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(Cases handled by Matt Troutman that were appealed and made a part of Kentucky case law)
BIERMAN V, KLAPHEKE
967 S.W.2d 16 (1998)
Robert BIERMAN and Joyce Bierman, Appellants Cross-Appellees, v. William KLAPHEKE II, Appellee Cross-Appellant.
Nos. 96-SC-1086-DG, 97-SC-710-DG.
Supreme Court of Kentucky.
April 16, 1998.
As Amended May 8, 1998.
Matthew B. Troutman, Louisville, for Appellants Cross-Appellees.
Reginald L. Ayers, Bell, Orr, Ayers & Moore, Bowling Green, for Appellee Cross-Appellant.
This appeal is from a decision of the Court of Appeals overturning a jury verdict in a legal malpractice action. The jury awarded Robert Bierman a total of $109,518.29 in compensatory and punitive damages. The Court of Appeals struck down all but $4,980.35 of the compensatory award.
The questions presented are whether the Court of Appeals exercised the proper standard of review and made the proper determination on appeal; whether a directed verdict should have been granted because Bierman was fully compensated for all of his damages; whether the Court of Appeals applied the correct law holding that Klapheke was entitled to a directed verdict as to compensatory damages; whether the Court of Appeals was correct in holding that Klapheke was entitled to a directed verdict dismissing the claim for punitive damages; and on cross-appeal, whether it was error for the trial judge to permit testimony of a sitting Administrative Law Judge.
Bierman was injured in a work-related automobile accident when his vehicle was hit in the rear by a vehicle operated by Richard Duncan. In June of 1989, Bierman retained Klapheke to represent him and to prosecute a personal injury claim. Although Klapheke undertook the representation of Bierman, he never filed a workers' compensation claim or pursued payment of the remaining PIP benefits to which Bierman was entitled. Klapheke did not file a civil tort action against Duncan and his employers until September of 1991. In May of 1993, Klapheke obtained leave of court allowing him to amend the complaint in the tort claim, both to correct an error in the identification of Duncan's employers and to assert a claim against those two individuals. In July of 1993, after learning that Klapheke had been less than diligent in pursuing his claim, Bierman discharged him as his counsel.
In 1993, Bierman's new attorney filed the malpractice suit claiming that the pending tort action, the workers' compensation claim and the claim for the balance due as PIP benefits were all barred by the statute of limitations because of the negligence of Klapheke in failing to act promptly. It was also alleged that the loss of consortium claim of Joyce Bierman arising from the same accident was barred by limitations as a result of the negligence of Klapheke. The Biermans sought both compensatory and punitive damages.
The questions presented here are complicated by the fact that the collision was work related, thereby creating both third-party legal liability for damages in tort, and legal liability of Bierman's employer for workers' compensation. KRS 342.700(1) provides that although the injured party may claim both compensation benefits from the employer and tort damages from a third party, "he shall not collect from both."
The Court of Appeals ruled that the alleged ethical violations by the attorney in misrepresenting certain facts to the Bier-mans was not sufficient to justify an award of punitive damages pursuant to KRS 411.186 because the representation and untruths occurred after the attorney negligently permitted the statute of limitations to expire. The Court of Appeals panel also stated that there was no proof that the attorney intended to cause harm to the Biermans by allowing the statute to run. The Court of Appeals believed that the proof only showed that once the attorney had negligently let the time run, he tried to cover up the fact in order to protect his own interests. Both sides sought discretionary review which was granted by this Court.
I. Standard of Review
The proper standard of review by the Supreme Court is set out in NCAA v. Hornung, Ky., 754 S.W.2d 855 (1988), which states that when an appellate court is reviewing evidence supporting a judgment entered upon a jury verdict, the role of an appellate court is limited to determining whether the trial court erred in failing to grant the motion for a directed verdict. All evidence which favors the prevailing party must be taken as true and the reviewing court is not at liberty to determine credibility or the weight which should be given to the evidence, these being functions reserved to the trier of fact. The prevailing party is entitled to all reasonable inferences which may be drawn from the evidence.
Upon completion of such an evidentiary review, the appellate court must determine whether the verdict rendered is palpably or flagrantly against the evidence so as to indicate that it was reached as the result of passion or prejudice. Hornung, supra.
Cf. Lends v. Bledsoe Surface Mining Co., Ky., 798 S.W.2d 459 (1990).
