United States District Court, E.D. Kentucky, Southern Division, Pikeville
OPINION AND ORDER
KAREN K. CALDWELL, CHIEF JUDGE
matter is before the Court on Appalachian Regional
Healthcare, Inc.'s motion to clarify (DE 299) this
Court's order that the trial of this matter will be
conducted in two phases. The Court hereby ORDERS that the
motion is GRANTED. A clarification is provided below. This
clarification is meant to provide a general guide for the
parties' trial preparation. Some issues regarding the
presentation of evidence will have to be addressed during
trial when the Court better understands the kinds of evidence
and the context in which the parties seek to present it.
this action, plaintiff Appalachian Regional Healthcare, Inc.
primarily seeks reimbursement for the costs it incurred in
defending and settling an action against it in Letcher
state-court action was brought in 2008 by Ralph Profitt and
his wife after Ralph suffered a severe spinal-cord injury
while he was working at a sawmill in Whitesburg, Kentucky.
(DE 189, Statement at 1.) At the time of the injury, Profitt
was attempting to repair a piece of sawmill equipment. After
the injury, Profitt's co-employees drove him in a pickup
truck to a hospital in Whitesburg operated by Appalachian
where he was treated. Profitt is now paralyzed from the waist
down. (DE 189, Statement at 1-2.)
time, certain members of Appalachian's nursing staff were
on strike. (DE 52, Compl., ¶ 9, Ex. A.) To replace its
striking staff, Appalachian entered into a staffing agreement
with defendant U.S. Nursing Corporation, which agreed to
provide temporary personnel to fill the vacant nursing
positions. (DE 52, Compl., Ex. A, Agreement.) One of the
nurses who U.S. Nursing provided was Constance Foote. She was
on duty at Appalachian's emergency room when Proffitt
arrived at the hospital.
being treated at the hospital, Profitt and his wife brought
suit in state court, initially asserting claims against the
manufacturer and installer of the equipment and Appalachian.
(DE 197-1, Original Compl.) Later, the Profitts amended the
complaint to add as defendants U.S. Nursing and three nurses:
Nurses Foote, Sheila Hurt, and Roxanna Parsons. (DE 65-2,
First Am. State Ct. Compl.) The Profitts alleged that the
three nurses “failed to stabilize and immobilize”
Ralph when moving him from the pickup to the emergency room,
which worsened his injuries. (DE 65-2, First Am. State Court
Compl., ¶16.) Nurses Hurt and Parsons are regularly
employed by Appalachian.
Profitts asserted in the state-court action that Appalachian
was vicariously liable for the actions of Hurt, Parsons, and
Foote and that U.S. Nursing was vicariously liable for
Foote's actions. (DE 25-1, Second Am. State Ct.
Complaint, ¶¶ 27-28.) The Profitts also asserted
that Appalachian was directly liable for Profitt's
injuries because it negligently staffed the hospital and
negligently trained the hospital staff. (DE 25-1, State Ct.
Compl. ¶¶ 30-31.) According to Appalachian, the
Profitts sought compensatory damages of $23.5 million and
additional punitive damages. (DE 208, Statement at 2.)
state court eventually granted Appalachian summary judgment
on all claims against it except for the claim of vicarious
liability for the negligent actions of Nurse Foote. (DE
197-16, Nov. 13, 2015 Order (summ. j. on negligent training
and staffing claims); DE 206-8 Jan. 10, 2014 Order (summ. j.
for all acts inside the emergency room.))
the court entered summary judgment in favor of
Appalachian's nurses Hurt and Parsons. (DE 208-13, Aug.
23, 2012 Order.) The trial judge also entered an order
prohibiting any party from arguing or introducing evidence
that Nurse Hurt or Parsons was the individual who came out of
the emergency room to assist Profitt with entering the
hospital. The trial judge determined that all parties had an
opportunity to respond to the motions for summary judgment
filed by Nurses Hurt and Parsons and that U.S. Nursing filed
no response. Accordingly, the trial judge found that the
liability of the two nurses had been litigated and resolved
and was no longer an issue for the jury to decide. (DE
208-11, Mar. 26, 2016 Order.)
manufacturer and installer of the equipment settled with the
Profitts for around $3 million. (DE 189, Statement at 10; DE
208, Statement at 5.) That left as defendants Appalachian,
U.S. Nursing, and Nurse Foote.
April 1, 2016 - the last business day before trial was
scheduled to begin - Appalachian settled with the Profitts
for $2 million. At this point, it had incurred legal fees of
$1 million defending the claims against it. (DE 208,
Statement at 3.) Appalachian asserts that, at that time, the
“only conceivable basis” for its liability was
its vicarious liability for Nurse Foote's actions. (DE
208, Statement at 8.) On the same day, U.S. Nursing
separately settled with the Profitts for $1.1 million. (DE
208, Statement at 3.)
staffing agreement, U.S. Nursing agreed to indemnify and
defend Appalachian from “any and all liability or
damage that arises from . . . the negligent or intentional
act or omission” of any U.S. Nursing employee assigned
to Appalachian. (DE 52-1, Staffing Agreement § D(15).)
