
that the Hofmeisters were asserting any claim against
the company. Consistent with duties created by its
contract of insurance, Dasher notified CIC of the
claim. CIC’s duty under the same contract was to
provide a defense at its cost. To satisfy that duty, CIC
made financial arrangements with attorney Dan
Murner to answer and defend Dasher against the
Hofmeisters’ claims.
Murner drafted and served Dasher’s answer to the
complaint on November 4, 1999, asserting, among
other defenses, that Clark was not acting within the
scope of his employment at the time of the accident,
and that Hofmeister was comparatively negligent.
Murner simultaneously served discovery requests
upon Hofmeister seeking information substantiating
the damages claimed and the basis of Dasher’s alleged
liability.
The Hofmeisters responded to Dasher’s discovery
requests four months later, on March 3, 2000. The
responses provided scant information upon which
Dasher could assess its exposure to liability. On the
contrary, they show the Hofmeisters: (1) had not yet
compiled a list of medical expenses; (2) had not yet
decided what witnesses to call at trial; (3) did not know
what documents they intended to introduce at trial;
and (4) were not prepared to identify any expert,
including one who would testify regarding Mr.
Ilofmeister’s claim for economic losses, or otherwise.
Furthermore, in response to Dasher’s’ request
pursuant to Kentucky Rules of Civil Procedure (CR)
8.01(2) that damages be specified, the Hofmeisters
replied that “la] total has not been calculated at this
time.”
20b
‘The Hofmeisters, too, engaged in discovery. On
February 1, 2000, they submitted interrogatories and
requests for production of documents to Dasher.
Consistent with a pattern repeated throughout this
litigation, the Hofmeisters did not ask Dasher to
produce insurance information in accordance with CR
26.02(2).°
In the meantime, Dasher noticed Hofmeister’s
deposition to be taken on May 12, 2000. Mr.
Hofmeister’s deposition testimony was the first
indication Dasher had that Hofmeister was claiming a
loss of income equaling or exceeding $5 million. When
questioned about substantiation for this loss,
Hofmeister explained that the primary entity through
which he conducted his’ business, American
Commercial Holdings, Inc. (ACH), had paid him a
$5-million bonus for the year of the accident, but did
not pay him any bonus the next year.‘
* CR 26.02(2) states:
A party may obtain discovery of the existence and
contents of any insurance agreement under which any
person carrying on an insurance business may be liable to
satisfy purt or all of a judgment which may be entered in
the action or to indemnify or reimburse for payments
made to satisfy the judgment.
* As the CEO of ACH, Mr. Hofmeister largely controlled his own
income. He testified that his salary the year after the accident
actually increased from $577,402 in 1998 (10 months of which
preceded the accident) to $624,135 in 1999. The Hofmeisters’ tax
returns show that 1998 was a good year for Mr. Hofmeister to
take a $5-million bonus because his capital losses and Schedule FE
losses (from other partnerships and subchapter S corporations
including ACH) exceeded $8 million. When those losses were
21b
Hofmeister’s deposition testimony showed that
while he did receive a Form W-2, he was not a typical
employee. He was a self-made entrepreneur. Through
various business entities he had created, including
ACH, Hofmeister made a career of purchasing troubled
businesses, obtaining financing to keep the businesses
afloat, and then reselling the businesses for a profit.
Between 1995 and 1999, Hofmeister and ACH
acquired approximately sixty (60) businesses.
Hofmeister stated that he accomplished these
acquisitions after obtaining bank financing to do so.
At deposition, he testified that he had been turned
down for a $25-million loan as a direct result of the
accident and his injuries. Consequently, so he
testified, he was unable to purchase more distressed
businesses for resale. He had no documentation with
him at the deposition that would have substantiated
any of his prior acquisitions or sales, or any of his
business activity at all. Nor could he document the
denial of his $25-million loan application or the
potential business acquisitions the loan would have
facilitated. However, he agreed to later provide
deducted from his total income, including the $5-million bonus,
the Hotmeisters’ adjusted gross income (AGI) was less than zero
(-$443,102). Consequently, the Hofmeisters paid no taxes in 1998
In 1999, the year after the accident, the Hofmeisters’ businesses
netted substantial capital gains resulting in an AGI of more than
$9.5 million, and a tax liability of more than $1.8 million
Awarding himself any bonus in 1999 would have yielded an even
higher tax burden. In 2000, Mr. Hofmeister’s salary was again
above $500,000. Also in 2000, and in 2001 and 2002 as well, the
Hofmeisters continued to carn substantial capital gains. Those
gains, however, were offset by greater Schedule E losses from
other partnerships and Scorporations, including the Hofmeisters’
interest in equine partnerships.
22b
Dasher with that documentation through his own
attorney.
Hofmceister’s attorney, Golden, took the face-to-face
opportunity immediately following Hofmeister’s
deposition to propose’ settlement. After the
Hofmeisters departed, Golden sat down with Murner
and Dasher’s owners and verbally demanded
$1,500,000 on behalf of his clients.° According to
Murner’s uncontradicted testimony, Golden said “[Y]ou
don’t want an excess verdict, you’d better settle this
case.” Once Golden had departed, Murner’s clients
asked him what was meant by an “excess verdict” and
Murner explained it to them. What followed this
meeting was a series of extrajudicial correspondence
upon which much of the Hofmeisters’ claim of fraud
and bad faith rests.
On May 18, 2000, Murner wrote to Golden
requesting further substaitiation of Hofmeister’s
claim that his business losses were attributable to the
accident and stating that such information was
essential to a proper assessment of Golden’s
settlement demand. Murner also noted that the
cemand was “in excess of the policy limits provided by
Dasher’s insurance carrier].]” He never stated what
those policy limits were except to say that $1,500,000
exceeded them.
On May 22, 2000, Golden wrote to Murner “a little
surprised that $1,500,000 is in excess of the policy
limits of Dasher’s insurance carrier.” He declined
Though Golden infermally stated he could establish damages of
$20,000,000, no demand higher than $1,500,000 was ever made
23b
Murner’s request for additional support for
Hofmeister’s losses, stating, “The tax returns I have
provided to you contain more than adequate
information to show” Hofmeister’s loss. He expressed
his opinion that a “claim for punitive damages against
Dasher alone could exceed $1,000,000.” Nevertheless,
based upon Murner’s representation that $1,500,000
exceeded Dasher’s liability policy limits, Golden agreed
to recommend to IIofmeister “that he accept the
amount of $1,000,000, which I assume from your
correspondence is the policy limit.” (Emphasis
supplied).
Because Golden was unable to contact Mr.
Hofmeister until early the next month, Golden agreed
to extend the offer until June 9. Golden stated that if
settlement was not accomplished by then, he would
recommend that his client not accept Iess than
$1,500,000. “In other words,” Golden said, “assuming
that Dasher has $1,000,000 in coverage, this is your
one opportunity to resolve this matter within the
limits of coverage.”
The next day, May 23, 2000, Golden and Murner
spoke by telephone. Based on that conversation,
Golden wrote Murner again, agreeing to a_ short
extension of the deadline for Dasher’s response to his
settlement demand. Golden also asked Murner to let
him know “what additional information you will need
and I will try to provide” it. He then reiterated that if
Dasher did not agree to settle the claim for $1 million,
“our demand will increase beyond the limits of
Dasher’s hability policy|.]”
One day later, May 24, 2000, Murner provided a
list of information he needed to assess the claim and
24b
settlement demand, limiting the list to information
Hofmeister already agreed in his deposition to provide
through Golden. Among other things, this included: a
list of Hofmeister’s companies identifying those he
purchased and sold in the previous five years, with the
cost of acquisition and profit realized on resale;
documentation rclating to the denial of his $25-million
loan application; quarterly earnings reports for three
of Hofmeister’s corporations; and an accounting of
Hofmeister’s 1999 income.
On May 26, 2000, while waiting for Golden’s
response, Murner sought to file a_ protective
cross-claim against Clark. On behalf of Dasher,
Murner continued to assert that Clark was not acting
within the scope of his employment at the time of the
accident, but claimed the right of indemnification from
Clark should that issue be determined otherwise. The
Hlofmeisters initially objected to Dasher’s motion to file
the cross-claim, but soon after withdrew the objection.
On May 31, 2000, the Hofmeisters served upon
Dasher a second set of interrogatories and requests for
production of documents. Despite Golden’s being “a
little surprised” that the initial demand exceeded
policy limits, the discovery still did not include a
request to provide insurance information.
Also on May 31, 2000, Golden wrote to Murner
again. He enclosed a copy of an amended complaint
alleging that Dasher had violated federal Department
of Transportation regulations prohibiting drivers to
spend more than ten consecutive hours on the road
without an eight-hour break. Based on that alleged
violation, the proposed amended complaint demanded
punitive damages be assessed against Dasher. Golden
25b
stated he would file the amended complaint if the case
was not settled by June 22 for $1,000,000.
Golden’s correspondence did not provide the
documentation Murner requested, but did say that he
had sought it from “Mr. Hofmeister and he will be
providing that information to my office within the next
few days.” Golden also confirmed for Murner that Mr.
Hofmeister agreed “to lower his demand to $1,000,000,
which, according to you, is the policy limit of Dasher’s
insurance.” Nothing in the record supports Golden’s
assertion that Murner had confirmed what Golden had
previously assumed — that the limit of Dasher’s
automobile liability insurance policy was $1,000,000.
On the contrary, according to Murner’s testimony,
a telephone conversation took place around this time
during which he conveyed to Golden the information
regarding Dasher’s policy of excess insurance coverage.
Murner initially told Golden, as he had been told by
Dasher, that those policy limits were $3 million.
Later, Murner learned that the policy limits were not
$3 million, but $5 million. Following a hearing on a
procedural motien in Scott Circuit Court, Murner
conveyed that corrected information to Golden. There
is no evidence in the record that impugns Murner’s
testimony.
Back at CIC’s offices, senior claims examiner Julie
Sullivan was developing a sense of the claim against
CIC’s insured, Dasher. Her role was to evaluate the
claim based on information provided by Dasher’s
counsel. On June 9, 2000, she created a “Reserve
Increase Memorandum,” introduced at trial as
Plaintiffs’ Exhibit 5, stating:
26b
(information is sketchy at this time.... The
claimant, George Hofmeister, DOB unknown,
was in a whee! chair for five months and he had
physical therapy. He was unable to conduct his
business [but] is back to work now. His
attorneys say he will likely need to have a joint
replacement of his knee and hip... . His meds
total around $100,000.