Here, the Court of Appeals did not determine that the verdict was palpably or flagrantly against the evidence so as to indicate that it was reached as a result of passion or prejudice as required by Hornung.
II. Directed Verdict
The trial judge correctly refused to grant a directed verdict, and the Court of Appeals was in error when it held that Klapheke was entitled to a directed verdict as to compensatory damages.
On a motion for directed verdict, the trial judge must draw all fair and reasonable inferences from the evidence in favor of the party opposing the motion. When engaging in appellate review of a ruling on a motion for directed verdict, the reviewing court must ascribe to the evidence all reasonable inferences and deductions which support the claim of the prevailing party. Meyers v. Chapman Printing Co., Inc ., Ky., 840 S.W.2d 814 (1992). Once the issue is squarely presented to the trial judge, who heard and considered the evidence, a reviewing court cannot substitute its judgment for that of the trial judge unless the trial judge is clearly erroneous. Davis v. Graviss, Ky., 672 S.W.2d 928 (1984).
In reviewing the sufficiency of evidence, the appellate court must respect the opinion of the trial judge who heard the evidence. A reviewing court is rarely in as good a position as the trial judge who presided over the initial trial to decide whether a jury can properly consider the evidence presented. Generally, a trial judge cannot enter a directed verdict unless there is a complete absence of proof on a material issue or if no disputed issues of fact exist upon which reasonable minds could differ. Where there is conflicting evidence, it is the responsibility of the jury to determine and resolve such conflicts, as well as matters affecting the credibility of witnesses. Cf. Taylor v. Kennedy, Ky.App., 700 S.W.2d 415 (1985). The reviewing court, upon completion of a consideration of the evidence, must determine whether the jury verdict was flagrantly against the evidence so as to indicate that it was reached as a result of passion or prejudice. If it was not, the jury verdict should be upheld. Cf. Lewis v. Bledsoe Surface Mining Co., supra; Hornung.
The Court of Appeals reversed the jury verdict of lost compensation benefits because the tort action settlement documents contained no allocation of damages as required by Mastin v. Liberal Markets, Ky., 674 S.W.2d 7 (1984).
However, the Court of Appeals misinterpreted the holding in Mastin, supra, when it struck down the entire award of lost workers' compensation benefits. In Mastin, this Court held that because the allocation was made between Mastin and the tortfeasor, and not the workers' compensation carrier, the workers' compensation carrier and the other defendants cannot be foreclosed by an allocation of items of damage to which they were not parties. This Court remanded the Mastin case to the trial court because the defendants were entitled to a fair and impartial decision as to the correct amount for each element of damage for which the Mastins sought recovery at common law, and to an allocation between those elements subject to statutory subrogation and those not so subject.
The Court of Appeals overlooked the material evidence that satisfies even the requirement of Mastin. Bierman presented evidence in the malpractice action on the allocation of his tort settlement and the jury made a fair and impartial decision pursuant to its instructions as to the allocation of Bierman's liability recovery. Bierman introduced evidence as to the loss of profits from his cattle business, loss of profits from the farming operation and pain and suffering, which were not recoverable under the compensation plan, and he demonstrated to the satisfaction of the jury why the tort settlement did not include any of the compensation benefits lost as a result of the legal malpractice.
Bierman also introduced proof that his disability did not prevent him from performing his job with the state, and therefore an award for impairment of future earnings was unlikely in the tort case which was admitted by Klapheke to be true. This demonstrates how the tort settlement could not include an amount of money for impairment of future earning capacity, and consequently there was no duplication of the $32,801.50 disability award testified to by Administrative Law Judge Dockter.
When the evidence is taken as true, as required by Chapman and Hornung, the reviewing court could not determine that the award by the jury of lost compensation benefits was the result of passion or prejudice.
III. Punitive Damages
The Court of Appeals overturned the jury verdict awarding $50,000 in punitive damages based on Fowler v. Mantooth, Ky., 683 S.W.2d 250 (1984), which provides that the proper considerations to be made by a trier of fact in considering punitive damages are "the character of the defendant's act" and "the nature and extent of the harm to the plaintiff that the defendant caused or intended to cause."
The Court of Appeals incorrectly relies on Mantooth, rather than KRS 411.184 and KRS 411.186, the punitive damage statutes. These statutes were enacted subsequent to the holding in Mantooth, and are applicable because neither party objected to their validity. Consequently, the statutes control any assessment of punitive damages. Cf. Shor-tridge v. Rice, Ky., 929 S.W.2d 194 (1996); See also Simpson County Steeplechase Assn. v. Roberts, Ky., 898 S.W.2d 523 (1995).
