Scott County

$20 million civil verdict overturned

A $20 million civil verdict out of Scott County was overturned Friday after the state Court of Appeals ruled that litigation conduct cannot be used against insurance companies in bad-faith claims handling lawsuits.

The ruling is significant because it addresses a thorny legal issue that affects anyone being defended by an insurance company over a car wreck or liability claim: Are the lawyers that insurance companies provide for their customers acting on behalf of the insurance company instead of just the customer?

Under Kentucky law, a civil defense lawyer's only client is the insured driver — even if the insurance company is paying the bills and is on the hook for the settlement or jury verdict.

Applying that principle, the Court of Appeals, 3-0, said an unfair claims handling lawsuit against Cincinnati Insurance Company in 2004 should have never gone to trial. The court wrote that civil defense attorneys can only serve one master: the insured driver.

To hold otherwise, "would be inviting, if not requiring, the very conflicts our case law and ethical rules seek to avoid," Judge Glenn E. Acree wrote in a 72-page opinion.

The ruling stemmed from a November 1998 crash in which a shipping company employee fell asleep, crossed the centerline and struck a vehicle driven by George Hofmeister of Bourbon County, with his wife Kay as passenger. George Hofmeister suffered a shattered femur, broken ribs, a broken wrist and a scalp laceration.

Hofmeister's lawyer, Dale Golden, argued in a 2004 trial that Cincinnati Insurance offered $25,000 to settle Hofmeister's personal injury lawsuit against the driver, Dasher Express' Eugene Clark, about a week before trial. The morning of trial, it upped the offer to $1 million, which was represented by Dasher's lawyer, Dan Murner, as the insurance policy limit.

In actuality, Dasher's policy limit was $5 million. Golden says Hofmeister settled for less than he could have.

During the negotiations, Hofmeister sued the insurance company for allegedly handling his claim in bad faith. He was awarded $20 million in 2004.

Golden said he agrees that defense attorneys are only supposed to represent the insured. But he said Dasher's attorney was improperly advising both the insurance company and Dasher, making litigation conduct fair game for a lawsuit against the insurance company.

The Court of Appeals, however, saw no evidence that the insurance company was trying to control the attorney's defense strategy.

Golden said he will appeal the ruling. "We're disappointed," Golden said. "It's been tough for the Hofmeisters. It's been about four-and-a-half years (since the trial), so it's been a very long wait."

Lexington attorney Luke Wingfield, formerly an attorney for Kentucky Defense Counsel, said the ruling affirms that defense lawyers must act independently of insurance companies.

Had the court upheld the verdict, it could have made civil defense attorneys afraid to vigorously defend their client because it exposes insurance companies to liability claims under the Unfair Claims Settlement Practices Act.

The act requires insurance companies to investigate insurance claims in good faith and promptly make a fair settlement offer once liability is reasonably clear.

An opposite ruling in Hofmeister's case "allows a claimant to second-guess a decision an attorney makes in his client's best interest," Wingfield said. "That is why it is so dangerous."

The Court of Appeals, in sometimes pointed language, disagreed, ruling in the insurance company's favor on nearly every question presented to it. It found that Dasher's lawyer, Murner, was not acting as an employee of the insurance company, but as an independent contractor.

Regardless, the court faulted Golden, Hofmeister's attorney, for not asking for a copy of Dasher's policy limits. It pointed to numerous instances where Golden was told the policy limits were higher.

And the court said Dasher's liability was not clear in the case, making the insurance company justified in withholding a settlement offer. Clark admitted in testimony that he wasn't sure if he was on company time when the crash occurred.

The court said that, prior to trial, Golden did not substantiate his settlement demands. The court questioned whether the insurance company was responsible for Hofmeister's financial downfall, calling it the "unadulterated epitome of speculation."

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