Hofmeister’s economic circumstances, as well asa
settlement demand in excess of Dasher’s insurance
coverage through CIC, also concerned Sullivan.
Mr. Hofmeister is literally “worth milhons.” We
have his tax returns [showing he did not receive
a $5M bonus] which plaintiff may attribute to
this accident. Dan |Murner] will meet with an
accountant to review all this documentation. ...
In mid May a settlement demand of $1.5 million
was initially proposed in the presence of Dasher
officials. They immediately became very
concerned due to personal exposure.... At that
time, the issue of accepting the demand and
tendering our limit of $1M, limiting the
personal exposure of the insured to half a
million versus potentially exposing them to
millions was problematic duc to coverage issues
involved.
The coverage issues to which she referred included the
fact that “Clark’s personal carrier, KY Farm Bureau,
tendered their $100,000 limits [and] some question
regarding KY Farm Bureau stacking their coverage up
to $600,000.” Sullivan noted that “while the insured
[Dasher] has an umbrella policy, it is not. through
27b
CIC.” This is the earliest indication in the record that
a policy of excess insurance coverage existed. Still,
neither the carrier nor the policy limits was identified.
On the other hand, Sullivan noted that there was
still a question of Dasher’s liability. The case had not
developed far enough to know “whether Mr. Clark was
on or off the clock.” At that time, legal focus was on
whether the “actions of Mr. Clark occurred outside the
time restrictions of his employment.”
As it turned out, Hofmeister’s representations of
his impaired physical condition were overstated.
According to his pretrial disclosures in the spring of
2004, Hofmeister’s medical expenses never totaled
more than $50,037.92, far from the $ "FAO .000 to which
he had testified. Also, Hofmeister never needed
subsequent surgery or any other substantial medical
treatment for his injuries. His pretrial disclosures
placed a zero-dollar value on future medical costs.
Nevertheless, for a time at least, the parties proceeded
on Hofmeister’s erroneous representations.
Meanwhile, the Hofmeisters, through Golden, had
provided to Murner some documentation of
Hofmeister’s finances. However, according to a June
16, 2000, letter from Murner to Golden, there was still
much requested documentation that had yet to be
provided. Notably, there was no documentation of the
$25-million loan application or its denial. An
accounting expert hired on behalf of Dasher reported
to Murner that the information Hofmeister had thus
far provided only supported the conclusion that his
businesses were losing money even before the accident.
From 1995 to 1999, the cost of acquiring the
businesses exceeded the cash generated by all of
28b
Hofmeister’s businesses by $150 million. Dasher’s
expert could not reconcile Hofmeister’s claim that his
economic loss was attributable to the accident without
additional documentation. He specifically requested
documentation to support Hofmeister’s income
calculations, as well as records of intercompany loans
and other subsidization of the losses shown to have
been sustained by Hofmeister’s equine-related and
other businesses. Murner explained to Golden the
reason such detailed information was necessary:
As you know, this is not a W2 economic loss
case. Your client derives his income from a
myriad of sources, which we need to explore. If
this cannot be accomplished by June 22
|\Golden’s settlement demand deadline], so be it.
However, my client will not act on blind faith as
you suggest. ... {I]f you take out the economic
claims and simply size this case up on medical
expenses (past and future) and pain and
suffering (past and future) the numbers do not
come close to the limits of my client’s insurance
policy. For example, everything you have
provided to us show |sic] medical expenses of
approximately $50,000 rather than the
$100,000 claimed by your chent during
deposition. ... Your client is asking... me to
assume without documentation that his
economic losses make up the difference and
exceed the policy limits... .
1, of course, will put all of this in a formal
request for production of documents. However,
the deadline for your response [to that discovery
request] will fall after the deadline your chent
29b
has arbitrarily imposed |to respond to the
settlement offer].
Golden responded to Murner on June 20, 2000, that
“Cincinnati Insurance Company has known about the
claim since October 1999.... A cursory review of any
of Mr. Hofmeister’s tax returns for the past five years
would reveal to the layman that he has a solid basis
for his economic damages claim.” Golden declined to
send Murner any further medical records to support a
claim for future medical costs stating simply that
“Cincinnati Insurance Company is creating additional]
requests for information to serve as the basis for its
refusal to settle this claim.” Furthermore, Golden
charged CIC with failing to timely investigate and pay
the claim, and with asking “for more information than
the court would ever require Mr. Hofmeister to
produce and that would take us several months to
acquire.” He then stated his intention “to hold
Cincinnati Insurance Company responsible.”
On June 21, 2000, Murner spoke by telephone with
Golden and invited him to his office to discuss
settiement. Golden declined the invitation. Murner
therefore had a settlement proposal hand-delivered to
Golden’s office on June 22, 2000. There were several
aspects to the settlement proposal.
First, because the issue of whether Clark was
acting within the scope of his employment at the time
of the accident had not been resolved, Murner pointed
out the possibility that Dasher would have no hability
” The record reflects that no such medical records existed and.
therefore, none could be sent
30b
whatsoever. Additionally, Murner’s interpretation of
the discovery produced thus far suggested some
comparative liability on Mr. Ilofmeister’s part.
Second, because Hofmeister still had not provided
the documentation Murner requested, both informally
and through discovery, Hofmeister’s claim for lost
business earnings could not be properly assessed.
Therefore, the settlement offer specifically reserved
Hofmeister’s right to pursue “any claim the
Hofmeisters may have against Dasher for damages
due to lost wages, or lost profits duc to lost business
opportunities[.]”
Third, Murner totaled “all of Mr. Hofmeister’s
medical expenses provided to Dasher by Plaintiffs’
counsel to date,” then subtracted “expenses previously
paid for PIP [personal injury protection of $50,000)” by
Ilofmeister’s own insurance. The balance was $9,275.’
Dasher agreed to pay that sum and further agreed,
having obtained CIC’s consent, that CIC would “be
responsible for negotiating any settlement for PIP, tor
expenses incurred as of the date of this settlement.”
Fourth, Dasher agreed to pay Hofmeister $25,000
for future medical treatment despite the fact that “no
medical evidence has been presented by the
Hofmeisters’ counsel regarding Mr. Hofmeister’s need
for future medical treatment|.|”
’ These figures indicate that Murner continued to err in favor of
Hofmeister regarding calculation of medical expenses since his
estimate exceeds Hofmeister’s pretrial disclosure by more than
$9,200.
31b
Fifth, recognizing Mrs. Hofmcister’s “role in caring
for Mr. Hofmeister|,]}” Dasher agreed to pay her
$25,000 on her loss of consortium claim.
Sixth, for Hofmeister’s claim of past and future
pain and suffering, Dasher agreed to add $50,000 to
the $100,000 previously received from Clark’s carrier
making his pain and suffering claim about three times
his medical expenses.
In effect, Dasher’s total offer was $109,275, plus
indemnification for the $150,000 previously paid by
other insurers for a total of $259,275, plus the
important reservation of Hofmeister’s right to pursue
his claim for lost income.
Before the workday ended, Golden, on behalf of the
Hofmeisters, wrote to Murner stating that the
“proposed settlement offer is rejected and that we
hereby withdraw our offer to settle this matter for the
policy limits of $1 million.” Golden gave no credence to
Murner’s asserted defense that Clark was not acting in
the scope of employment for Dasher, stating, “I have
already presented to your office the applicable case law
that clearly indicates Mr. Clark was acting within the
scope of his employment|,|” and insisting that taking
a contrary position “is a clear violation of the Unfair
Claims Settlement Practices Act because liability has
become clear.” Similarly, according to Golden,
Murner’s position that Hofmcister might bear some
percentage of fault “constitutes a violation of the
Unfair Claims Settlement Practices Act.” Finally, and
contrary to the offer to reserve the claim for lost
profits, Golden claimed that while Murner
acknowledged a “viable claim for lost wages, lost
profits, and lost business opportunities, [he] did not
32b
offer a dime to settle that portion of our claim. This,
too, is in violation of the Unfair Claims Settlement
Practices Act.”
Settlement negotiations were thus suspended
Negotiations would not resume in earnest until the
issue of Dasher’s vicarious liability was determined by
the trial court. This did not occur until shortly before
the final date set for the trial, October 14, 2002.
Between these two periods of settlement
negotiation — the summer of 2000 and autumn of 2002
substantial discovery took place as well as a variety
of procedural and other motions. The following events,
including extrajudicial events subsequently
memorialized as part of the record, are relevant to our
review.
On February 9, 2001, Golden wrote a peculiar
letter’ to Murner ostensibly attempting to settle one
portion only of his clients’ claims. The letter did not
present any offer to settle. On the contrary, Golden
was attempting to resurrect and accept one portion of
Dasher’s June 22, 2000, offer that Hofmeister rejected
in toto eight months earlier. With still no proof of
future medical expenses, Golden, on behalf of the
Hofmeisters, wanted now to accept that portion of
Dasher’s previous offer. He wanted Murner to explain
the “decision to withdraw the offer of settlement of
$25,0001.]” He also wanted to know why Hofmeister
* The oddity of Golden's letter surpasses the “curious letter”
described in Manchester Ins, & Indem. Co. v., Grundy, 541 S.W.2d
493, 495 (Ky. 1976), which is similar to some of Golden's other
correspondence.
could not accept one portion of the offer without
accepting the other portions. In Golden’s opinion, this
violated Kentucky’s UCSPA. Using the same wording
as KRS 304.12-230(13), Golden claimed this amounted
to “failing to promptly settle a claim where liability
has become reasonably clear under one portion of the
insurance policy coverage in order to influence
settlement under another portion of the coverage
afforded by {CIC].”
Murner replied on February 15, 2001, documenting
the history of Dasher’s offer and Hofmeisters’ rejection,
and quoting Golden’s June 2000 pronouncement that
“{wie will now proceed to trial and have the jury decide
the issue of damages.” Again, Murner insisted that
liability was not as clear as Golden asserted and
reminded Golden of the difficulty Dasher had in
obtaining from Hofmeister sufficient information to
assess his claim of lost profits. Finally, Murner stated,
“] believe your allegations of bad faith that you have
thrown about throughout this litigation are frivolous.”