The evidence presented here indicates that even under Mantooth, it must be considered that the character of the defendant's act, as well as the nature and extent of the harm to the plaintiff that the defendant caused or intended to cause, is obviously determined by the jury. Bierman demonstrated to the jury that Klapheke committed fraud by preventing Bierman from collecting his claim for malpractice which clearly constitutes harm.
Klapheke's acts of lying to conceal his neglect caused significant delays in the ultimate collection of these claims from Klapheke. If Klapheke had admitted his negligence, Bierman would have received reimbursement for the compensation and no-fault claim long ago. Instead, Bierman had to file the legal malpractice action and prosecute the case through trial and appeal.
The Court of Appeals incorrectly determined that the acts of fraud by Klapheke did not exacerbate the damages suffered by Bierman. The decision to reverse the jury's award of punitive damages based on Man-tooth is reversed because the acts of fraud by Klapheke establish a claim for punitive damages clearly independent from his acts of negligence.
IV. ALJ Testimony
It was not reversible error for the trial judge to permit testimony by the ALJ. The argument that Canon 5 of SCR 4.300, Code of Judicial Conduct, which prohibits a judge from testifying as a witness in a case where he or she is the presiding judge acts to prevent Judge Dockter from testifying in this case is unpersuasive. As noted in Law-son Kentucky Evidence Law Handbook, 3d Ed.1993 at 151, KRE 605 "leaves intact the case law that allows a person who participates as a judge in one part of a case to testify in a subsequent and separate proceeding in that case." There is nothing to prevent a judge who is not the sitting or judge from testifying in any legal proceeding.Cf. Department of Highways v. Hess, Ky., 420 S.W.2d 660 (1967).
The decision of the Court of Appeals is reversed and the jury verdict entered in the circuit court is reinstated.
FARIS V. STONE
103 S.W.3d 1 (2001)
Donna Sue Fischer FARIS Appellant/Cross Appellee v. Thomas K. STONE Appellee/Cross Appellant
No. 2001-SC-0864-DG, 2002-SC-0424-DG.
Supreme Court of Kentucky.
April 24, 2003.
As Amended June 11, 2003.
Matthew B. Troutman, Delores H. Pregliasco, Melanie Straw-Boone, Louisville, for Appellant/Cross-Appellee.
Roy Kimberly Snell, LaGrange, for Appellee/Cross-Appellant.
LAMBERT, Chief Justice.
Professional negligence claims must be brought by the injured party within one year of the date of the occurrence or the date of discovery.(fn1) Despite uncontradicted evidence that Appellant discovered her claim against Appellee on or before August 28, 1995, she failed to file a claim for damages until November 7, 1997, more than one year after the date of discovery. Instead of bringing a claim for damages within one year, Appellant filed a motion under CR 60.02 seeking to re-open the underlying divorce litigation. Thereafter, she claimed that this effectively tolled the statute of limitations and the trial court so held. On appeal, after entry of a final judgment upon a jury verdict, the Court of Appeals reversed, holding that the claim was time-barred. We affirm the Court of Appeals.
Upon the dissolution of their marriage, it appears that Donna Paris was defrauded by her husband, William V. Faris, and/or negligently represented by her attorney, Thomas K. Stone, with respect to division of marital property. In the parties' settlement agreement, Ms. Faris received only the sum of $1,500 which purported to represent 50% of Mr. Faris interest in six businesses. Mr. Faris represented that the businesses had a total value of $3,000. Ms. Faris' attorney, Thomas K. Stone, did not obtain any independent evaluation of the businesses and did not inform Ms. Faris of her right to have such an evaluation. A jury later determined that Ms. Faris should have received $162,100, not the $1500 she actually received pursuant to the agreement.
About two years after the final divorce decree, Ms. Faris became suspicious that she had been mistreated. In response, she sought legal counsel from attorney Deloris Pregliasco, and in the course of an August 28, 1995 meeting between the two, Pregliasco informed Ms. Faris that her former attorney, Stone, had been negligent in handling the divorce with respect to valuation of the businesses.
On June 14, 1996, less than one year later, Ms. Faris sought relief pursuant to CR 60.02(d), alleging that her ex-husband had committed fraud affecting the proceedings by undervaluing the businesses. The negligence, if any, of her former attorney, Stone, was not raised in the CR 60.02 motion. About seven months later, the CR 60.02 motion was denied and no appeal was taken from the order. Thereafter, on November 7, 1997, more than two years after she learned of Stone's negligence, Ms. Faris brought this claim against Stone alleging legal malpractice.
