Kentucky Law Review

INSURANCE: US Government Bails Out AIG Insurance to the tune of $85 Billion.

UPDATED: 9/28/2008 - Finis Price at TechnoEsq.com Blog posted video clip of a discussion on the implications of the AIG Bailout and its effect on annuities and the settlement process.  See,AIG Bailout Effects on Claims.  It appears I was not crying wolf, and the sky is not falling. . . . yet.

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Stories of government bailouts of private companies have a double edge.  And the implications for the consumer when that company is in the insurance business now include two-fold government involvment in both the loan and management versus state regulation of the insurance practice.  The former is federal; the latter is state.

First, the drain on taxpayer money in coming up with the funds guarantee for the bailout and the effects on our market economy which are always the topics covered by the television pundits.

Second, the effects on the consumer who is now on the receiving end of that business relationship is not always clearly addressed, to include the unintended consequences and ramifications.

AIG is a large company and one of its businesses is insurance.

Two questions for rumination today are:

• Will the desire to make a profit or at least break even or stop the loss affect the claims handling procedures?  Will they run afoul of the Unfair Claims Settlement Practices Act?  Will there be documentation?
• What will be the nature of the ownership impact due to the loan and its impact in the eyes of any jury or legally on any claims in court (diversity, government entity)?

Here's a lead to the story and a link to the full text at Yahoo:

Government steps in again, bails out AIG with $85B
By JEANNINE AVERSA, IEVA M. AUGSTUMS and STEPHEN BERNARD, AP Business Writers
WASHINGTON - The U.S. government stepped in Tuesday to rescue American International Group Inc., one of the world's largest insurers, with an $85 billion injection of taxpayer money. Under the deal, the government will get a 79.9 percent stake in AIG and the right to remove senior management.

NPO: Coots procedures and notices to UIM include release of tortfeasor whether limits advanced or accepted and includes release of employer: MCGRANNAHAN V. BOMAR (NPO: COA 7/11/2008)

MCGRANNAHAN V. BOMAR
INSURANCE:  Underinsured motorist benefits and release of tortfeasor per Coots procedures
2007-CA-000942
NOT TO BE PUBLISHED: 93
DATE RENDERED: 7/11/2008

The Estate contends that the circuit court erred by entering summary judgment dismissing its negligence claims against Bomar and Interlake (the employer).

The Estate maintains that no “settlement” occurred because there was no writing evidencing same and that even if a settlement did occur under Coots, the Estate never intended to release Bomar’s employer, Interlake. In support thereof, the Estate points out that it was unaware that Bomar was acting within the scope of his employment at the time of the accident when it accepted Bomar’s policy liability limit of $50,000. Thus, the Estate argues that summary judgment was improper.

In the case sub judice, the Estate admits that it “entered an agreement with Greene’s insurer, Safeco, that allowed Safeco to advance Bomar’s liability limits and protect its subrogation rights pursuant to the guideline of Coots v. Allstate.”

Under Coots, 853 S.W.2d 895 and True, 99 S.W.3d 439, it is clear that a tortfeasor’s liability insurance carrier’s offer to tender policy liability limits to an injured party is conditioned upon release of the tortfeasor from additional liability, and the injured party’s acceptance operates as a release of the tortfeasor from additional liability

We hold, therefore, that, under Coots, a tortfeasor's liability carrier's settlement offer is conditioned upon a release of its insured from any further liability to the injured party, and the injured party's acceptance of the UIM insurer's payment of the contemplated settlement is an acceptance of that condition and a release of the tortfeasor from any further liability to the injured party. The injured party's UIM insurer, however, preserves its subrogation claim against the tortfeasor for any amount that it is thereafter required to pay its insured under its UIM coverage.

Accordingly, we hold that State Farm’s offer to tender the liability policy limit of $50,000 to the Estate was conditioned upon release of Bomar from additional liability and the Estate’s acceptance of the substituted payment by Safeco operated as an acceptance of the condition and a release of Bomar from additional liability

As the Estate’s claim in the amended complaint against Interlake rested upon vicarious liability, these claims were, a fortiori, released by the Estate’s acceptance of the policy liability limit of $50,000. See Copeland v. Humana, 769 S.W.2d 67 (Ky.App. 1989). In sum, we are of the opinion that the circuit court properly entered summary judgment.