More than three years later, when Golden
interrogated Murner at trial regarding this episode,
Golden revealed that his February 9, 2001, letter was
a calculated attempt to put Murner “on the spot.”
*On this point, Golden interrogated Murner, CIC representative
Dan Walsh, and CIC’s bad faith expert Carl Sumner, The essence
of Golden's interrogation and argument ts that: (1) the June 22,
2000, offer included $25,000 for future medical expenses; (2) there
was no change in the medical proof between June 22, 2000, and
February 9, 2001, when Golden “accepted” the offer, so the offer
could not have become less justifiable; (3) despite this, CIC
refused to pay over the $25,000, (4) Murner admitted that the
$25,.000-offer should not have been made, and (5) Murner’s
34b
Golden: You admitted you shouldn't have
made that offer. You admitted it was
asham.... I put you on the spot on
the $25,000 you offered in future
medicals, to show that that was just a
sham
Murner: I did not admit it was a sham.
You rejected the whole $109,000 .. . .
And then six [sic] months later you
said, oh well, I'll take the $25,000
that you were offering for medicals,
and I said you already rejected the
offer and you hadn't proved anything
regarding future medicals, so why
would I go there?
The Ilofmeisters continued to engage in discovery
between the summer of 2000 and autumn of 2002.
They served additional requests for production of
documents and aé_e third and_ fourth set of
interrogatories on Dasher in September 2000 and May
2001, respectively. Again, the Hofmeisters never took
advantage of the discovery process to obtain
information regarding Dasher’s insurance coverage.
admission supported Golden's claim that it was a sham offer all
along and, therefore, made in bad faith. This argument fails
fundamentally since there was never any evidence of the need for
future medical care. Murner’s settlement recommendation to
Dasher, and CIC’s approval of the settlement offer for future
medicals, was based on Golden's representation that he would
eventually present such evidence. Golden attempts to make
Murner and CIC the culprits because they relied on his
representations in making the offer” The argument defies logic
35b
Dasher, too, continued efforts through discovery to
obtain Hofmeister’s financial records so it could assess
whether there was a causal relationship between the
accident and Hofmeitster’s business failures. The trial
court permitted such discovery even over Golden's
motion for a protective order. Even then, Dasher
subsequently found it necessary to obtain the trial
court's order compelling production of this
documentation before Hofmeister would produce it.
On July 19, 2001, through Golden, the Hofmeisters
moved to amend their complaint for a second time.
They did not attach a copy of the proposed amended
complaint to the motion, but stated their intent to
assert a claim against CIC for violation of the UCSPA.
Through Murner, Dasher moved the trial court
pursuant to CR 11 to strike the motion as frivolous,
having been filed for the improper purpose of
attempting to force settlement of the underlying claim.
Primarily, Dasher noted that its lability was still
fairly debatable since no decision had yet addressed
the scope-of-employment issue. Dasher also asserted
that the Hofmeisters had continuously thwarted its
efforts to substantiate their economic losses. ‘The trial
court granted the Hofmeisters’ motion to amend the
complaint and deferred a ruling on Dasher’s CR 11]
motion.
The second amended complaint listed a variety of
grievances against CIC, each of which the Hofmeisters
contended constituted a violation of the UCSPA.
Shortly thereafter, the Hofmeisters amended the
complaint again, adding an additional UCSPA claim
against CIC. Now itself a defendant, CIC answered
the two amended complaints and denied each of the
substantive allegations in both.
36b
In September 2001, the trial court agreed with CIC
that the case against it for bad faith should be
bifurcated from the underlying tort claim and entered
an order to that effect. Attorney Michael Risley
entered his appearance on behalf of CIC. The
underlying tort claim went forward.
On March 15, 2002, Dasher took the deposition of
a representative of the bank where Hofmeister had
applied for and had been denied the $25-million loan.
The bank representative acknowledged that he
recommended Hofmeister’s loan application to his
superiors, but stated they ultimately denied the loan.
He said that Hofmeister’s medical condition following
the accident did not affect either his recommendation
or his superiors’ denial of the application for credit. He
testified, “I don’t recall it being woven into the credit
presentation as an issue we had to deal with[.]”
Instead, “the final decision” to reject was based on
“economic issues with his businesses, his’ horse
business and other businesses, that he had that
brought in risk factors that the bank [was] not willing
to accept|.]” Nothing in the record indicates that the
accident had any effect on the bank’s denial of
Hofmeister’s application for a $25-million loan.
Trial was scheduled for the spring of 2002. Both
the Hofmeisters and Dasher submitted proposed jury
instructions that left the issues of Dasher’s vicarious
lability and Hofmeister’s comparative negligence for
resolution by the jury. For reasons which the
Hofmeisters opposed but are not otherwise pertinent
here, the trial was continued and_ eventually
rescheduled for October 14, 2002.
37b
The critical issue of whether Clark was acting in
the scope of his employment was still not resolved
when, between August 30 and September 4, 2002, the
Hofmeisters, Clark and Dasher each filed motions on
this issue. On September 13, 2002, the trial court
entered an order finding that Clark was acting in the
scope of his employment with Dasher.
There was conflicting evidence as to whether
Dasher’s dispatcher ordered Clark to return the keys
and credit card himself that morning, or whether
Clark, knowing the keys had to be returned, felt
compelled to voluntarily undertake the task. The
Hofmeisters argued that this specific question is
irrelevant. The trial court seemed to agree, focusing
instead on the facts that: (1) Dasher “indicated the
keys had to be returned;” (2) return of the keys was for
Dasher’s benefit; (3) Dasher’s dispatcher authorized
the return of the keys; and (4) returning the keys was
“incidental” to Clark’s employment. The trial court
noted and discounted the fact that Clark made two
separate stops for coffee and fuel, stating those stops
were “not evidence of any independent pursuit or
deviation |but] merely in furtherance of Clark’s
primary mission|{.]” The trial court did not address the
‘acts that: (1) Clark was not on a direct route between
his home and Dasher’s offices when the accident
occurred; (2) Clark did not recall why he deviated from
the direct route to Dasher’s offices; (3) Clark himself
had created the circumstances necessitating a return
of the keys and credit card; or (4) when asked in a
pre-litigation interview whether he was on company or
personal business, Clark himself responded, “|[T}hat’s
debatable.”
38b
On October 3, 2002, rather than challenging the
trial court’s ruling, Dasher stipulated liability’? and
simultaneously presented the Hofmeisters with an
offer of judgment, pursuant to CR 68, in the amount of
$175,000."! Eight days later, on October 11, the offer
increased to $300,000. On the day of trial, October 14,
Dasher offered $500,000. Before trial started, Dasher
offered the $1,000,000-limits of its policy of automobile
hability insurance. On behalf of the Hofmeisters,
Golden accepted, but conditioned that acceptance upon
certain concessions from some of the other defendants.
Because this occurred on the day trial was to
commence, and because terms of the settlement were
unclear, the parties agreed to go on the record with the
trial court, as “the way to consummate this
settlement|,]” to use Golden’s words. Golden and
Murner were present on behalf of their respective
chents. Also present, either in person or by telephone
conferencing, were representatives of Clark’s personal
insurer and the attorney for Farm Bureau Insurance.
As the case against CIC for statutory bad faith had
been bifurcated and all such claims were to be
‘’ Murner testified this was a tactical decision “to refocus the
issues to the damages, which is what we always wanted to
address in this case.” On cross-examination, Golden attempted
unsuccessfully to have Murner admit the stipulation indicated
CIC knew Dasher was liable all along “because nothing had
changed in the case” from the date of Dasher’s o-iginal offer, June
22, 2000, until hability was conceded.
'' The Hofmeisters have argued throughout the litigation, and
now in this appeal, that the net value of this $175,000-offer was
$25,000 because of “liens” in favor of Travelers and Farm Bureau
There is nothing in the record supporting the existence of such
liens.
39b
addressed later, attorney Risley was not present on
behalf of CIC.
Golden initiated the discussion by representing he
could “blackboard over $20 million in damages and
that will expose Eugene Clark to that excess
judgment[.]” Only moments into the hearing, a
reference was made to the “excess policy with Dasher
of $10 million{.])” Murner corrected the speaker and
clarified that Dasher’s excess policy was only $5
million. Owing to telecommunications glitches,
Murner had to repeat three times that the amount of
Dasher’s excess insurance coverage was $5 million.
Before the negotiations ended, eleven separate
references were made to the existence of Dasher’s
policy of excess insurance. In addition, the excess
insurer was identified as Fireman’s Fund three
separate times. And the excess policy limits of $5
million were stated a total of four times. Nothing in
the transcript indicates that anyone, including Golden,
was surprised by or unaware of the existence of
Dasher’s policy of excess insurance.
The sticking point in settlement, however, was the
relatively smaller amount of $100,000. This is one of
the sums of insurance Golden collected for the
Hofmeisters before initiating litigation. Before the
parties could reach a settlement, one question had to
be resolved: which party or insurance company would
ultimately be responsible for that amount? The
attorneys for the Hofmeisters and Dasher and Clark
were attempting to convince the representatives of the
insurance companies to waive the right to recover the
sum from any of them.
40b
Golden pointed out that he could easily prove more
than $100,600 in damages and, if the trial went
forward, the obstinacy of Clark’s personal liability
insurer “will expose Eugene Clark to that excess
judgment.” This prompted Clark’s insurer to ask,
“Isn’t Mr. Clark an insured under the excess policy,
also?” To this, Murner responded that he “had no
authority from the excess carrier. A million dollars is
what we're offering here.” Golden proposed a simple
solution: “'I]f [(Clark’s personal lability insurer] pays
the hundred [thousand dollars] that it already
committed to pay carlier, then we're all done and it’s
over with, we can all go home.”
Clark’s insurer balked. So, Golden announced he
was prepared “to proceed against Eugene Clark, and if
we ring him up, then we’re going to take his personal]
assets ... and our position is going to be that [Clark’s
personal liability insurer] has acted unreasonably and
violated the Unfair Claims Settlement Practices Act[.]”
Eventually, the representatives of the affected insurers
agreed to brief and argue this particular issue among
themselves, leaving the remaining parties out of that
particular fray and free to settle their claims.