In the Jefferson Circuit Court, Stone moved to dismiss based on the one year period of limitation set forth in KRS 413.245. The court recited that both parties had agreed that Ms. Faris discovered her potential suit against Stone more than one year prior to the date she filed her malpractice claim, and articulated the issue as follows: "Therefore, her action is untimely unless the CR 60.02 motion somehow tolled the statute." The trial court then analyzed Hibbard v. Taylor(fn2) Michels v. Sklavos,(fn3) and Alagia, Day, Trautwein & Smith v. Broadbent(fn4) and concluded that a legal malpractice action should be analyzed differently than a "normal" tort. The trial court reasoned that unlike an injury case in which a party can never be made truly whole, in some cases, legal malpractice can be erased and the parties restored to the position they occupied prior to the negligent act or omission. The court concluded that sound policy should encourage remedial conduct and authorized use of CR 60.02 as a means to extend the time for bringing a claim for damages until after the motion had been ruled upon. The motion to dismiss was overruled and the case proceeded to trial. Judgment was entered in favor of Ms. Faris.
The Court of Appeals reversed the trial court. That court also relied on Hibbard, Michels, and Alagia as controlling authority as well as Northwestern National Insurance Company v. Osborne(fn5) and Meade County Bank v. Wheatley.(fn6) The Court of Appeals focused on the test set forth in Northwestern to the effect that the date the statute begins to run "is the date of an irrevocable non-speculative injury."
In this Court, Ms. Faris maintains the position she has taken throughout this litigation, that her CR 60.02 motion tolled the statute of limitation until a ruling was rendered. She reasons that litigation of CR 60.02 motions encourages mitigation of damages, and that to disallow tolling of the statute will cause attorneys to be sued for legal malpractice before alternative remedies have been pursued. She argues that since the second attorney's efforts to undo the mistakes of the first were not abandoned until the CR 60.02 motion was denied, her damages did not become certain and non-speculative until that time. Had she prevailed upon the CR 60.02 motion and thereby obtained re-division of marital property, she further argues, there would have been no need to sue her former attorney. Mr. Stone responds that the statute cannot be applied with such flexibility and criticizes our decisions wherein he believes the statute has been improperly applied.
Our leading cases in this area are Hibbard, Michels, and Alagia, In Hibbard,(fn7) the legal malpractice action was brought more than one year after the underlying negligent act, but within one year of the adverse appellate court decision that brought the underlying litigation to a close. This Court held that the statute of limitations did not begin to run until the end of the appellate process, at which time the client was put on notice that damage had occurred. The rationale was that a layperson should not be charged with knowledge of legal malpractice when legal counsel posits trial court error and pursues a course of action consistent with that view. Moreover, the view was expressed that causation would be lacking until the appellate process had run its course.
In Michels,(fn8) this Court addressed the effect on the statute of limitations in legal malpractice when new counsel is hired during the pendency of the underlying litigation. This case involved a lawsuit for wrongful employment discharge. While the underlying federal lawsuit was pending, the client discharged his first counsel and hired a new attorney. Thereafter, the federal lawsuit was dismissed upon the employer's motion because available administrative remedies had not been first pursued. The client then filed a legal malpractice claim against his first attorneys, and the issue was when the statute of limitations commenced: at the time the client retained new counsel, i.e., when he knew or should have known of the alleged malpractice, or at the termination of the underlying litigation upon which the legal malpractice claim was based.
This Court observed that KRS 413.245 actually contains two periods of limitation: the first period begins one year from the date of the negligent act or omission, and the second period begins on the date of discovery if it is later in time.9 In Michels, we held that the statute of limitations does not commence until finality of the underlying litigation, even if subsequent counsel had previously advised the client of alleged malpractice, because until that latter time injury was merely speculative. We reasoned that damages were contingent upon whether the employer would assert the lack of an administrative claim as an affirmative defense, and upon whether the federal court would rule in favor of the employer if such defense were asserted. Thus, the client's knowledge or imputed knowledge of a potential malpractice claim was not decisive until there was a final adverse determination of the underlying claim.