For the foregoing reasons, the summary judgment of the Fayette Circuit Court is affirmed.

DAMAGES: PTSD and mental anguish resulting from death of a loved one in the same car accident seems to be a noncompensable damage in UIM case even when the claimant has been physically injured from the accident.

Did I read this nonpublished decision of the Kentucky Court of Appeals correctly in that an insurance company can write out or exclude some elements of bodily injury damages that would be compensable against the tortfeasor but not compensable against the carrier for underinsured motorist benefits?

The decision was Angel v. Metropolitan Property and Casualty Insurance Co., dated 6/20/2008, Not for Publication, in which Judge Acree (with Judges Dixon and Taylor concurring) held that the  UIM provision at issue in this case clearly excludes coverage of PTSD in the absence of physical manifestations.

First, both husband and wife sustained physical injuries in the motor vehicle accident.  Specifically, the husband

Mikel’s bodily injuries consisted of a concussion, headaches, lacerations to his arm and forehead, numerous contusions, and a shoulder injury, and he suffered from neck, back and right arm pain. Five months after the accident, Mikel was diagnosed with Post Traumatic Stress Disorder (PTSD). The diagnosis was based on Mikel’s nightmares and flashbacks of witnessing his injured wife and believing her to be dead. Mikel experienced substantial emotional instability during his treatment for PTSD and blamed himself for his wife’s injuries.

Second, the policy language at issue was:

“bodily injury” means any bodily injury, sickness, or disease sustained by any person. The term includes death of any person if it is a result of covered bodily injury, sickness, or disease.

Third, Kentucky has routinely included emotional distress as a component of pain, suffering, mental anguish and convenience.  In fact, that is the language from the Kentucky Motor Vehicle Reparations Act, KRS 304.39-060(2)(b)  "a plaintiff may recover damages in tort for pain, suffering, mental anguish and inconvenience because of bodily injury, sickness or disease arising out of the ownership, maintenance, operation or use of such motor vehicle. . . ."

Fourth, a person physically injured and suffering from PTSD would presumably have a compensable claim for damages.  Cases omitted since sometimes these issues are "beyond cavil".

Fifth, KRS 304.39-320(2) provides for UIM benefits "whereby subject to the terms and conditions of such coverage not inconsistent with this section the insurance company agrees to pay its own insured for such uncompensated damages as he may recover on account of injury due to a motor vehicle accident...." (emphasis added).

Now, what about "bodily injury, sickness, or disease" should now be excluded as an element of damages and not considered compensable "pain, suffering, mental anguish, or inconvenience"? 

The decision is NOT TO BE PUBLISHED, but it is has been rendered and can be cited.

However, do not be misled that this is an aberant decision, since another panel recently went down this same path in which a mother was physically injured in a car accident in which both of her children were injured physically (and one died from those injuries).  In this decision, Nationwide Property and Cas. Ins. Co. v. Caple, Not To Be Published, dated 7/11/2008, Judge Moore (with Lambert and Buckingham concurring) went down a different road in holding that the mother's damages based upon a claim for negligent infliction of emotional distress from the death of her child were not a compensable claim against the underinsured motorist benefits policy with Nationwide.

Back to basics is always a useful technique to understanding the issues presented today.  In both cases, the claimants were physically injured, and although the logic of the decisions wishes to focus on the physical impact of the collision and its nexus to that particular claimant's damages, it just does not make sense under the facts of each case.  The requirement is to filter out bogus emotional claims and require not only a physical contact but a reasonable nexus.  The nexus of accident, contact, injury, and emotional and mental anguish from the accident seems self-evident to some.

How do you separate the death or injuries witnessed in an accident from a component of the mental anguish sustained from the accident?  Apparently, the COA is saying the PTSD and nightmares must result from your injuries only and will not include the nature and extent of the trauma from the accident.

Although I can understand the "logic" behind the decision, I cannot understand the "reasoning" in the analysis.

OFF TOPIC AND ELSEWHERE: "What Happened to the Prosser Notebook?"

