INSURANCE: Torts; bad faith, agent, independent contractor, attorney, insurance company, UCSPA: CINCINNATI INS. CO. V. HOFMEISTER (COA 10/17/2008, 9/26/2008 opinion withdrawn)

CINCINNATI INS. CO. V. HOFMEISTER
INSURANCE: 
Torts; bad faith, agent, independent contractor, attorney, insurance company, UCSPA
2004-CA-002296
PUBLISHED: OPINION REVERSING NO. 20004-CA-002296 AND DISMISSING AS MOOT NO.
2004-CA-002362
PANEL:  ACREE PRESIDING JUDGE; KELLER CONCURS IN RESULT; KNOPF CONCURS
SCOTT COUNTY (JUDGE PAUL ISAACS)
DATE FIRST RENDERED: 10/17/2008 with 9/26/2008 opinion withdrawn

The Kentucky COA found the trial court erred by: (1) denying CIC’s motion for directed verdict in that the attorney retained by CIC for its insured was not CIC’s agent, but rather was an independent contractor; (2) denying CIC’s motion for directed verdict on the
Hofmeisters’ claim of fraud; and (3) denying CIC’s motion for a directed verdict on the
Hofmeisters’ claim that CIC violated the UCSPA. The court also identified sufficient factors to convince it that the jury’s verdict was the product of passion and/or prejudice. The court dismissed as moot the
Hofmeisters’ cross-appeal regarding the trial court’s reduction of the punitive damages award.

This litigation began as the result of a motor vehicle collision in which an employee who was returning vehicle keys and a credit card to his employer fell asleep at the wheel and caused a collision, injuring George
Hofmeister. The court found the central question of the appeal to be what legal relationship exists between an insurer and legal counsel hired to defend its insured. In its analysis, the court found that counsel began and maintained his representation of CIC’s insured as CIC’s independent contractor.

The court found that the Hofmeisters could not and did not establish fraud and CIC’s motion for directed verdict should have been granted.

The court also held that the requirement under the UCSPA that liability be reasonably clear was not met; CIC had a reasonable basis for denying the
Hofmeisters’ claims and therefore did not violate the UCSPA.

As to the jury’s verdict being a product of passion and/or prejudice, the court specifically identified the jury’s consideration of inadmissible evidence of litigation conduct of defense counsel, “improper” conduct of the plaintiffs’ attorney, and mere speculation as to the allegation that CIC’s conduct caused the plaintiffs’ economic loss.

By John T. Hester  (borrowed from the KJA Digest of tort opinons)

As an aside, we have also added the COA
summary of this decision
as follows AND a link to the withdrawn opinion.

The Court reversed on direct appeal and dismissed as moot on cross-appeal a judgment entered after a jury found the appellant insurer liable to appellees for fraudulent misrepresentation and for violation of the Kentucky Unfair Claims Settlement Practices Act
(UCSPA), KRS 304.12-230, related to a tort claim stemming from an automobile accident. Appellant was the insurer for the tortfeasor’s employer. The Court held that the trial court erred in failing to enter a directed verdict in the insurer’s favor on the issue of whether the attorney hired by the insurer to represent the insured employer was an agent of the insurer for purposes of settlement negotiations. There was no evidence to support the finding of an agency relationship between the insurer and the attorney it hired to defend its insured. Further, the attorney began and maintained his representation of the employer as an independent contractor and therefore, the insurer could not be vicariously liable for any actions taken by the attorney in the performance of his representation of the insured. The Court next held that the trial court erred in failing to direct a verdict in favor of the insurer on the claim of fraudulent misrepresentation. The insurer was not vicariously liable for the statements made by the attorney,
appellees’ failed to prove reasonable reliance on representations made by the attorney and there was no evidence that the attorney knew the representations were false. The Court then held that the trial court erred in failing to direct a verdict in favor of the insurer on the claim for violations of the
UCSPA, as the issue of the vicarious liability of the employer was fairly debatable and therefore, the insurer’s actions were reasonable. Further, the trial court erred in allowing the case to go to a jury when the evidence revealed a complete absence of proof of tortious conduct, outrageous behavior, evil motive or reckless indifference by the insurer. Because the Court determined that appellant was entitled to a directed verdict, the cross-appeal challenging the reduction of the punitive damage award was moot.

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