Our most recent case, Alagia, presented highly unusual circumstances and by virtue of our decision, the statutory period was significant. Over a long period of time, appellees and appellees' decedent had an attorney/client relationship with the appellant law firm. The law firm established an estate plan whereby farm land could be transferred to the owners' sons without payment of gift taxes. Upon an audit by the Internal Revenue Service, it was determined that the farm land transferred to the sons had been substantially undervalued, resulting in a $3.5 million assessment for gift taxes, penalties, and interest. Unable to establish contact with the law firm, the clients contacted another attorney, but soon re-established contact with the original law firm. There were negotiations between the IRS and the law firm, and the members of the law firm assured the clients that the tax problems would be satisfactorily resolved. In January 1989, however, an IRS letter stated that although the amount was still uncertain, payment would be definite and substantial. Thereafter, the sum of $3 million was assessed. The clients then terminated their relationship with the law firm, retained new counsel, and eventually the sum of $1.2 million was negotiated with the IRS.
This Court debated when the limitations period started: whether it was the date of the original deficiency notice, the time of the consultation with second counsel, the date of the January 1989 IRS letter, or the date of termination of the attorney-client relationship. We considered as sound yet declined to decide the case upon the "continuous representation rule," a branch of the discovery rule that permits no effective discovery of the professional negligence so long as the original attorney-client relationship prevails. Instead, the Court decided the case upon the occurrence rule, and held that the statute was tolled until the legal harm became fixed and non-spec-ulative, i.e., when the subsequent law firm and the IRS settled the claim for $1.2 million.
While the foregoing cases are instructive, none addresses the situation presented here. We begin with the observation that CR 60.02 is not an appellate vehicle.10 It is not a part of the normal progression of litigation, but is an extraordinary procedure whereby a collateral attack is made upon a judgment upon specific grounds set forth in the rule. As such, a CR 60.02 claim is not of the same character as an appeal of right or a motion for discretionary review. It is separate and distinct from the main case, and a party may not use it as a means to extend a statutory period.11 If it were otherwise, statutes of limitation would pass into non-existence because CR 60.02(d), (e), and (f) are without any outer limits with respect to time. As such, a party could always bring a CR 60.02 motion and thereby revitalize a time-barred claim. Statutes of limitation are arbitrary and unfair, but they represent a policy decision made by the legislative branch of government that after the passage of specified periods of time, claims are not viable.12 The policy-making branch of government has determined that the value in prevention of stale claims outweighs the detriment inflicted upon a tardy litigant.13
Accordingly, we decline to adopt Ms. Faris' argument that the date of her injury did not become fixed and nonspeculative until the denial of the CR 60.02 motion. Pursuant to KRS 413.245, the latter of the date of occurrence or the date of discovery of the negligence commences the one-year statute of limitations. The date of occurrence was the time when the underlying divorce decree became final.14 As Ms. Faris was not aware of the alleged malpractice at this time, the date of discovery governs commencement of the limitation period. Thus, the one-year period began when she learned that her case had been negligently practiced.
In so holding, we view as distinguishable Alagia, wherein the injury did not become fixed and non-speculative until the ongoing negotiations with the IRS were concluded and a final sum determined. Ongoing negotiations as in Alagia are not analogous to litigation, either in the underlying case or the CR 60.02 claim. A better analogy to Alagia would be negotiations between the parties prior to filing their divorce petition.
As a final thought, we observe that in malpractice cases in which the underlying negligence occurred during the course of formal litigation, Kentucky decisional law has consistently held that the injury becomes definite and non-speculative when the underlying case is final.(fn15) At that time, the one-year statute of limitations begins to run. In Alagia and Meade County Bank v. Wheatley,(fn16) however, the malpractice arose from legal work that was not part of formal litigation. Alagia involved an estate plan, and Wheatley involved a title search. Thus, it was necessary to decide when a malpractice injury becomes fixed and nonspeculative in the absence of an underlying court case. In Alagia, it was when a final compromise was reached and damages became fixed; in Wheatley, it was after the foreclosure sale of the subject property.(fn17) Unlike these cases, the "occurrence rule" is more suited to the instant case, as the underlying negligence occurred in the course of formal litigation.
For the foregoing reasons, we affirm the judgment of the Court of Appeals.
1. KRS 413.245
2. Ky., 837 S.W.2d 500 (1992).
3. Ky., 869 S.W.2d 728 (1994).
4. Ky., 882 S.W.2d 121 (1994).
5. 610 F.Supp. 126 (E.D.Ky.1985), aff'd, 787 F.2d 592, 1986 WL 16729 (6th Cir.1986).