On the points of settlement, Murner was very clear
that the settlement for the limits of Dasher’s
automobile lability policy embraced a_ universal
release of liability relative to the underlying tort claim.
Mr. Murner: Okay, Your Honor, my position
is—and if I’m wrong, somebody
tell me now. Cincinnati, excess
carrier, Dasher and Clark are
protected, and free and clear
from—
41ib
The Court: I don’t know what anybody else
thinks, but I am clear on that,
for whatever it is worth.
Mr. Murner: What I want to make sure is
that this is a complete release.
I mean, this is the standard
complete release with the
exception of [the remaining
issues among the _ insurers
regarding subrogation issues
apart from the parties].
Mr. Golden: { agree.
In accordance with this agreement, Murner drafted
a settlement agreement and_ release.'” The
Hofmeisters’ right was reserved to continue pursuing
the bad faith and UCSPA claims against CIC and
Fireman’s Fund. Otherwise, the Hofmeisters released
Dasher, Clark, CIC and Fireman’s Fund for all claims
arising directly from the automobile accident only.
‘There was a delay in obtaining approval from the
Hofmeisters’ insurer and Clark’s personal insurer
relative to the subrogation issue. This delayed
execution of settlement documents and disbursement
of proceeds. Attempting to encourage movement on
the issue, Golden filed a motion to enforce the
settlement on behalf of the Hofmeisters, followed by a
Golden actually made the first attempt at drafting the
agreement. However, that draft was incomplete in that it did not
include the release of CIC and Fireman’s Fund as to the
underlying tort claim and it left unresolved the subrogation
dispute between the Ilofmeisters’ insurer and Clark’s insurer.
42b
motion on his own behalf, based on his own lien, for
immediate disbursement of his attorney fees and costs
expended.
In his motions, Golden claimed that he never
agreed to include CIC and Fireman’s Fund in the
release of the underlying tort action. Blaming Murner,
Golden insisted that the trial court “stop the wrongful
conduct of withholding the settlement proceeds in
exchange for additional releases that were never
bargained for[.|” Golden insisted the delay was to
pressure the Hofmeisters into dismissing their bad
faith claims.
On behalf of Dasher and Clark, Murner responded
that he had
never included a provision in any proposed
settlement agreement providing for protection
against allegations of violation of the Unfair
Claims Settlement Practices Act for} in any
correspondence that any release must contain
protection from any _ potential bad _ faith
allegations[.! Thus, any claim by Plaintiffs’
counsel that settlement proceeds are being
withheld to solicit a release of bad faith claims
on behalf of Cincinnati Insurance and/or
Fireman’s Fund Insurance Company are simply
unsupported by the correspondence between
counsel and the proposed settlement release.
Murner’s position is easily verified by the language of
the settlement agreement itself. Furthermore, nothing
in the record contradicts Murner’s position on this
issue, nor does the record support Golden’s suggestion
otherwise.
43b
Eventually, all of the issues were resolved by the
attorneys without the need for the trial court to rule.
However, the delay was long enough that it allowed
Allied Capital Corporation, one of George Hofmeister’s
judgment creditors, to intervene in this action and
garnish the settlement proceeds’ before’ the
Ilofmeisters received them.
In May 2003, the Hofmeisters sought leave to file
another amended complaint. In essence, this
amendment added two counts. First, the Hofmeisters
alleged that CIC’s rapid increase in offers between
October 3 and October 14, 2002, from $175,000 to
$1,000,000, violated Kentucky’s UCSPA. Second, they
alleged that CIC intentionally prolonged settlement to
purposefully take advantage of the Hofmeisters’
worsening financial circumstances. The motion was
granted and the amended complaint ordered filed on
June 5, 20038.
In August 2003, ten months after the settlement
negotiations were recorded before the trial court, it
occurred to the Hofmeisters that they had an
opportunity to file yet another amended complaint.
Here, they alleged that CIC “misrepresented pertinent
facts regarding the amount of insurance that was
available” and “failed to disclose the existence of an
excess insurance policy.” The motion was granted and
the amended complaint ordered filed on September 15,
2008.
In February 2004, the Hofmeisters sought leave to
file what became their final amended complaint.
Seemingly aware of this Court’s nonfinal opinion in
Knotts v. Zurich Ins. Co., 2002-CA-001846 (Feb. 6,
2004) that no post-htigation conduct by an insurance
44b
company can be the basis of a UCSPA claim, the
Hofmeisters’ “Fifth Amended Complaint” alleged that
all of CIC’s actions also supported a claim for common
law fraud and intentional infliction of emotional
distress. It appears from the record that this tactical
decision was intended to avoid the potential that
Knotts, once final, would totally defeat the
Hofmeisters’ claims under the UCSPA. The motion
was granted and the amended complaint ordered filed
on May 17, 2004, three days before trial.
Before trial commenced on May 20, 2004, CIC
moved for a continuance because the amended
complaint had been filed so close in time to the
commencement of trial. The motion was denied
because there were no additional factual allegations,
only additional legal theories. The trial judge also
addressed numerous procedural and evidentiary
motions, filed by both sides. Over CIC’s objection, the
trial court ruled that Murner was CIC’s agent for
purposes of settlement negotiation. See, infra, Section
IT.C.
Both sides tendered proposed jury instructions.
The parties announced ready and the trial proceeded.
At the close of evidence, each party moved for directed
verdicts. As to the issues now before this Court, those
motions were denied. The jury was instructed in
preparation for its deliberations.
While this was the fifth arnendment of the complaint after CIC
was named as a defendant, it was the sixth time the original
complaint was amended.
45b
The trial court took the parties’ respective proposed
jury instructions into consideration but crafted its
own. The court incorporated its previous holding that
Murner was CIC’s agent into Instruction No. 2,
addressing violations of the UCSPA, and Instruction
No. 3, addressing fraudulent misrepresentation.
Therefore, the jury was entitled to attribute Murner’s
conduct to CIC for liability purposes. The jury
received no instruction regarding fraud by omission,
l.e., the Hofmeisters’ allegation that CIC failed to
disclose the existence of the policy of excess insurance
coverage. Further details of the jury instructions will
be discussed as necessary in the context of the parties’
various arguments. The case was turned over to the
jury which found for the Hofmeisters on both
Instruction No. 2 and Instruction No. 3, though not
unanimously on either.
CIC filed motions for judgment notwithstanding
the verdict; for a new trial; and to alter, amend or
vacate the judgment. To the extent the bases for these
motions are relevant to this appeal, they will be
discussed infra. It is sufficient now to note only that
all post-judgment motions were denied with the
exception of the motion to reduce the punitive damages
award. ‘These appeals followed.
Il. Cincinnati Insurance Company v. Hofmeister,
2004-CA-002296
CIC presents a plethora of arguments on appeal.
Many of these arguments center on one central
question: What legal relationship exists between an
insurer and legal counsel hired to defend its insured?
Surprisingly, Kentucky has never addressed this
question squarely, but the answer is crucial to
46b
resolution of this case. After addressing this question
generally, we will apply the law to the facts of this
case, and then address CIC’s additional arguments
sertatim.
We further preface our discussion by noting two
factors that will distinguish this case from many
others. First, the underlying litigation was a
negligence action brought by a claimant seeking
restitution from a tortfeasor. It was not a contract
action brought either by the first-party insured, by a
third-party beneficiary of an insurance contract, or a
third party who stood in the shoes of the insured as a
result of an assignment. Second, the Hofmcisters
made no attempt to settle the case with Dasher prior
to the filing of the complaint. Consequently, whether
the concepts discussed here have equal application to
pre-litigation conduct will depend on circumstances
not present in this case.
A. Standard of Review
Many of the issues addressed here were preserved
in more ways than one. ‘The issues which are
dispositive of this case involve the denial of CIC’s
motions for directed verdict and for judgment
notwithstanding the verdict. The same standard
applies to both. Prichard v. Bank Josephine, 723
S.W.2d 883, 885 (Ky.App. 1987). A directed verdict or
judgment notwithstanding the verdict is appropriate
when, drawing all inferences in favor of the nonmoving
party, a reasonable jury could only conclude that the
moving party was entitled to a verdict. Buchholtz v.
Dugan, 977 S.W.2d 24, 26 (Ky.App. 1998); see also,
Bierman v. Klapheke, 9675.W.2d 16, 18 (Ky. 1998). A
reviewing court may not disturb atrial court’s decision
4AT7b
on a motion for directed verdict unless that decision is
clearly erroneous. Bierman at 18. The denial of a
directed verdict by a trial court should only be
reversed on appeal when it is shown that the verdict
was palpably or flagrantly against the evidence such
that it indicates the jury reached the verdict as a
result of passion or prejudice. Jd. at 18-19.
B. Relationship of Attorney Defending Insured
and Insurer — Generally
In Kentucky, the relationship of the insurer to the
attorney hired to defend the insured has been
discussed primarily in caselaw interpreting the Rules
of Professional Conduct, Supreme Court Rule (SCR)
3.1380. While the trial court was not inclined to
consider these cases because Murner’s professional
responsibility was not directly in issue, we believe they
are illuminating.
In American Ins. Ass’n v. Kentucky Bar Ass'n, 917
S.W.2d 568 (Ky. 1996), the insurance industry sought
permission for its insurer members to use in-house
lawyers to defend their insureds, or at least to engage
outside counsel on a “set fee” or retainer basis to
handle all litigation. Both requests were denied.
Reaffirming the sanctity of the relationship
between the insured and the attorney hired to defend
him, our Supreme Court reemphasized that “[nJo man
can serve two masters|.]” American Jns. Ass’n at 571,
quoting Kentucky State Fair Bd. v. Fowler, 310 Ky.
607, 615, 221 S.W.2d 435, 439 (1949). It is axiomatic
that a lawyer must serve his client dutifully and
loyally. Building upon that axiom, the Supreme Court
recognized that granting the industry's request would
A&b
move the attorney closer to certain “inherent pitfalls
and conflicts” that would interfere with his duty and
loyalty to the client. /d. at 571.
Inherent in all of these potential conflicts is the
fear that the entity paying the attorney, the
insurer, and not the one to whom the attorney
is obligated to defend, the insured, is controlling
the legal representation.