There is no dispute that U.S. Nursing did not defend
Appalachian in the state-court action. Nor is there any
dispute that U.S. Nursing has not indemnified Appalachian for
any costs it incurred in settling or defending the
Profitts' action against it. That is what brings
Appalachian to this Court.
complaint, Appalachian asserts four claims: 1) a claim that
U.S. Nursing breached the staffing agreement by failing to
defend it in the Profitt litigation (Count I); 2) a claim
that U.S. Nursing breached the staffing agreement by failing
to indemnify it for the costs it incurred in defending and
settling the Profitt litigation (Count II); 3) a claim that
U.S. Nursing breached the implied covenant of good faith and
fair dealing that applied to its “contractual
obligation to maintain and provide proof of insurance
coverage for malpractice claims for the acts of [U.S.
Nursing] employees supplied to” Appalachian (Count
III); and 4) a claim for “common law indemnity”
voluntarily dismissed its common-law indemnity claim. By
prior opinion, the Court dismissed Appalachian's claim
for breach of the covenant of good faith and fair dealing.
This matter is now set for trial on Appalachian's
remaining claims for breach of the duties to indemnify and
prior order, Judge Amul Thapar set out what Appalachian must
prove in this case to prevail on its indemnification claim.
Judge Thapar looked at the language of the indemnification
provision. (DE 77, Nov. 3, 2016 Order.) That provision
requires U.S. Nursing to indemnify and defend Appalachian
from “any and all liability or damage that arises from
. . . the negligent or intentional act or omission” of
U.S. Nursing or its employees. (DE 52-1, Staffing Agreement,
Thapar determined the clause requires Appalachian to prove
three things. First, it must prove that a U.S. Nursing
employee conducted a “negligent or intentional act or
omission.” That means it must prove that Nurse Foote
was the person who removed Profitt from the truck and took
him into the emergency room. It also must show that her acts
were “intentional” or “negligent.”
Second, Appalachian must show it suffered liability or
damage. This means it must present proof of its litigation
and settlement costs in the state-court action. (AR 77, Nov.
3, 2016 Order Order at 7-8.)
Appalachian must prove that Nurse Foote's actions caused
- or “directly produced” - Appalachian's
damages. (DE 77, Nov. 3, 2016 Order at 8.) Again, Judge
Thapar determined that Appalachian does not have to prove
that Nurse Foote's acts caused Profitt's damages. It
only has to prove that her acts caused Appalachian's
damages. (DE 77, Nov. 3, 2016 Order at 8-9.)
November 3, 3016 Order, Judge Thapar was particularly
addressing the elements required for Appalachian to establish
that U.S. Nursing breached the duty to indemnify Appalachian.
As to Appalachian's claim that U.S. Nursing breached its
duty to defend Appalachian, in a prior order, Magistrate
Judge Edward Atkins determined that Appalachian must prove
these same three elements. This is because “both the
duty to defend and duty to indemnify arise from the exact
same language. . . .” (DE 111, Jan. 4, 2017 Order at 4;
DE 150, May 2, 2017 Order at 5.) This Court has agreed with
that determination. (DE 159, May 31, 2017 Order at 3.)
addition, Appalachian must establish that the settlement
between Appalachian and the Profitts was reasonable. (DE 159,
Order at 6.) The reasonableness of the settlement consists of
two components, which are interrelated.” Grand
Trunk W. R.R. v. Auto Warehousing Co., 686 N.W.2d 756,
764 (Mich. App. 2004)(quoting Trim v. Clark
Equip. Co., 274 N.W.2d 33, 35 (Mich. App. 1978)).
The first factor is the amount paid to settle the claim and
the second is the payor's risk of exposure. Id.
The risk of exposure is the “probable amount of a
judgment . . . balanced against the possibility that the . .
. defendant would have prevailed.” Id. This is
an objective standard, which asks what a reasonably prudent
person in the settling party's shoes would have settled
for given the merits of the underlying claim apparent at the
time of settlement. (DE 159, May 31, 2017 Order at 7.)
Likewise, Appalachian must establish the reasonableness of
the defense costs and expenses it seeks to recover from U.S.
Nursing. The Point/Arc of N. Kentucky, Inc. v.
Philadelphia Indem. Ins. Co., 154 F.Supp.3d 503, 515
(E.D. Ky. 2015).
pretrial conference in this matter, the Court ruled that the
trial would be conducted in two phases. This was primarily to
avoid confusing the jury on the significance of certain that
will be presented on the issue of causation. Judge Thapar
ruled that Appalachian does not have to show that Nurse
Foote's acts caused Profitt's injuries; it
has to show that Nurse Foote's caused
Appalachian's injuries. Nevertheless, the
evidence regarding whether Nurse Foote's acts caused
Profitt's injuries will necessarily be discussed in this
case. This is because, determining the reasonableness of
Appalachian's settlement with the Profitts will
necessarily entail an evaluation of the strength of the
Profitt's evidence on the claim that Appalachian should
be vicariously liable for Nurse Foote's injuries. And
that evaluation will necessarily entail an evaluation of the
Profitts' evidence that Nurse Foote caused Profitt's
avoid confusing the jury on the significance of the causation
evidence, the trial will be split into two phases. In Phase
I, Appalachian will be required to prove the three
indemnification and defense elements set forth above. In
Phase II, ...