Kentucky Supreme Court in a Landmark Decision Addresses Whether:
In Osborne v. Keeney (Ky., Nos. 2010-SC-000397-DG, 2010-SC-000430-DG (12/20/2012)) the Court offered the Bar a clear decision that is a clinic on Kentucky malpractice law – a must read!
Facts: Osborne suffered damages when a pilot of a plane lost control and crashed into her home. While Osborne suffered no direct physical harm, her doctor testified that Osborne was emotionally unstable as a result of the destruction of her home and her personal belongings. She received treatment for this condition for an extended period of time after the crash. Her lawyer negotiated a settlement with Osborne’s homeowner’s insurance carrier with the plan to pursue claims against the pilot. Approximately two years after the crash, and after the one-year statute of limitations had passed, the lawyer advised against proceeding against the pilot. Osborne insisted that suit be filed in the hope of receiving substantial damages. Efforts to overcome the statute of limitations failed and the court entered summary judgment for the pilot.
Osborne then sued the lawyer for breach of contract, legal malpractice, and fraud and deceit. She won on all claims and was awarded $54,924.04 for loss of her personal property; $500,000 for pain and suffering from the airplane crash; $750,000 as punitive damages against the pilot; $53,025.39 for legal fees paid to the lawyer; $250,000 for mental anguish resulting from the lawyer’s representation; and $3,500,000 in punitive damages against the lawyer. On appeal the Court of Appeals affirmed in part and substantially reduced the damage award. The Supreme Court reversed and remanded the case to the trial court for further proceedings.
When dealing with a situation such as the instant case where a claim is lost, including, but not limited to, because it is barred by an applicable statute of limitations, a plaintiff must recreate an action that was never tried. The plaintiff must bear the burden the plaintiff would have borne in the original trial. And the lawyer is entitled to any defense that the defendant would have been able to assert in the original trial. This is what is commonly known in Kentucky law as the suit-within-a-suit approach. While this approach has been repeatedly affirmed, the actual procedure for trying such a case remains elusive. Here, we are presented with the question of how a jury should be instructed in a suit-within-a-suit.
When trying a suit-within-a-suit, especially when the reason for the lost claim is the expiration of the relevant statute of limitations, “all the issues that would have been litigated in the [barred] action are litigated between the plaintiff and the plaintiff’s former lawyer.” And, in recreating the litigation, the usual instructions that should be given in the underlying case, including any special verdict forms, are those to be used in the malpractice trial. (footnotes omitted)
[W]e hold that the impact rule is no longer the rule of law in Kentucky. A plaintiff claiming emotional distress must satisfy the elements of a general negligence claim, as well as show a severe or serious emotional injury, supported by expert evidence.
The Court explained the basis of the new rule as follows:
[T]hese cases should be analyzed under general negligence principles. That is to say that the plaintiff must present evidence of the recognized elements of a common law negligence claim: (1) the defendant owed a duty of care to the plaintiff, (2) breach of that duty, (3) injury to the plaintiff, and (4) legal causation between the defendant’s breach and the plaintiff’s injury. Furthermore, we recognize that emotional tranquility is rarely attained and that some degree of emotional harm is an unfortunate reality of living in a modern society. In that vein, to ensure claims are genuine, we agree with our sister jurisdiction, Tennessee, that recovery should be provided only for “severe” or “serious” emotional injury. A “serious” or “severe” emotional injury occurs where a reasonable person, normally constituted, would not be expected to endure the mental stress engendered by the circumstances of the case. Distress that does not significantly affect the plaintiff’s everyday life or require significant treatment will not suffice. And a plaintiff claiming emotional distress damages must present expert medical or scientific proof to support the claimed injury or impairment. (footnotes omitted)
We hold that lost punitive damages are not recoverable from the attorney against whom a malpractice claim is brought. We do so for two main reasons: first, the argument that punitive damages can be recast as compensatory damages in a legal malpractice claim is flawed and unsupported by our case law; and, second, the deterrence function of punitive damages would be completely written out of the law because the nexus between the attorney accused of malpractice and the actual wrongdoer is far too attenuated. As such, a client’s general right to be made whole should yield in light of the nature and purpose of punitive damages.
Not permitting plaintiffs to recover lost punitive damages means that they may not recover as much as they might have in the underlying action. While this may seem harsh, we recognize that this rule is ameliorated by the fact that a plaintiff may seek punitive damages from the attorney for the attorney’s own conduct. (footnotes omitted)