American Ins. Ass'n at 573 (emphasis supplied). ‘To
quell that “fear,” “[wle continue to adhere to the view
that it would be contrary to public policy to allow the
insurer to control the litigation[.]” Wheeler ov.
Creekmore, 469 S.W.2d 559, 563 (Ky. 1971).
American Ins. Ass'n was not the first time we
rejected a “rule |that] would be inimical to the
preservation of traditional and longstanding concepts
associated with attorney-client relationship, as
recognized by Kentucky law.” American Continental
Ins. Co. v. Weber & Rose, P.S.C., 997 S.W.2d 12, 13
(Ky.App. 1998) (rejecting excess insurer’s claim of
right to sue its insured’s attorney for malpractice).
Our courts simply cannot ignore Kentucky’s consistent
refusal to allow the insurer any right to control the
attorney’s independent manner of representing its
insured. That independence has a long history.
In New Independent Tobacco Warehouse, No. 3 v.
Latham, 282 5.W.2d 846 (Ky. 1955), our highest court
said that the “general rule is the services of a
professional man, such as a lawyer... are rendered
under an independent contract|.]” Jd. at 848. That ts,
a lawyer is one “who follows [his] employer's desires
only as to results of work, and not as to means
4Yb
whereby it is to be accomplished.” Romero v.
Administrative Office of Courts, 157 S.W.3d 638, 642
(Ky. 2005), quoting BLACK’S LAW DICTIONARY 770 (6th
ed. 1990). These same rules apply when an insurer
selects and pays an attorney to represent its insured.
The Tennessee Supreme Court accurately described
the relationship:
In the typical situation in which an insurer
hires an attorney to defend an insured, the
relationship of the insurer and its attorney is
precisely that of principal to independent
contractor. [T]he attorney is engaged in the
distinct occupation of practicing law ... one in
which the attorney possesses special skill and
expertise. [T]he attorney generally supplies his
or her place of work and tools; the attorney is
employed and paid only for the cases of
individual insureds; and he or she alone,
consistent with ethical obligations to ensure
competence and diligence in the representation,
determines the time to be devoted to each case
Finally, and obviously, the practice of law is not,
nor could it be, part of the regular business of
an insurer.
Givens v. Mullikin ex rel. Estate of McElwaney, 75
S.W.3d 383, 393-94 (Tenn. 2002); see also, Sam Ilorne
Motor & Implement Co. v. Gregg, 279 S.W.2d 755,
756-57 (Ky. 1955)(factors for determining independent
contractor status); see also, Vires v. Dawkins Log &
Mill Co., 240 Ky. 550, 42 S.W.2d 721, 722 (Ky.
1931)(“independent contractor is . . . independent of
his employer in the execution of his work, and may
labor at the times and in the manner he prefers.”)
50b
Clearly, the factor most critical to the attorney’s
retention of his status as an independent contractor,
vis-a-vis the insurer, is the attorney’s retention of
control over the means by which he accomplishes the
insurer’s desired result — defense of its insured. Home
Ins. Co. v. Henderson Lodge, No. 732, Loyal Order of
Moose, 201 Ky. 522, 257 S.W. 422, 423 (Ky. 1923)(“If
lone] is merely subject to the control or direction of the
[employer] as to the result to be obtained, he is [still]
an independent contractor. If [one] is subject to the
control of the employer as to the means, he is not an
independent contractor.”)(quotation marks and
citation omitted). We conclude that the relationship of
an attorney hired to defend an insured relative to the
insurer that hired him, at least initially, is that of
independent contractor."
As a general rule, an employer is not liable for the
torts of an independent contractor in the performance
of his job. Miles Farm Supply v. Ellis, 878 S.W.2d 803,
$04 (Ky.App. 1994). While general rules often have
philosophical or logical origins, their exceptions
typically are born of practical realities. Therefore, we
cannot ignore the practical reality that an insurer may
'* This same conclusion has been reached by many of our sister
states. See, Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439
Mass. 387, 788 N.E.2d 522, 539-41 (Mass. 2003)Where lawyer
“controls the strategy, conduct, and daily details of the defense. . .
an insurer cannot be vicanously liable for the lawyer’s
negligence.”), and cases etted therein, and, Ingersoll-Rand Equip.
Corp. v. Transportation Ins. Co.,963 F.Supp. 452, 454-55 (M.D. Pa.
1997)(“The attorney’s ethical obligations to his or her client, the
insured, prevent the insurer from exercising the degree of control
necessary to justify the imposition of vicarious liability”), and
cases cited therein.
Dib
seck to exercise actual control of an attorney’s work,
even though lacking the right to do so. Our common
law embraces that possibility.
Long ago, Kentucky recognized that if a principal
lacking the right of control nevertheless “personally
interferes with, undertakes to do, manage or control
the work of the independent contractor, he thereby
destroys the relationship of independent contractor.”
Madisonville, H. & E.R. Co. v. Owen, 147 Ky. 1, 148
S.W. 421, 424 (Ky. 1912). The independent contractor
would thus convert to an employee or agent. Our
review of authority reveals that Kentucky independent
contractors, once possessed of the right to control their
own work, are not inclined to relinquish that right to
the employer. In fact, we failed to discover any case in
which that has occurred.”
However low the rate at which typical independent
contractors relinquish the right to control their own
work, logic compels the conclusion that the rate would
be even lower when that right is coupled with a duty.
Unlike other independent contractors, the attorney
who relinquishes the right to control will perforce
violate his duty under the Rules of Professional
Conduct, Rule 1.8(f)(2), and “clearly subject himself to
severe discipline.” Summit v. Mudd, 679 S.W.2d 225,
226 (Ky. 1984). An attorney's maintenance and
' Several cases, notably United Engineers & Constructors, Inc. v.
Branham, 550 S.W 2d 540 (Ky. 1977), reaffirm the longstanding
rule that “the main dispositive criterion is whether it is
understood that the alleged principal or master has the right to
control the details of the work.” /d. at 543 (emphasis supplied).
llere we are speaking of a different concept — the principal's
exercise of control despite having no right to do so.
o2b
protection of his independent contractor status is thus
additionally reinforced. We therefore agree with our
sister court that “cases in which an insurer may be
held liable under an agency theory will be rare
indeed.” Givens at 395.
We also believe Givens indicates the proper
standard for determining whether the insurer has
exercised actual control of the attorney despite lacking
the right to do so. Such control must be invidious in
that it “affect[s] the attorney’s independent
professional judgment .. . interfere[s] with the
attorney’s unqualified duty of loyalty to the insured, or
... present[s] a reasonable possibility of advancing an
interest that would differ from that of the insured.”
Givens at 695.
We now apply these criteria to the facts of this case.
C. Whether the Trial Court Erred in Failing to
Direct a Verdict That Murner Was Not CIC’s
Agent
The trial court concluded that Murner was CIC’s
agent for purposes of settlement negotiations. CIC
claims that ruling was error. We agree.
The trial court did not engage in the analysis
indicated above, but instead applied the reciprocal
analysis of whether Murner was CIC’s agent. Whereas
independent contractor status is shown by the absence
of the principal’s control over the work to be
performed, agency is shown by its presence. Just as
with the independent contractor analysis, “the right to
control is considered the most critical element in
determining whether an agency relationship exists.”
Phelps v. Louisville Water Co., 103 S.W.3d 46, 50 (Ky.
2003)\(citation and quotation marks _ omitted).
Therefore, the trial court’s analytical approach was
effectively the same as ours.
During oral argument of the issue, the trial court
stated, “[I]}t’s pretty clear to me that Mr. Murner was
controlled and guide? by Cincinnati Insurance
Company in terms of settling this case.” (Emphasis
supplied). The trial court determined that CIC
exercised sufficient control over Murner to make him
CIC’s agent based on the following three facts alone:
(1) “Murner was hired by Defendant [CIC] to
represent Dasher;”
(2) “Murncer was required to report to [CIC];”
and
(3) CIC “would have to approve any
settlement offers [recommended by
Murner].”
Having examined the record and finding no additional]
facts that would reinforce this list, we conclude that
CIC was entitled to a directed verdict that Murner was
not CIC’s agent.
Respectfully, we believe the learned trial judge
erred by not considering closely enough just what
caused these three facts to occur. The trial court
concluded they occurred because an = agency
relationship existed between Murner and CIC. But
the record reveals that none of these three facts was
intended as a means by which CIC would exercise
control over Murner as its agent. Instead, each fact
54b
relates directly to a specific duty created by the
insurance contract between CIC and Dasher. The
contract and these duties existed well before CIC
engaged Murner as Dasher’s legal counsel.
The insurance contract created specific reciprocal
duties that CIC and Dasher were required to satisfy
when certain claims of Dasher’s liability were
asserted. CIC’s duty was to defend such claims and to
satisfy the legitimate ones. These duties were
conditioned upon Dasher’s satisfaction of its own duty
to cooperate with CIC “in the investigation, settlement
or defense of the claim[.]” ‘To be entitled to the
benefits of its bargain with CIC, Dasher had to obtain
CIC’s approval of any settlement it expected CIC to
pay. At the same time, however, the contract did not
prohibit Dasher from paying a claim without CIC’s
approval and outside the contract — that is, by utilizing
any other Dasher asset to settle the Hofmceisters’
demands — but such a payment would be, according to
the insurance contract, “at the ‘insured’s’ own cost.”’®
'° We should not forget that a contract of liability insurance is
simply an asset from which a liability may be satisfied. See,
Hillman v. American Mut. Liability Ins. Co.,631S.W.2d 848, 848
(Ky. 1982)iability insurance policy was tortfeasor’s “only
assetl.|"). Accident victims assert claims against alleged
tortfeasors, not directly against the tortfeasor’s insurer. Nothing
prevents a tortfeasor’s satisfaction of a claim from his assets other
than insurance. [tissimply because use of an insurance asset has
the least disruptive effect on the continued operation of a business
that it is naturally the first asset a business considers when
contemplating claims settlement. However, whether to actually
utilize that asset first remains the option of the business. It is not
the option of the accident victim or his attorney to demand that
the claim be satisfied from a contract of insurance.
CIC performed its duty to defend Dasher by
selecting and agreeing to pay Murner to serve as
Dasher’s legal counsel. Experience tells us that an
insurer is better able than its insured to select legal
counsel to represent that insured. State Farm Mut.
