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Merritt v. Catholic Health Initiatives Inc.

Court of Appeals of Kentucky

November 17, 2017

HAROLD MERRITT, INDIVIDUALLY, AND AS COURT-APPOINTED ADMINISTRATOR OF THE ESTATE OF KIMBERLY MERRITT, AND AS COURT-APPOINTED ADMINISTRATOR AND NEXT FRIEND OF THE ESTATE OF HAROLD MERRITT, III APPELLANTS
v.
CATHOLIC HEALTH INITIATIVES INC., AND FIRST INITIATIVES INSURANCE, LTD. APPELLEES

         APPEAL FROM FAYETTE CIRCUIT COURT HONORABLE ERNESTO M. SCORSONE, JUDGE ACTION NO. 15-CI-03690

          BRIEF FOR APPELLANT: J. Dale Golden Mary Lauren Melton Lexington, Kentucky

          ORAL ARGUMENT FOR APPELLANT: J. Dale Golden Lexington, Kentucky

          BRIEF FOR APPELLEE: B. Todd Thompson Chad O. Propst Louisville, Kentucky

          ORAL ARGUMENT FOR APPELLEE: Chad O. Propst Louisville, Kentucky

          BEFORE: KRAMER, CHIEF JUDGE; CLAYTON AND TAYLOR, JUDGES.

          OPINION

          CLAYTON, JUDGE.

         Harold Merritt et al., appeal the Fayette Circuit Court's orders denying his motion for declaratory judgment, denying his motion to reconsider the denial of a declaratory judgment, and granting Catholic Health Initiatives, Inc., and First Initiatives Insurance, Ltd.'s motion for summary judgment.

         Kentucky Revised Statutes (KRS) 304.49-010 through KRS 304.49-230 exempts captive insurers from Kentucky's Unfair Claims Settlement Practices Act ("UCSPA"). Captive insurance is a form of risk-financing or self-insurance involving the establishment of a subsidiary corporation or association to provide insurance. First Initiatives Insurance, Ltd. ("First Initiatives") is a foreign captive insurance entity that provides self-insurance for Catholic Health Initiatives, Inc. ("CHI"). The issue presented is whether UCSPA applies to CHI and First Initiatives.

         After careful consideration, we affirm the trial court's decisions denying a motion for declaratory judgment and granting summary judgment.

         BACKGROUND

         Harold Merritt, Jr. filed a complaint on October 7, 2015, alleging negligence on the part of the medical providers and "bad faith" on the part of CHI and First Initiatives. This matter tragically arises from the death of a mother, Kimberly Merritt, and her son, Harold Merritt, III, following complications from pregnancy.

         Merritt contended that Dr. Anthony Smith breached the medical standard of care and is responsible for the untimely deaths of his wife and infant child. Kimberly's pregnancy was considered high-risk since she had developed placenta previa, a condition which can cause severe bleeding during pregnancy. Merritt alleges negligence on the part of Dr. Smith since he did not schedule a caesarian at the 37th week of the pregnancy; Merritt noted that another high-risk obstetrics physician had made this recommendation.

         Merritt named the following defendants in the complaint: CHI; Dr. Smith; KentuckyOne Health Medical Group, Inc.; KentuckyOne Health Obstetrics and Gynecology Associates; St. Joseph Obstetrics and Gynecology; St. Joseph's Hospital; and, First Initiatives. (The defendants will be collectively referred to as the "medical defendants.") The defendants were all insured by First Initiatives.

         Dr. Smith was employed by KentuckyOne Health Obstetrics and Gynecology Associates, which is part of KentuckyOne Health, a non-profit Kentucky corporation. CHI sponsors KentuckyOne Health and its affiliates. Further, CHI is the parent company to First Initiatives, which provides insurance coverage to CHI, its affiliates, and employees including KentuckyOne Health and Dr. Smith.

         A claim under Kentucky's declaratory judgment act was not originally pled, but approximately a month after the filing of the original complaint, Merritt filed an amended complaint averring bad faith on the part of CHI and First Initiatives. The motion for a declaratory judgment emanated from the settlement negotiations between Merritt, CHI, and First Initiatives. Merritt maintained that First Initiatives violated the UCSPA for refusing to negotiate the claims for the mother and the son separately and offering a consolidated settlement for both. Further, Merritt believes that First Initiatives violated the UCSPA by not providing a reasonable explanation for the denial of the separate claims. In the amended complaint, he sought a declaratory judgment holding that First Initiatives is subject to the UCSPA, must comply with it, and will incur civil liability for any violations of the Act.

         Nonetheless, Merritt concedes that UCSPA is only applicable to those entities engaging in the "business of insurance" and does not apply to captive insurance companies. In fact, Merritt sought a declaratory judgment to clarify that, according to him, First Initiatives was involved in the "business of insurance, " and hence, not covered by the exclusionary clause of KRS Chapter 304.49, and as such, under the auspices of UCSPA. To counter, First Initiatives asserted that it is a foreign captive insurance entity, and hence, not subject to the liability of the UCSPA because it is not involved in the business of insurance.

         On June 14, 2016, the trial court denied Merritt's motion for declaratory judgment. The trial court held First Initiatives is a captive insurance company, that is, provides self-insurance for CHI; and, self-insurers and self-insured are not subject Kentucky's UCSPA because they are not engaged in the business of insurance.

         Next, on July 20, 2016, the trial court granted CHI and First Initiatives' motion for summary judgment; and, on August 24, 2016, the trial court denied Merritt's motion to reconsider. Again, the trial court made these decisions based on the logic that First Initiatives is a captive insurance company; CHI is self-insured by First Initiatives; and, self-insurers and self-insured are not subject Kentucky's UCSPA because they are not engaged in the business of insurance.

         Merritt settled his claims against the medical defendants. Nonetheless, he continued the bad faith claim against CHI and First Initiatives. Accordingly, Merritt appeals the June 14, 2016, order denying his motion for declaratory judgment; the July 20, 2016, order denying his motion to reconsider the denial of motion for declaratory judgment, granting CHI and First Initiatives' motion for summary judgment, and dismissing with prejudice all his claims against CHI and First Initiatives; the August 24, 2016, order denying his motion to reconsider the July 20, 2016, order; and, the September 27, 2016, agreed order of dismissal. In addition, Merritt appeals the September 27, 2016, order because this order makes all the previous orders final and appealable, and thus, constitutes the final order of the trial court.

         ANALYSIS

         Merritt argued in his motion for declaratory judgment that First Initiatives is subject to UCSPA because it is in the "business of insurance" under Kentucky law. He reasons that because First Initiatives participates in the "business of insurance, " the exemption from UCSPA provided to captive insurers is not available to it. Thus, Merritt requested that the trial court declare that First Initiatives must comply with the duties and obligations under UCSPA and is subject to civil liability for violations of UCSPA. ...


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