6. Ky., 910 S.W.2d 233 (1995).
7. Ky., 837 S.W.2d 500 (1992).
8. Ky., 869 S.W.2d 728 (1994).
9. Kentucky adopted the 'discovery rule' in Tomlinson v. Siehl, Ky., 459 S.W.2d 166, 167--168(1970).
10. McQueen v. Commonwealth, Ky., 948 S.W.2d 415, 416 (1997)("CR 60.02 is not a separate avenue of appeal to be pursued in addition to other remedies, but is available only to raise issues which cannot be raised in other proceedings"); Urban Renewal & Community Dev. Agency v. Goodwin, Ky., 514 S.W.2d 190, 191 (1974).
11. Mathews v. Mathews, Ky. App., 731 S.W.2d 832, 834 (1987)("Cr 60.02 is not intended as a vehicle to commence an action or to avoid the jurisdiction and/or procedural prerequisites established by our legislature").
12. Barker v. Miller, Ky., 918 S.W.2d 749, 751 (1996); Armstrong v. Logsdon, Ky., 469 S.W.2d 342 (1971); McDonald v U.S., 315 F.2d 796 (C.A.Ky. 1963).
13. 51 Am.Jur.2d, Limitations of Actions § 13.
14. See Barker at 751 (following occurrence rule, court held that limitations period began on date that Kentucky Supreme Court denied discretionary review, although statute would have been tolled had aggrieved client filed writ of certiorari in United States Supreme Court); Stephens v. Denison, Ky. App., 64 S.W.3d 297, 300 (2001)(legal malpractice cause of action based upon underlying criminal case does not begin to run until appeal is final).
15. Hibbard, Michels, Barker, Stephens.
16. Ky., 910 S.W.2d 233, 235 (1995).
17. See also Seigle v. Jasper, Ky. App., 867 S.W.2d 476, 483--484 (statute of limitations for legal malpractice began to run when plaintiffs discovered oil pipeline easement that had not been recorded in title opinion, instead of date title opinion prepared).
SCEARSE V. LEWIS
43 S.W.2d 287 (2001)
William O. SCEARSE; and; Eula F. Scearse, Appellants, v. Phillip LEWIS; and; Karen Chrisman Blanford, Appellees.
Court of Appeals of Kentucky.
February 9, 2001.
Rehearing Denied March 30, 2001.
William O. Scearse, Bledsoe, pro se.
Eula F. Scearse, Bledsoe, KY, pro se.
Matthew B. Troutman, Louisville, for Appellant.
Asa P. Gullett, III, Gullett, Combs, Reed & Bowling, Hazard, for Appellee.
Before GUDGEL, Chief Judge, COMBS, and McANULTY, Judges.
OPINION - McANULTY, Judge:
This is an appeal from the trial court's order granting the defendants' motion to dismiss. We conclude that Appellants' complaint stated a claim which was not barred by the doctrine of res judicata and therefore reverse.
In 1989 Appellants, William and Eula Scearse, employed Appellees, Phillip Lewis and Karen Blanford, to represent them in a legal dispute with Eula's siblings concerning a deed to a five-acre tract of real property Eula received from her mother, Iva Turner. The Appellees successfully defended the suit for Appellants and the deed was declared valid. Appellees again represented Appellants in 1990 when Shamrock Coal Company sought to sell a separate tract of land jointly owned by Shamrock Coal, Eula Scearse, and her siblings.
Appellants then executed a deed on May 22, 1992, which conveyed to Appellees, in consideration of the employment contract for the legal services, an undivided one-third interest in the five-acre tract. Subsequently, Appellants and Appellees jointly executed a deed on November 1, 1994, which granted to Shamrock Coal all of their undivided interest in this five-acre tract. Apparently, in connection with this deed the parties entered into a separate agreement on November 1, which purported to resolve a defect in title to land, previously acquired by Shamrock Coal, surrounding this five-acre tract. In this agreement, Shamrock Coal conveyed to Appellants and Appellees its interest in a separate tract of land. Appellants and Appellees further agreed to lease this separate tract of land to Shamrock Coal in exchange for $20,000 in advance royalties.