Auto. Ins. Co. v. Marcum, 420 S.W.2d 113, 120 (Ky.
1967)Gnsurer is “a professional defender of law
suits|.]”), overruled on other grounds, Manchester Ins.
& Indem. Co. v. Grundy, 531 S.W.2d 493 (Ky. 1975).
Our courts will not penalize a party because he
prudently authorized his experienced insurer to select
the night attorney to defend him. Asbury v. Beerbower,
589 S.W.2d 216, 217 (Ky. 1979)(An insured who “has
paid an insurance company to exercise that choice for
him... should not be penalized for his prudence in
that respect.”). We are not surprised that such
prudence was exercised in this case. When Dasher
paid its premium, it purchased CIC’s expertise in
selecting an attorney and, when a claim was asserted,
CIC performed. It simply makes no sense to conclude
that CIC’s performance of its duty to select Dasher’s
attorney also supports a finding that the attorney
thereby became CIC’s agent. Absent evidence that
there was more to such selection and compensation
than satisfaction of a duty to Dasher, we cannot
conclude that this fact supports a finding that CIC
controlled Murner.
The trial court and the Hofmeisters next place
much reliance upon Murner’s cooperation with CIC
and the acknowledgment that he routinely obtained
CIC’s approval before offering settlement to the
Hofmeisters. This reliance is misplaced.
As Dasher’s agent, Murner had a duty to follow
Dasher’s instructions. If Murner’s cooperation with
56b
CIC had been contrary to Dasher’s instructions, that
would support an argument for Murner’s role as CIC’s
agent. But nothing in the record suggests such a thing
occurred. Murner’s cooperation with CIC was
consistent with the duty he owed to his client, Dasher;
it was consistent with Dasher’s duty to CIC; it was
consistent with Murner’s relationship to CIC as an
independent contractor. See, Latham, supra, 282
S.W.2d at 848 (Fact that employer and independent
contractor engaged in “daily conferences merely
represented the [employer’s] right to see that the work
was progressing .. . and does not militate against the
idea Latham was an independent contractor.”).
The same can be said for Murner’s act of obtaining
CIC’s approval before settlement was offered. Murner
was, again, simply carrying out the contractual duty
his chent owed CIC.
Jt is also clear that Murner was not functioning as
CIC’s claims adjuster. ‘The respective roles of the
insured’s attorney and the insurer’s claims adjuster
are entirely distinguishable. The adjuster’s
fundamental role ts to settle the claim apart from
litigation; the attorney’s is to effectively conduct a
defense in the lhtigation. The adjuster owes no
independent loyalty to the insured apart from that
owed by the insurer. The attorney’s loyalty to his
insured client is paramount. And, unlike the attorney
whose conduct is controlled by his oath, the adjuster
receives direction and authority from the insurer,
which is why he has been deemed the insurer’s agent.
Fidelity & Guaranty Ins. Underwriters, Inc. v. Gregory,
387 S.W.2d 287, 289 (Ky. 1965). Furthermore,
57b
the adjuster and the claimant usually deal
directly with one another. If their negotiations
fail, the adjuster negotiates with plaintiffs
counsel, and even after litigation is begun, the
adjuster frequently deals. directly wit!
plaintiffs counsel.
Gatilor vu. Alsabi, 990 S.W.2d 597, 608 (Ky.
1999)(Lambert, C.J., dissenting).
Our conclusion that CIC did not control Murner is
also strengthened by the undeniable fact that Murner
and Dasher enjoyed an attorney-client relationship.
When Murner' undertook Dasher’s legal
representation, he became Dasher’s agent, not CIC’s.
Douthitt v. Guardian Life Ins. Co. of America, 235 Ky.
328, 31 S.W.2d 377, 379 (1930)(“an attorney is an
agent of his client”). Kentucky has always jealously
guarded the attorney-client relationship, for while
“[t}he relationship is generally that of principal and
agent... the attorney lowes his client] a higher duty
than any ordinary agent owes his_ principal.”
Daugherty v. Runner, 581 S.W.2d 12, 16 (Ky.App.
1978). As described supra, Murner’s relinquishment
of control to CIC would have required that he abdicate
his professional responsibility, abandon his true
principal, and jeopardize his career.
We conclude that where there is no evidence other
than the fulfillment of those duties existing between
the lawyer and the insured as his client, and the
fulfillment of those duties existing between the
insured and the insurer, there can be no finding of an
agency relationship between the insurer and the
attorney it hires to defend its insured. These duties
exist and will be carried out in every case of this
58b
nature. If we held that these facts alone would
support a finding that the insurer controlled the
attorney, not only would we have to conclude that the
attorney is always the insurer’s agent, we would be
inviting, if not requiring, the very conflicts our caselaw
and cthical rules seek to avoid. See, e.g., American Ins.
Ass'n, supra; Kentucky Rules of Professional Conduct,
(SCR) 3.130(1.7) and (1.8).
For their part, the Hofmeisters assert that
additional evidence does exist. They claim Murner
became directly involved in deciding whether CIC’s
policy covered his client’s employee. Examination of
the record does not support more than their attorney’s
argument to that effect, and the unrefuted evidence of
record contradicts the assertion. In his testimony,
Murner made the point, and we believe correctly, that
the scope-of-employment issue (critical to his client’s
common law liability to Hofmeister) and the coverage
issue (critical to CIC’s contractual liability to Clark as
a third-party beneficiary) were independent
considerations, and that his focus was on the former.
Murner’s opinion regarding scope of employment may
have affected CIC’s decisions regarding coverage, but
that alone will not support an agency relationship
between CIC and Murner.
The Hlofmeisters also believe that CIC should be
judicially estopped from denying the agency
relationship because of a prior assertion in this same
proceeding that CIC’s communications with Murner
were privileged. We disagree. “The judicial estoppel
doctrine... prevent[s} a party from taking a position
inconsistent. with one successfully and unequivocally
asserted by the same party in a prior proceeding.”
Colston Investment Co. v. Home Supply Co., 71S.W.3d
59b
759, 763 (Ky.App. 2001)(emphasis supplied). Even if
we were to expand the doctrine to include inconsistent
positions within the same proceeding, we certainly
could not do so selectively. We would have to apply
the doctrine cqually to the Hofmeisters who sought to
avoid the attorney-client privilege by arguing below
that Murner was not CIC’s attorney. To use the
Hofmeisters’ attorney’s words, “As this Court is well
aware, an attorney can only represent the insured.”
The Hofmeisters next argue that Murner had either
actual or apparent authority to bind CIC in settlement
negotiations. Though the brief makes virtually no
reference to the record on this point, our examination
does not disclose evidence to justify such a conclusion.
Until the complaint was amended in mid-August 2001,
there was no claim against CIC to be settled. After
that point, attorney Risley was hired to represent CIC.
We find it difficult to understand this argument under
these circumstances. Evidence that Murner sought a
release that would include CIC, and even evidence that
Murner conveyed information to Golden that CIC
would be responsible for negotiating Hofmeister’s PIP
settlement, is not inconsistent with Murner’s
independent contractor status vis @ vis CIC.
However, the trial court, citing Clark v. Burden,
917 S.W.2d 574 (Ky. 1996), appears to have accepted
this last argument. We believe that case is inapposite.
The attorney with settlement authority at the center
of Clark represented the tort claimant. Jd. at 575.
The only other attorney involved represented the joint
tortfeasors and not either of their insurers. Jd. In
fact, no insurer is mentioned at all. Clark simply
stands for the proposition that, under proper
circumstances, an attorney can bind his client. CIC
60b
was not Murner’s client. Excluding a sort of circular
argument, we simply cannot see how Clark supports
the finding the CIC exercised the kind of control over
Murner that would have made Murner its agent.
The Hofmeisters’ argument that Murner could bind
CIC in settlement reveals a fundamental confusion
about the nature of the underlying claim. An
automobile accident gives rise to a tort claim against
the tortfeasor, but not any kind of claim against that
tortfeasor’s insurer (unless, of course, the claimant is
also an insured under the same policy). The accident
victim has no right, prior to obtaining a judgment
against the tortfeasor, to assert a direct claim to
insurance policy proceeds. Central Mut. Ins. Co. v.
Pippen, 271 Ky. 280, 111 S.W.2d 425, 426 (Ky. 1937);
cf, Wheeler v. Creekmore, 469 S.W.2d 559, 564 (Ky.
1971)(where one jurist lamented the fact that an
insurance contract is not “viewed as one vesting in the
injured third party a direct cause of action;” Osborne,
J., concurring). Consequently, CIC had no liability in
the underlying tort action that would have required
negotiation or compromise. Ifthere had been evidence
that Murner had authority to bind CIC, it would have
been, at best, merely incidental to his duty to defend
Dasher
The record is devoid of any evidence that CIC
exercised any actual control, invidious or otherwise,
over the means by which Murner accomplished his
representation of Dasher, including his efforts toward
settlement of the tort claim. These settlement efforts
are best characterized as an uppropriate attempt by
Dasher’s attorney, utilizing a Dasher asset (the
contract of insurance), in accordance with contract
61b
terms requiring Dasher’s cooperation and CIC's
approval, to settle a tort claim against his client."
We therefore agree with CIC that the trial court
erred by denying its motion for directed verdict that
Murner was not CIC’s agent. Murner began and
maintained his representation of Dasher as CIC’s
independent contractor. Consequently, the general
rule prevails and CIC is not vicariously lable for any
of Murner’s actions undertaken in the performance of
his representation of Dasher. Miles Farm Supply v.
Ellis, 878 S.W.2d 803, 804 (Ky.App. 1994).
D. Whether the Trial Court Erred in Failing to
Direct a Verdict in Favor of CIC on the Claim
of Fraudulent Misrepresentation
CIC asserts the trial court erred by denying its
motion for directed verdict on the Hofmeisters’ claim
of fraudulent misrepresentation. We agree.
