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Torts - Legal negligence, conflict of interest in insurance representation: Stephen R. Chappell, Individually and as partners and/or employees of Landrum & Shouse, et al. v. Kuhlman Electric Corp. AND Kuhlman Electric Corp. v. Chappell (SC 10/29/2009)

By Michael Stevens

Stephen R. Chappell, Individually and as partners and/or employees of Landrum & Shouse, et al. v. Kuhlman Electric Corp. AND Kuhlman Electric Corp. v. Stephen R. Chappell, Individually and as partners and/or employees of Landrum & Shouse, et al.
2006-SC-000140-DG October 29, 2009
2006-SC-000144-DG October 29, 2009
Opinion by Special Justice Crittenden; Justice Noble and Justice Schroder
not sitting.

From 1977 until1988 Kuhlman Electric was covered under a workers? compensation insurance policy issued by Amerisure. Among other things, the insurer agreed to provide legal representation to Kuhlman against workers? compensation claims. In 1977, Burgess, a Kuhlman employee, was injured on the job and filed for benefits. Amerisure retained the firm of Landrum & Shouse to defend Kuhlman. In 1988, Kuhlman ended its relationship with Amerisure and opted to become selfinsured. Amerisure remained obligated to Kuhlman for future claims that arose from the period of coverage.

In 1991, Burgess sought to reopen his award and Amerisure again retained Landrum & Shouse to defend Kuhlman. Landrum & Shouse filed a motion on Kuhlman?s behalf to add Kuhlman as a party, suggesting that Burgess may have actually suffered a new injury rather than reaggravating the one from 1977. The ALJ granted the motion and Burgess subsequently filed a motion of his own claiming he had suffered a new injury. Since Kuhlman was now a self-insured entity, it, and not Amerisure, would be liable for a new injury, Kuhlman objected to Burgess? new injury theory. However, the ALJ held that Kuhlman was estopped from raising a defense on that point since the motion to join Kuhlmann as a party had originally suggested the 1991 injury was new. The ALJ subsequently ruled Burgess had incurred a new injury and Kuhlman was ordered to pay him benefits.

In 2001, Kuhlman filed suit claiming legal malpractice against Landrum & Shouse and bad faith against Amerisure. The trial court awarded summary judgment to Landrum & Shouse and Amerisure. On appeal, the Supreme Court rejected Landrum & Shouse?s argument that Kuhlman Electric / Self-Insured was somehow a different entity from Kuhlman Electric?one to whom Landrum & Shouse owed no duty. The Court held that the fact that Kuhlman Electric was Landrum & Shouse?s client did not change once Kuhlman?s interests became adverse to Amerisure?s. However, the Court held that even if Landrum & Shouse had withdrawn from representing Kuhlman once the conflict of interest became apparent, it would not have changed the outcome of the case since the medical evidence that the injury was new would not have changed. To prevail on a legal negligence claim, a party must show that but for the attorney?s negligence the result of the case would have been different. Since Kuhlman could not meet that standard, the Court held that summary judgment had been proper. Special Justice Vesper (joined by Justice Scott) concurred in part and dissented in part, contending that if Landrum & Shouse had shared its conclusions about the ?new injury theory? with Kuhlman, it might not have been estopped from later defending that point, thus possibly avoiding the adverse ruling. The minority would have remanded back to the trial court for further consideration of the motion for summary judgment.

Full post as published by Kentucky Cases on December 13, 2009 (boomark / email).