Sometime in 1996, Appellants filed an action against the Appellees, alleging legal malpractice in their representation and subsequent conveyances of property. Appellants contended that they had been duped into signing over property and suggested that Appellees had altered documents after the Appellants had signed them. Eventually, in March of 1997, Appellants executed a release of all claims against Appellees, in exchange for a deed in which Appellees quitclaimed to Appellants all their interest in the five-acre tract. At this point we note that this deed and accompanying release were executed in spite of the fact that the Appellees no longer held any interest whatsoever in the five-acre tract, by virtue of the November 1, 1994 deed to Shamrock Coal.
Appellants realized what had occurred and filed, pro se, the present action in the Leslie Circuit Court arguing fraud and asking the trial court to set aside and declare null and void the deeds which had been allegedly altered or in which their signatures had been forged. Appellees filed a motion to dismiss on the grounds of res judicata, referring the trial court to the previous action against them and the Appellants' release of all claims. The trial court summarily granted the motion to dismiss.
Appellants initially proceeded pro se on appeal; however, they subsequently obtained counsel and this Court permitted counsel to file a supplemental brief. Appellants' counsel contends that the trial court erred in granting the motion to dismiss. We agree.
In considering a motion to dismiss, the trial court is required to take every allegation in the complaint as true and to construe them in the light most favorable to the nonmoving party. Whittington v. Whittington, Ky. App., 766 S.W.2d 73, 74 (1989). As Appellants' counsel readily admits, the pro se complaint was not artfully written. However, we believe that it stated a cause of action against Appellees, especially in consideration of the documents filed with the pleadings. Although we determine that the trial court erred, we cannot entirely fault the trial court. The complaint contains a myriad of allegations and could have been interpreted to merely repeat the grounds for the previous lawsuit. Upon a close examination of the entire record, Appellants' new allegations become more clear.
Appellees continue to argue on appeal that the claims are the same as addressed in Appellants' 1996 action against them. They are correct to the extent that Appellants' complaint realleges past injuries which were meant to be remedied by the parties' settlement of that suit which resulted in the deed and release signed by Appellants. Of crucial importance, however, is the allegation that the purported settlement of the previous suit was fraudulent. As we previously noted, in order to settle the suit in 1997, Appellees agreed to quitclaim their interest in the five-acre tract to Appellants. They did this in spite of the fact that in 1997, Appellees no longer held any interest whatsoever in this tract, having conveyed said interest to Shamrock Coal in 1994.
It goes without saying that the principles of res judicata cannot apply to bar an action which arose from the settlement of the previous lawsuit. Moreover, a settlement agreement which lacks consideration cannot be enforced as a binding contract. Huff Contracting v. Sark, Ky. App., 12 S.W.3d 704 (2000). Appellants alleged in their complaint that they agreed to drop the previous suit against Appellees "for our property returned." The complaint further indicates that they filed the present action once Appellants learned that they had not in fact received their property under the settlement.
For the foregoing reasons, the trial court's order dismissing is reversed and this case is remanded for further proceedings.
HARTFORD INSURANCE CO. V. KENTUCKY FARM BUREAU
766 S.W.2d 75 (1989)
The HARTFORD INSURANCE COMPANY and David Neal, Appellants, v. KENTUCKY FARM BUREAU INSURANCE COMPANY and H.M. Neal, Jr., Appellees.
766 S.W.2d 75
Court of Appeals of Kentucky.
March 10, 1989.
Thomas N. Kerrick, Campbell, Kerrick and Grise, Bowling Green, for appellants.
Henry V. Sanders, Matthew B. Troutman, Rawlings & Associates, Louisville, for appellees.
Before HOWARD, LESTER and MILLER, JJ.
In this case, an insurance company appeals from a judgment of the Spencer Circuit Court in which it was held liable for an injury to a farm worker although another insurance company insured the same risk.
Gary Neal was working in a tobacco crop for his brother, David Neal, when he fell from a piece of farm machinery and was injured. Around the time of the accident, Gary generally worked for his father, H.M. Neal, Jr. David was insured by The Hartford Insurance Company. H.M. Neal, Jr. was insured by Kentucky Farm Bureau Insurance Company. David was named as an additional insured on H.M.'s policy.
On June 9, 1986, Gary filed a negligence suit against David, H.M. and Mark Stout, the driver of the farm machinery at the time Gary was injured.
Kentucky Farm Bureau brought an action for a declaratory judgment against The Hartford on July 7, 1987. Kentucky Farm Bureau alleged that it and The Hartford insured David for the accident. The company sought a declaration of rights principally in regard to which insurer had primary coverage and which had excess coverage. Subsequently, the declaratory judgment action and negligence action were consolidated.