Common law fraudulent misrepresentation
requires proof of six elements: “(1) that the declarant
made a material misrepresentation to the plaintiff, (2)
that this misrepresentation was false, (3) that the
declarant knew it was false or made it recklessly, (4)
'’ In view of our holding, we need not rely on the alternative basis
for reversal that the record ts completely devoid of evidence
sufficient to constitute the required mutual “manifestation of
consent” that Murner serve as CIC’s agent. Phelps v. Louisville
Water Co., 103 S.W.3d 46, 50 (Ky. 2003). Without contradiction,
Murner testified that he never consented to have either his
litigation conduct or his settlement conduct controlled by CIC, and
that his loyalty to his client was never compromised by any
obedience to CIC inconsistent with his duty as Dasher’s attorney
62b
that the declarant induced the plaintiff to act upon the
misrepresentation, (5) that the plaintiff relied upon
the misrepresentation, and (6) that’ the
misrepresentation caused injury to the plaintiff.”
Radioshack Corp. v. ComSmart, Inc., 222 5.W.3d 256,
262 (Ky.App. 2007). There must be clear and
convincing proof of each of these elements. With
regard to at. least three of these elements, the proof
was entirely lacking. Therefore, the trial court’s denial
of a directed verdict and judgment notwithstanding
the verdict was clearly erroneous.
The trial court adopted the Hofmeisters’ proposed
fraud instruction language which misidentified the
misrepresentation as “that there was only one (1)
million dollars in insurance coverage|.|""* They
claimed Murner made this statement as CIC’s agent in
his letter to Golden dated May 18, 2000. We have
already determined that Murner was not an agent of
CIC, but its independent contractor. Thus CIC is not
vicariously liable for that statement. It is not
debatable that no other CIC representative made such
a statement. CIC cannot be the declarant of the
alleged actionable representation. Therefore, no
'’ There is atechnical difference between the instruction’s wording
and the actual language the Hofmeisters alleged misled them
that their $1.5-million demand was “in excess of the policy limits
provided by Dasher’s insurance carrier|.!” The October 14, 2002,
settlement conference is the first time the record reflects that
either Murner or CIC represent that the limits of the policy CIC
wrote for Dasher were $1,000,000. CIC proposed more generally
that the instruction simply ask the jury to determine whether CIC
had misrepresented “pertinent facts” regarding insurance
coverage. Jury instructions identifying the alleged representation
must portray it with accuracy
63b
evidence supports the first element of fraudulent
misrepresentation — that CIC made a material
misrepresentation
The Hofmeisters respond by arguing that even if
Murner was an independent contractor, CIC can still
be liable for fraudulent misrepresentation on its own
account. Arguing for what might be termed reverse
engineering of the tort, they urge us to conclude that
the jury inferred fraudulent misrepresentation from
CIC’s breach of its duty to disclose that Dasher had
another asset to satisfy their claim, t.e., the excess
policy. ‘This presumes a duty to disclose. However, the
duty to disclose describes an element of the different
tort of fraudulent concealment requiring proof of
“substantially different elements.” Rivermont Inn, Inc.
vu. Bass Hotels & Resorts, Inc., 113 S.W.3d 636, 641
(Ky.App. 2003)
Disregarding, arguendo, that the jury was not
instructed as to the tort of fraudulent concealment,
and further equating fraudulent concealment with
fraudulent representation, cf, Bankers Bond Co. v
Cox, 263 Ky. 481, 92 S.W.2d 790, 792 (1936)(such
concealment was in fact a false representation”), we do
not find merit. in either of the Hofmeisters’ arguments
that CIC owed them such a duty
The Hofmeisters quote Williams v. Kentucky Dept
of Educ., 113 S.W.3d 145 (Ky. 2003), for the
proposition that “when the principal is under a duty to
provide protection for others and confides the
performance of that duty to a servant... who causes
harm to them by failing to perform that duty, vicarious
liability attaches even if the agent or subagent is not
a servant, /.e., is an independent contractor” such as
64b
Murner. /d. at 151. We believe Williams is not
helpful. While an accurate quote, this is not an
accurate reflection of the holding.
In Williams, two students skipped school and were
involved in an automobile accident resulting in the
death of one student. The student’s estate sought
relief against the Kentucky Department of Education
(DOE) claiming negligent supervision. The principal
issue in Williams was DOE’s defense that
local boards of education are not agents of the
DOE but are separate and distinct agencies of
the Commonwealth assigned to perform
separate and distinct functions, t.e., they are
co-agents; and, thus, the DOE is not vicariously
liable for the failures of employees of local
boards|.]
Id. at 152. The principal holding in Williams was a
rejection of that argument.
From the language and structure of this
statutory scheme, we conclude that the
legislative intent was to vest the overall
management, operation, and control of the
common schools in the DOE, with the local
hoards of education functioning as agents of the
DOE .. . . Thus viewed, the statutory
relationship between the DOE and the local
board was more akin to that of princtpal-agent
than to that of co-agents.
Id. at 154 (emphasis supphed). The issues had
nothing to do with independent contractors. The
65b
language upon which the Hofmeisters rely is mere
dicta.
Furthermore, we believe the Hofmeisters
misinterpret these dicta. They argue this language
supports a holding that CIC owed a duty to “provide
protection” to them by disclosing the existence of a
potential source of recovery for a liability they had yet
to establish. We bclicve no such duty exists. Cf,
National Sur. Corp. v. Hartford Cas. Ins. Co., 493 F.3d
752, 760-61 (6 Cir. 2007)(a slightly different concept;
“no Kentucky court has recognized a duty” nor is there
“any reason why the Kentucky Supreme Court would
impose a duty on an insurance company [even] to
investigate whether its insured has other insurance
coverage.”). Support for our view can be found by
reading Williams more closely.
The Williams quote, referencing a duty to provide
protection for others, is based on RESTATEMENT
(SECOND)OF AGENCY § 251 (1958). Contrary to the
Hofmeisters’ suggestion, that section does not describe
a manner in which vicarious liability may be created
absent an agency relationship. As even the caption to
§ 251 illustrates, the kind of liability being described
presumes the agency relationship already exists.
RESTATEMENT (SECOND)OF AGENCY, supra, § 251
(“Liability For Physical Harm Caused By A|n]| Agent;”
emphasis supplied).
' Generally, RESTATEMENT (SECOND) OF AGENCY § 251 describes
the liability of a party who, once owing a non-delegable duty of
protection to a third person, cannot avoid liability on agency law
grounds for the injury to that third person resulting from the
negligence of an agent, regardless of whether the agent is a
servant or a non-servant.
66b
The Hofmeisters argue that there is an alternate
source for CIC’s duty. Citing Smith v. General Motors
Corp., 979 S.W.2d 127 (Ky.App. 1998), the Hofmeisters
claim CIC’s duty arose “from a partial disclosure of
information, [or] from particular circumstances such
as where one party to a contract has superior
knowledge and is relied upon to disclose same.” Smith
at 129 (emphasis supplied). Neither argument has
merit.
Taking the latter first, the “superior knowledge”
argument requires that the “defrauder” and the
“defraudee” be parties to the same contract. We
should not have to point out that the Hofmeisters and
CIC were not in privity.
The “partial disclosure” argument also fails. ‘The
Ilofmeisters maintain that Murner’s letter constitutes
a disclosure about insurance coverage that, because it
was only partially true, was a false representation of
the whole truth. See, Dennis v. Thomson, 240 Ky. 727,
43 S.W.2d 18, 23 (1931). Therefore, goes their
argument, CIC had a duty to supplement Murner’s
information with a disclosure of the excess policy. The
problem with this argument, whether under a theory
of fraudulent concealment or fraudulent
misrepresentation, is that the Hofmeisters’ reliance on
the information conveyed must be reasonable.
The reliance element contained in Jury Instruction
No. 3(f) carried with it the implicit requirement that
the reliance be reasonable. Harralson v. Monger, 206
S.W.3d 336, 341 (Ky.2006)(“[Bllind reliance . . . fails
the fifth requirement of fraud — reasonable reliance
upon the claimed fraudulent act.”). (Emphasis
supplied). Based on the record before us, the
67b
Hofmeisters’ reliance on their own or their attorney’s
impression of Murner’s letter was unreasonable for
several reasons.
Murner testified that when he learned Dasher had
an excess policy, he told Golden about it, not once but
twice. Golden did not take the stand to refute Murner,
nor did the Hofmeisters present any other evidence
contradicting Murner’s testimony. Even if the jury
chose to disregard Murner’s testimony entirely, we are
left with the transcript of the settlement negotiations,
conducted on October 14, 2002, and attended by
Golden, showing that the excess policy was referenced
one-and-a-half dozen times. These references occurred
before the conditions Golden placed on settlement were
met and, theretore, before the Hofmeisters were legally
committed to accept Dasher’s settlement offer. In fact,
after October 14, 2002, substantial issues remained
and the Hofmeisters had to move the trial court to
decide one of the issues remaining between the
Hofmeisters’ and Clark’s insurers. The settlement
agreement itself was not finalized until December
2002.
Most significantly, tt is well established that “[ilf
the truth or falsehood of the representation might have
been tested by ordinary vigilance and attention, it is
the party’s own folly if he neglected to do so, and he is
remediless.” Bassett v. Nattonal Collegiate Athletic
Ass’n., 428 F.Supp.2d 675, 684 (E.D.Ky. 2006), quoting
Mayo Arcade Corp. v. Bonded Floors Co., 240 Ky. 212,
41 S.W.2d 1104, 1109 (1931). ‘The case cited most
frequently in Kentucky for this point of law ts one of
our earliest. In Moore v. Turbeville, 2 Bibb 602, 5 Ky.
602, 1812 WL 644, 5 Am. Dec. 642 (Ky. 1812), our high
court said:
68b
[Wjhere an ordinary attention would be
sufficient to guard against in:position, the want
of such attention is, to say the least, an
inexcusable negligence. To one thus supinely
inattentive to his own concerns, and
improvidently and credulously confiding in the
naked and interested assertions of another, the
maxim “uvigilantibus non dormientibus jura
subveniunt,” emphatically applies, and opposes
an insuperable objection to his obtaining the aid
of the law.
Moore, 5 Ky. at 604.
