Revival of claims and stay of proceedings pending insolvent insurer undergoing liquidation and statutes of limitation: HARDIN COUNTY HOSPITAL D/B/A HARDIN MEMORIAL HOSPITAL V. WILKERSON (SC 6/19/2008)

CIVIL PROCEDURE:  Revival of claims and stay of proceedings pending insolvent insurer undergoing liquidation and statutes of limitation
DATE RENDERED: 6/19/2008

Bessie Wilkerson fell and injured her hip while a patient at the hospital; on July 16, 2002, while the case was still pending before the trial court, she passed away, and her son Charles was appointed executor of her estate. On June 20, 2003, the hospital’s insurance company was declared insolvent by a Virginia state court and ordered into liquidation. The negligence lawsuit was not revived in the name of the estate within the twelve months following Bessie’s death pursaunt to KRS 395.278. On July 22, 2003, the hospital moved to dismiss on these SOL grounds. Charles argued that KRS 304.36-085 operated to toll the SOL for six months upon the declaration of the insurance agency’s insolvency. The TC dismissed the action as not having been timely revived, and the CAs, in a divided panel, held that the action was "pending" at the time of insolvency and that the action was stayed for six months as a matter of law under KRS 304.36-085.

The Supremes initially noted that this case involves the tension between the revival statute (KRS 395.278) and KRS 304.36-085, which controls the staying of claims when Kentucky Insurance Guaranty Association (KIGA) steps in for an insolvent insurer undergoing liquidation. They examined the definitions of the statutes’ various terms, including "proceeding" and "revival of action." They outlined the history of the revival statute, finding that "at common law, when the plaintiff died the lawsuit died with him." Daniel v. Fourth & Market, Inc., 445 S.W.2d 699, 701 (Ky., 1968). Whether the stay provision of the KIGA Act can have any effect on the revival limitation period is a question of first impression here in the Commonwealth; only two other states had addressed the issue, and they were, naturally, split. The Supremes go into a fairly detailed and lengthy analysis on the issue, addressing the notion that the revival statute has consistently been read as one of limitation and finding that the language of the KIGA stay statute is not self-executing and therefore does not automatically stay the proceeding (interestingly, the Supremes state: "[T]he statute states that proceedings ‘shall . . . be stayed.’ This use of ‘shall’ imposes a mandatory duty on a court to stay proceedings, but indicates that an affirmative act by a court is required to effect the stay"). The Court compares the KIGA stay to other self-executing stay laws, including 11 U.S.C. Section 362, the Federal Bankruptcy Code "Automatic Stay" statute, and eventually finds that even under a best-case interpretation of KRS 304.36-085 (as creating an automatic stay), it can have no effect on the statute of limitation absent a separate, coordinating savings statute. Finally, they find that allowing the KIGA stay to suspend the running of an SOL goes against the KIGA Act’s stated purpose of permitting proper defense by the assocation of all pending causes of action.

Here is the Supreme’s conclusion, and it took them ten pages to reach it, y’all:

For the KRS 304.36-085 stay provision to come into effect, there must be a live, pending action to be defended by KIGA. The statute does not suspend or toll the running of a statute of limitation. Where a party to an action that may fall under KRS 304.36-085 has died, and the action had not been revived under KRS 395.278, there is no live, pending action for the stay to affect. This, of course, means that a dead action required to be defended by an insolvent insurer (and therefore KIGA) may be revived, even if a stay under KRS 304.36-085 is in place. However, [Charles’] action in this case was not revived within one year of the death of the decedent . . . Because the one year in KRS 395.278 is a period of limitation, to be strictly construed, the trial court properly dismissed the action.

Justices Scott and Cunningham dissented, with Justice Scott writing that he could not join the majority’s conclusion that the death of a plaintiff in a lawsuit serves as an absolute abatement to that suit’s status as a proceeding until revival is effectuated; it appeared to him that this was the very quandary which the revival statute was intended to address. He contends that while the revival statute does not affect an automatic personal succession of a decedent’s representative to a lawsuit, it does, through a legal reality of statutory creation, permit the lawsuit itself–absent a personal holder of the lawsuit–to survive as a live action in its stead. He cites examples of common law principles being altered by statutory construction, including the wait and see statute approach to the common law rule against perpetuities (digester shudders with horror at memories of property classes).

J. Scott would find that the revival statute operates to maintain an action’s status as a live proceeding so long as it is revived within the 12 month SOL. He would also find that KRS 304.36-085 should be construed to suspend the running of KRS 395.278’s 12 month SOL upon a reciprocal’s insolvency, citing its mandatory language and noting that there is no discretionary language in the statute which would otherwise indicate that a separate motion or some other action is required to render the stay enforceable. He concisely states, "Stay means stay." He also distinguishes Daniel, notes that revival beyond expiration of a limitations period is not without precedent (see CR 25.01; Snyder v. Snyder, 769 S.W.2d 70 (Ky. App., 1989), and examines the Harris v. Jackson case and its holding, 192 S.W.3d 297 (Ky., 2006), which he concludes is analogous to this matter.

By Cherry Guarnieri

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