The parties agree that the resolution of this case depends on the other insurance provisions in each policy. The relevant provision in The Hartford's policy states as follows:
If any of such other insurance does not contain a provision for contribution by equal shares, this Company shall not be liable for a greater proportion of such loss than the applicable limit of liability under this policy for such loss bears to the total applicable limit of liability of all valid and collectible insurance against such loss.
The relevant provision in the policy issued by Kentucky Farm Bureau states as follows: "This insurance is excess over any other valid and collectible insurance. However, if the other insurance is specifically written as excess insurance over this policy, the limits of this policy apply first."
The Hartford argued that its provision and the one in the Kentucky Farm Bureau policy were mutually repugnant, and thus, the liability must be shared jointly between the two insurers. Kentucky Farm Bureau maintained that the provisions were not mutually repugnant and that its coverage, by the clear terms of the applicable provision, was secondary.
The trial court entered a declaratory judgment ruling that The Hartford was the primary insurer in regard to Gary's claim. Subsequently, The Hartford and Gary settled for $29,000.
The question of allocating loss among insurers when one policy has an "other insurance" clause calling for a pro rata sharing of the loss, while the other specifies that it is only for coverage in excess of other policies has not been decided by our state courts. However, this question was involved in two cases in federal court where Kentucky parties were involved. Henderson v. Selective Insurance Company, 369 F.2d 143 (6th Cir.1966); Aetna Insurance Company v. State Automobile Mutual Insurance Company, 368 F.Supp. 1278 (W.D.Ky.1973).
The issue of conflicting "other insurance" provisions has also been considered in other jurisdictions. 12 A.L.R.4th 993, 76 A.L.R.2d 502. It appears that the cases fall into two types.
In the first type, the "pro rata" clause in one policy and the "excess" clause in the other are not held to be mutually repugnant and the policy containing the pro rata provision must be exhausted first up to its policy limits. Jones v. Medox, Inc., 430 A.2d 488 (D.C, App.1981). As explained in Jones, supra, reconciling such provisions must result from an attempt to give effect to the intent of the parties to the policies. The insurer who has an excess provision in a standard liability policy intends that its policy provide secondary coverage when other insurance covers the loss. But an insurer whose policy has a pro rata provision generally intends that it be effective when other valid and collectible "primary" insurance is available. The policy containing the excess clause then is not valid and collectible "primary" insurance for purposes of triggering the pro rata clause.
The view that when a policy containing the pro rata "other insurance" clause conflicts with a policy having an excess "other insurance" clause, the policy with the pro rata provision should be applied first and the excess clause policy would become effective only when the other policy is exhausted is the majority position. Jones, supra, 44 Am. Jur.2d Insurance s 1791. In Henderson, supra, and Aetna v. State Automobile, supra, both automobile cases, the courts follow the majority position.(fn1)
The other view called the "Lamb-Weston " rule or the "Oregon" rule was developed in Lamb-Weston, Inc. v. Oregon Automobile Insurance Company, 219 Or. 110, 341 P.2d 110 (1959). The Court in Lamb-Weston stated that all "other insurance" clauses, whether an "escape" clause "(where the insurer disclaims liability if the insured has other, valid and collectible insurance)" an excess clause or a pro rata clause, are all simply different methods of restricting the insurer's liability. Thus, when an other insurance clause in one policy conflicts with that in another policy, regardless of the exact nature of the provision, the court held that they are in fact mutually repugnant and should be rejected. Id. The loss between the insurers in Lamb-Weston, supra, was apportioned according to the limits of the policy.
The Lamb-Weston rule has not been widely adopted. 12 A.L.R.4th 993; 76 A.L.R.2d498. In fact, the rule has received some criticism. One such criticism is that the Lamb-Weston rule ignores a basic rule of contracts by failing to consider all of the language in a policy to determine its meaning and intent. Jones, supra. Another is that through use of the Lamb-Weston rule, the courts are legislating pro rata apportionment whenever a policy has a "other insurance" clause and legislation is not a proper judicial function. Id.
We believe that the majority rule in these cases is sound. Consequently, the trial court properly ruled that The Hartford was the primary insurer in regard to Gary's claim.
The judgment is affirmed.
1. In P.L. Kanter Agency, Inc. v. Continental Casualty Company, 541 F.2d 519 (6th Cir. 1976), the Sixth Circuit, applying Michigan law, followed the majority rule in a non-automobile case.
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