When this post and story line is developed further, it could be a treasure trove of information.  The post from Law Profs Blog talks about one professor's classbook he used and a student's notes.  Normally, no big deal, but the Professor was Prosser of torts fame, and the time was just a few years before "the" book on torts was published and became "the" book in the field.  One note from the post that I just loved was " Prosser also noted that "much of the law of torts is not settled" and, in a phrase Merrifield placed in quotation marks, that torts was "the battleground of social theories."

"What Happened to the Prosser Notebook?

You may remember that back in November and December I wrote a series of posts about a notebook one of my students loaned me.

ELSEWHERE: "Klein on Comparative Fault and Fraud"

From TrialProfs Blog: Klein on Comparative Fault and Fraud

ARBITRATION: Kentucky Published Decision shoots down nursing home arbitration agreement signed by person other than the resident; same goes for Tenn.

Here is a post from Day on Torts about the unenforceability of arbitration agreements signed by others than the .  I posted it together with a case from Kentucky which struck down the enforceability of a similar agreement.  The decision from Kentucky was Mt. Holly Nursing Home v. Crowdus, 2007-CA-001708, in a published decision by the Kentucky Court of Appeals.

KELLER, JUDGE: Mt. Holly Nursing Center; Beverly Health and Rehabilitation Services, Inc.; Golden Livingcenter-Mt. Holly; GGNSC Louisville Mt. Holly, LLC; Beverly Enterprises, Inc.; and Beverly California Corporation, AKA Beverly Enterprises, Inc., D/B/A Health and Rehabilitation Services, Inc. (hereinafter collectively referred to as Mt. Holly) appeal from the Jefferson Circuit Court’s order denying their motion to enforce an arbitration agreement. Mt. Holly argues that Karen Crowdus (Crowdus) signed an arbitration agreement on behalf of and as an agent of Mary A. McGaughey (McGaughey) and that McGaughey is bound by that agreement. Crowdus argues that she was not McGaughey’s agent when she signed the arbitration agreement and that, for a number of reasons, the arbitration agreement is not valid and therefore not enforceable. For the reasons set forth below, we affirm.

And for a taste of elsewhere, to wit: Tennessee:

Arbitration Agreements UPDATED

Nursing homes continue to attempt to avoid trial by jury by requiring residents to sign arbitration ageements. And the Tennessee courts continue to insist that if nursing homes are going to do so they must follow the law.

Here are two decisions that refuse to enforce arbitration provisions in nursing home contracts because they contracts were signed by a person other than the nursing home resident or appropriate representative: McKey and Ricketts. Both cases were decided on August 15 by the Tennessee Court of Appeals and were authored by Judge Andy Bennett.

UPDATE: And here is another decision, this one from Special Judge Walter Kurtz: Jones. Jones was released on August 20, 2008.

ELSEWHERE: "IME Doctor's Financial Records"

This area of contention and discovery has become relatively settled in Kentucky following the decision of Primm v. Isaac, 127 S.W.3d 630 (Ky.,2004), but it is interesting to see what is transpiring elsewhere.  I found this post at the Trial Lawyers Resource Center Blog.

IME Doctor's Financial Records

The National Law Journal published a story last month on what is increasingly becoming a battle with defendants' lawyer in Maryland and apparently nationally over the terms and conditions of defense medical exams.” Accident lawyers in Maryland are beginning to realize that allowing the plaintiff to submit to an IME is a bargaining chip to require examining doctors to comply with their obligations to produce their relevant financial information.

You can find the entire National Law Journal article here which includes a quote from me.

ELSEWHERE: Missouri Appellate Court Upholds Bad Faith Judgment Against Allstate Insurance Co.

A Missouri appellate panel on Tuesday upheld a $16 million bad faith judgment against Allstate Insurance Co. The Missouri Court of Appeals found that, based on the evidence presented in the case, it was reasonable to infer that the insurer had acted in bad faith. The cases stemmed from a 2000 drunken driving accident in which Allstate refused to settle claims on behalf of the victims. Dan Margolies, Kansas City Star  07/30/2008

TRIAL PRACTICE: The Key to Insurance Defense Preparation is Preparation and the "Defending the Damages-Only Case"

The following post from John Day's Tennessee blog "Day on Torts" - When the Defendant Admits Liability - reminded me that the insurance defense industry and their lawyers rely on more than just "delay, defend and deny" when it comes to the payment of claims.

