862 F. Supp. 2d 551
E.D. Ky.2012Background
- Unarco settled the Asher litigation arising from Wal-Mart’s 2005 CO injuries at a cost ultimately paid by Travelers Insurance; Unarco seeks reimbursement for those costs from Atlas and Lexington.
- Unarco previously obtained defense and indemnity in the Asher suit via its status as an additional insured under Atlas’s policy with Lexington.
- Unarco filed breach of contract claims against Atlas (indemnity) and Lexington (defense/indemnity) seeking to recover defense, settlement costs, and related fees.
- Travelers, not Unarco, paid the Asher defense and settlement costs; Unarco argues collateral source payments should reduce Lexing-ton’s liability.
- Kentucky law’s collateral source rule generally bars double recovery in tort and is claimed by Unarco to apply to contract claims, though the court must decide applicability to contract claims.
- The court held that collateral source does not apply to breach of contract; damages against Lexington and Atlas were zero, and summary judgment was entered for Lexington and Atlas in parts of the case; election of remedies was denied as moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether collateral source rule applies to breach of contract damages | Unarco: collateral source should reduce Lexington’s liability | Lexington: collateral source does not apply to contract | Collateral source does not apply to contract; no damages against Lexington. |
| Whether Unarco proved damages against Lexington for breach of contract | Unarco seeks defense/settlement costs and related fees | Lexington: costs were paid by Travelers; no damages | No damages proven; summary judgment for Lexington granted. |
| Whether Unarco proved damages against Atlas for breach of contract | Unarco seeks indemnity for Asher costs and related litigation costs | Atlas: Travelers paid costs; Purchase Order limitations limit recovery | No damages; collateral source rule not applicable; summary judgment for Atlas granted. |
| Whether attorney’s fees and costs of the coverage action can be recovered | Unarco seeks fees as consequential damages | Aetna rule: American Rule persists; no fees recoverable | No attorney’s fees or costs recoverable; not recoverable as consequential damages. |
| Election of remedies between Atlas and Lexington | Unarco must choose remedies to avoid double recovery | No damages available; election moot | Denied as moot. |
Key Cases Cited
- Schwartz v. Hasty, 175 S.W.3d 621 (Ky.Ct.App.2005) (collateral source rule in tort actions; double recovery concern)
- USACO Coal Co. v. Liberty Nat’l Bank & Trust Co., 700 S.W.2d 69 (Ky.Ct.App.1985) (collateral source rule not applied to certain contract contexts)
- Cincinnati Ins. Co. v. Vance, 730 S.W.2d 521 (Ky.1987) (breach of defense duties and consequential damages in insurance context)
- Safeco Ins. Co. of Am. v. City of White House, 191 F.3d 675 (6th Cir.1999) (application of collateral source rule in contract/coverage actions (tort/contract distinction noted))
- Aetna Cas. & Sur. Co., 179 S.W.3d 842 (Ky.2003) (American Rule on attorneys’ fees; exception not found here)