In the two and one-half years of substantial
discovery that occurred in this case, the Hofmeisters
elected never to seek discovery of the extent of
Dasher’s insurance as authorized by CR 26.02(2). We
believe use of CR 26.02(2) perfectly illustrates the kind
of “ordinary vigilance and attention” expected by this
rule of law. On May 22, 2000, the Hofmeisters’
attorney was “a little surprised” by Murner’s
representation of insurance.” This uneasiness could
have been eliminated if only the Hofmeisters had
asked for insurance information when they prepared
and served discovery requests nine days later on May
31, 2000.°’ Failing to exercise that ordinary diligence
at any time throughout the litigation, the Hofmeisters
“’ Mr. Hofmeister testified that he too was surprised and, in
response to Golden’s examination at trial said, “I asked you to ask
them about that |excess coverage] because I was surprised that
they didn’t have more insurance.”
“' They ignored the same opportunity when they served discovery
requests in September 2000 and May 2001.
69b
can claim no more than that theirs was the kind of
“blind reliance” deemed unsatisfactory in Harralson,
supra.
In response, the Hofmeisters cite Meyers v. Monroe,
312 Ky. 110, 2268.W.2d 782 (1950), for the proposition
that CIC “cannot escape on the ground that the
complaining party should not have trusted him[.]” /d.
at 785. They fail to note that Bankers Bond Co. v. Cox,
263 Ky. 481, 92 S.W.2d 790 (1936), relied upon as
authority in Meyers, applies this concept only “where
the one claiming to be deceived is not shown to have at
hand any reasonably available means of determining
the truth of representations made to him|.}” Id. at 792.
Clearly, the Hofmeisters do not fall in the category of
claimants contemplated by Meyers. Proof of the fifth
element of fraudulent misrepresentation — reasonable
reliance — is therefore entirely lacking.
There is yet a third element of fraudulent
misrepresentation that entirely lacks proof in this
case. There is no evidence that Murner knew the
statement to be false when made on May 18, 2000.
The Hofmeisters offered no evidence at all to refute
Murner’s testimony that he did not know of the
existence of the excess insurance until later.” The
“The Hofmeisters argue in their brief that Murner admitted that
he kept the excess carrier “in the loop the entire time.” They
suggest this statement means Murner knew of the excess policy
from the time he was engaged as Dasher’s attorney. But this
veneral statement, made as it was in a general conu xt Cand, in
fact, denied by the excess carrier), is entirely consistent with
Murner’s specific testimony on this specific question. The general
statement certainly is not clear and convincing evidence that
70b
earliest documentary evidence of the excess policy is
dated June 9, 2000. Therefore, no evidence supports
the third element of fraudulent misrepresentation.
While CIC presents arguments regarding each of
the six elements of fraudulent misrepresentation, our
examination is sufficient to convince us that the
Hofmeisters could not and did not establish that claim.
The trial court erred by denying CIC’s motion for a
directed verdict on the Hofmeisters’ claim of fraud.
E. Whether the Trial Court Erred in Failing to
Direct a Verdict in Favor of CIC on the Claim
of Violations of the UCSPA
The Hofmeisters alleged violations of several
sections of the UCSPA. Although the jury was
instructed on four of those sections, the allegations boil
down to a claim that CIC did not promptly offer to pay
the Hofmeisters what their claims were reasonably
worth. See, Motorists Mut. Ins. Co. v. Glass, 996
5.W.2d 437, 454 (Ky. 1997).
This case exemplifies one of our Supreme Court’s
warnings about UCSPA claims - the fact “that the
statute is not specifically designed to accommodate
third party claims|[**] ... makes trial nearly impossible
would convince a reasonable person that Murner’s specific
testimony was a fabrication.
“In fact, KRS 304.12-230 was never intended by its creators to
establish any private right of action at all. The statute “is an
almost verbatim adoption of the 1971 version of the model act
formulated by the National Association of Insurance
Commissioners (NAIC)[.]” Davidson v. American Fretightways,
T1b
and appellate review most difficult.” Glass at 460
(Lambert, C.J., dissenting). However, we have some
clear guidance in Wittmer v. Jones, 864 S.W.2d 885
(Ky. 1993) -— “the leading case on ‘bad faith’ in
Kentucky.” Davidson v. American Freightways, Inc. , 25
S.W.3d 94, 99 (Ky. 2000). Applying Wittmer, we have
no difficulty concluding that the trial court erred in
failing to grant a directed verdict in favor of CIC.
Justice Leibson’s opinion in Wittmer was “the
culmination of the development of ‘bad faith’ hability
in our jurisprudence.” Jd. Writing for a unanimous
Court, “Justice Leibson gathered all of the bad faith
liability theories under one roof and established a test
applicable to all bad faith actions, whether brought by
a first-party claimant or a third-party claimant, and
whether premised upon common law theory or a
statutory violation.” /d. at 100.
Inc., 25 S.W.3d 94, 96 (Ky. 2000). It was intended by its drafters
only as regulatory measure to assist state insurance
administrators. NAIC emphasized the “original intent” of this
model act when it issued this warning to legislatures: “A
jurisdiction choosing to provide for a pnvate cause of action should
consider a different statutory scheme. This Act ts inherently
inconsistent with a private cause of action.” NAIC Model Law,
Regulations and Guidelines, Unfair Claims Settlement Practices
A.*, NAIC 900-1, Section 1. Purpose, Drafting Note (January
2008); see also NAIC 900-9 (January 2008), citing Proceedings of
the NAIC, 1989 Proc. II 204. As a consequence, Kentucky is in
that distinct minority of states that recognizes a private right «f
action for violations of the UCSPA. See Hovet v. Allstate Ins. Co.,
135 N.M. 397, 89 P.3d 69, 76-77 (2004 allowing private right of
action but requiring first that “there has been a judicial
determination of the insured’s fault and the amount of damages
awarded in the underlying negligence action.”).
72b
We start with the proposition that there is
no such thing as a “technical violation” of the
UCSPA, at least in the sense of establishing a
private cause of action for tortious misconduct
justifying a claim of bad faith:
[A]n insured must prove three elements
in order to prevail against an insurance
company for alleged refusal in bad faith
to pay the insured’s claim: (1) the
insurer must be obligated to pay the
claim under the terms of the policy; (2)
the insurer must lack a reasonable basis
in law or fact for denying the claim; and
(3) it must be shown that the insurer
either knew there was no reasonable
basis for denying the claim or acted with
reckless disregard for whether such a
basis existed.... [A]n insurer is ... entitled
to challenge a claim and litigate it if the
claim is debatable on the law or the facts.
Wittmer at 890 (quotation marks and citation omitted).
As it is the centerpiece of CIC’s argument, we focus
on the second element — the lack of a reasonable legal
or factual basis for denying the claim. Considering all
of the evidence in a light most favorable to the
Hofmeisters, we conclude that CIC did have a
reasonable basis for denying the Hofmeisters’ claims.
Those claims could not go forward against Dasher
without establishing that Dasher was vicariously
lrable for Clark’s acknowledged negligence. Vicarious
liability depended upon whether Clark was acting in
the scope of his employment at the time of the
73b
accident. Despite the Hofmeisters’ insistence
otherwise, the answer to that question was not clear.
Until the Hofmeisters filed their complaint nearly
a year after the accident, no one exhibited any
conviction that Clark was acting in the scope of his
employment with Dasher. He had completed his work
and gone home. He was in his own vehicle, not
Dasher’s. The Hofmeisters’ entire focus was on Clark
and Ais automobile liability insurer. Not even Clark
was sure he was working for Dasher at the time of the
accident. The record before us does not reflect that he
ever filed a workers’ compensation claim. And when
the adjuster for Hofmeister’s insurer asked Clark,
“Were you working on the job at the time [of the
accident] or were you just on personal business?” Clark
responded, “That’s uh... that’s debatable.”
After the Hofmeisters filed suit naming Dasher as
a co-defendant, their attorney insisted Dasher’s
liability was clear and it was bad faith to deny it.
However, it took two years before Dasher, Clark and
the Hofmeisters each filed summary judgment motions
asking the trial court to determine vicarious liability.
Dasher’s motion, and Dasher’s opposition to the
Hofmeisters’ and Clark’s separate motions, presented
legal and factual argument that Clark was not acting
in the scope of his employment.“
Dasher’s filing of these pleadings is litigation conduct
Litigation conduct amounting to bad faith can be sanctioned by
the trial court pursuant to the civil rules. See the discussion,
infra at Section II.F.1., of Knotts v. Zurich Ins. Co., 197 S.W.3d
512 (Ky. 2006) distinguishing litigation conduct and settlement
conduct
74b
Although the trial court eventually concluded that
Clark was acting within the scope of his employment,
Clark never accounted for, nor did the trial court
appear to consider, the fact that, in a geographic
context, the accident occurred at a point that took
Clark substantially away from the purported purpose
for the trip — to return Dasher’s keys.” In the
language of the early common law, this is an example
of a “frolic and detour.” See, e.g., Faragher v. City of
Boca Raton, 524 U.S. 775, 776, 118 S.Ct. 2275, 2778,
141 L.Ed.2d 662 (1998)(referring to “the classic ‘frolic
and detour’ for which an employer has no vicarious
liability”).
Accepting the trial court’s determination that Clark
left his home in pursuit of Dasher’s business, the law
is clear that to remain in the scope of employment, he
must not have deviated from its pursuit. Sharp v.
Faulkner, 292 Ky. 179, 166 S.W.2d 62, 63 (1942). But
because Clark turned off that direct route and headed
in the opposite direction, toward Georgetown where
the accident occurred, there is a genuine question
whether he was still on his employer’s business at the
time of the accident. In Dennes v. Jefferson Meat
Market, 228 Ky. 164, 14S.W.2d 408 (1929), our highest
court considered such deviation in the context of the
employee’s use of his employer’s vehicle. Where the
employee is using his own vehicle, we believe Dennes
must apply at least equally so.
““ We set aside the substantial factual dispute whether Dasher
“ordered” Clark to return the keys, or whether he did so
voluntarily
Where deviation from the course of his
employment by the servant is slight and not
unusual, the court may, as a matter of law, find
that the servant was still executing his master’s
business. On the other hand, if the deviation is
very marked and unusual the court may
determine that the servant was not on the
master’s business at all but on his own. Cases
falling between these extremes will be regarded
as involving a question of fact for the
determination of the jury.
Dennes at 409; see also, Wyatt v. Hodson, 210 Ky. 47,
2755.W. 15, 16(1925)(master not hable for employee’s
auto accident where employe
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.