Per Mr. Mercer K. Clarke's article Defending the Damages-Only Case published in the Winter 2008 edition of Federation of Defense and Corporate Counsel Quarterly, insurance lawyers rely  not only on their own preparation but anticipate and prepare for lack of claimant lawyer's preparation!

When insurance lawyers are paid by the minute to prepare, and with so many cases being disposed of by negotiation, litigation, and mediation rather juries and trials, it is no small wonder that enormous preparation by the insurance lawyer is now being expended on all cases earlier - or "front loading" the hours rather than waiting.  This strategy makes sense financially for the firm, but also is ethically and professionally justified by providing competent representation - the sooner the better.  With fewer insurance defense cases coming through the insurance defense firm's door in an ever tightening market, it is not surprising that each case's financial fruits are harvested fully and faster.

I found the following insurance lawyer's observation and revelatory insight of the opposing counsel intriguing by it's blatant honesty and by its utter simplicity in recognizing the key element of any insurance lawyer's defense is more preparation, better preparation, best preparation. 

However, I do question the assumption that an insurance defense lawyer admitting liability is usually a recommended tactic when there is no defense.  Often, the insurance defense presents a "disingenuous defense"; one that may or may not withstand a directed verdict, but clearly at odds with common sense and reason.  However, it allows the insurance defense lawyer to be gracious to the jury which will determine the facts while at the same time presenting legally irrelevant but emotionally compelling testimony and facts to set up a possible "jury nullification" on liability or damages (eg., the zero pain and suffering verdict).

The article Defending the Damages-Only Case states, in part, that:

Plaintiffs often are more reticent at deposition in expressing how the injury has affected them than they are at trial, after their counsel has paid more attention to preparing. The differences between deposition and trial testimony can be useful in arguing to the jury that the injury and disability have not affected the plaintiff as much as his or her counsel claims.  Deposition testimony about what the plaintiff cannot now do because of the accident may also be subject to impeachment by surveillance. If a significant difference can be shown between post-accident life as described by the plaintiff and spouse and that depicted on surveillance film, the plaintiff’s credibility with the jury will suffer.

TORTS: “Reaching The Limits Of Liability: Tort Immunity For Asbestos And Other Toxic Torts"

I found the following at the web site of "The Federation of Defense & Corporate Counsel":

The 2007 Winter Meeting featured this article by FDCC member Scott T. Dickens of Fultz Maddox Hovious & Dickens PLC of Louisville, Kentucky. The article, entitled “Reaching The Limits Of Liability: Tort Immunity For Asbestos And Other Toxic Torts"

Rather than discourage the plaintiffs‟ bar from filing lawsuits, the bankruptcies of Johns-Manville, Celotex, W.R. Grace, and other former target defendants in asbestos litigation have given rise to a new class of target defendants – the owners of the job sites at which asbestos-containing products were allegedly located.  In many instances, the property owner also happens to be (or to have been) the employer of the claimant and therefore is immune from tort liability under the applicable state workers‟ compensation laws.  But more commonly, the claimant was not an employee of the property owner but rather was employed by an independent contractor hired by the owner to perform work at the property.  In that case, a property owner may assume that the protection against tort liability afforded to employers by the applicable workers‟ compensation laws is not available to it.  Before reaching that conclusion, however, a property owner should determine whether it qualifies as an “up-the- ladder” or “statutory” employer of the claimant.  If it does, then the owner may enjoy the same immunity from tort liability as the claimant‟s direct employer.

 

This article discusses the general nature of the so-called “up-the-ladder” defense for property owners, profiles two illustrative cases filed in Kentucky, and also provides the results of a national survey to determine which states recognize statutory employers.  Although the profiled cases involve asbestos personal injury claims, the “up-the-ladder” defense is not so limited in its application.  In jurisdictions in which the defense is available, it may apply to any tort claim asserted against a property owner by the employee of an independent contractor.

* * *  Click here for remainder of article.