Kentucky Supreme Court Finds Kentucky’s Unfair Claims Settlement Practices Act Does Not Apply to Captive Insurers in Medical Negligence Case
Unlike Indiana, Kentucky has a statute, the Unfair Claims Settlement Practices Act (“UCSPA”), KRS 304.12-230, that expressly allows for bad-faith claims to be brought against liability insurers for unfair claims settlement practices. However, so-called captive insurers have taken the position that they are excluded from the law. The Kentucky Supreme Court recently addressed the issue in Merritt v. Catholic Health Initiatives, Inc.
Harold Merritt alleged that Dr. Anthony Smith, an employee of KentuckyOne Health, was responsible for medical negligence in the deaths of his wife, Kimberly, and infant son. During her pregnancy, Kimberly developed placenta previa, a condition wherein the baby’s placenta partially or totally covers the mother’s cervix, which can cause severe bleeding during pregnancy and delivery. Although the high-risk obstetrician to whom Dr. Smith referred Kimberly recommended a caesarian section no later than at thirty-seven weeks gestation, Dr. Smith examined her at thirty-seven weeks and scheduled an appointment one week later. Shortly thereafter Kimberly was found unresponsive at home and died shortly after being transported to the hospital by EMS. The couple’s child was delivered by post-mortem caesarian section, but only survived a few hours, suffering seizures during that time.
In his medical malpractice complaint, Merritt named Catholic Health, an entity that sponsors KentuckyOne Health and its affiliates, and First Initiatives, a foreign, wholly-owned subsidiary of Catholic, which provided self-insurance coverage to Catholic, its affiliates and employees including KentuckyOne Health and Dr. Smith. First Initiatives provided coverage and Catholic paid assessments to First Initiatives, although Catholic’s affiliates did not pay for the coverage. Merrit included a claim that First Initiatives violated the UCSPA, KRS 304.12-230, by engaging in bad faith settlement negotiations.