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Asher v. Unarco Material Handling, Inc.

United States District Court for the Eastern District of Kentucky · 2012 · Civil Procedure

Civil Proceduresummary judgmentreal party in interestelection of remediesbreach of contractcollateral source rulecollateral source rulebreach of contract

Facts

Wal-Mart hired Unarco to perform rack work at its Kentucky distribution center, and Unarco subcontracted part of the work to Atlas. Wal-Mart employees later suffered carbon monoxide injuries and sued Unarco and Atlas in the Asher litigation, which settled. During that litigation, Unarco sought indemnity from Atlas and coverage from Atlas's insurer Lexington, but Lexington did not defend or indemnify Unarco. Unarco's own insurer, Travelers, paid all of Unarco's defense costs, settlement costs, and the costs of the later coverage and indemnity litigation.

Issue

Can Unarco recover breach of contract damages from Lexington and Atlas for defense, settlement, and related litigation costs when Unarco's own insurer has already paid all of those amounts? More specifically, does the collateral source rule prevent those insurance payments from being credited against Unarco's contract damages?

Rule

To prove breach of contract under Kentucky law, a plaintiff must show a valid contract, breach, and damages caused by the breach. In this opinion, the court holds that the collateral source rule does not apply to breach of contract claims, so payments made by the plaintiff's insurer must be credited against claimed contract damages, and a plaintiff who has incurred no uncompensated loss cannot recover contract damages; absent a contractual provision or fee-shifting statute, attorney's fees for a coverage action are also not recoverable under Kentucky's American Rule.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Summit Builders, based in Louisville, was sued in Kentucky by warehouse workers who claimed fumes from a renovation project caused injuries. Blue Summit's own insurer, Hearthstone Mutual, paid all defense costs and the entire settlement, after which Blue Summit sued a subcontractor's insurer for breach of a policy provision requiring a defense and indemnity for Blue Summit as an additional insured.

If Blue Summit seeks to recover the same defense and settlement amounts as breach of contract damages, what is the best result under the majority opinion's rule?

Explanation. The opinion holds that a breach of contract plaintiff must prove damages actually sustained. In contract, unlike tort, the collateral source rule does not apply, so payments by the plaintiff's own insurer are credited against the claimed defense and settlement losses. Because Blue Summit itself paid nothing and suffered no uncompensated contract loss, it cannot recover those same amounts on its own breach of contract claim. (Derived from Asher v. Unarco Material Handling, Inc. (n.d.).)