Case update: Osborne v. Keeney and punitive damages for legal malpractice claims

By Sarah E. Tilley

A recent Supreme Court of Kentucky decision limits the damages which may be recoverable against an attorney in a legal malpractice lawsuit. In Osborne v. Keeney, –S.W.3d–, 2012 WL 6634129 (Ky. Dec. 20, 2012), the Court clarified that, although an attorney found guilty of malpractice is liable to the client for all damages sustained as a result of the malpractice, the client may not recover lost punitive damages against the attorney in a legal malpractice lawsuit. 

In the Osborne case, Brenda Osborne was at home when an airplane driven by Clifford Quesenberry crashed through the roof of her house. Osbourne went into shock as a result of the accident, and was treated for her emotional distress for an extended period of time. Approximately six months after the accident, Osbourne retained an attorney who assisted with her homeowner’s insurance claims. Under the terms of the engagement contract, the attorney was to receive 20% of the insurance proceeds and Osborne would receive more from the claims to be asserted against Quesenberry. However, no suit was filed against Quesenberry for nearly two years – well after the expiration of the one-year statute of limitations for personal injuries. The court entered summary judgment for Quesenberry and entered judgment against Osborne for the cost of the dismissed action. Osborne eventually learned that her case had been dismissed from her treating physician, who heard it through conversation with Quesenberry’s attorney. 

Osborne then filed an action against her attorney, asserting claims of breach of contract, legal malpractice, and fraud. The jury returned a verdict in Osborne’s favor on all counts and awarded her damages for loss of personal property, pain and suffering from the accident, punitive damages against Quesenberry, legal fees paid to her attorney, mental anguish resulting from her attorney’s representation, and punitive damages against her attorney. On appeal, the court found that lost punitive damages were recoverable in a legal malpractice but ultimately vacated the award because Osborne did not prove them by clear and convincing evidence. Both parties appealed to the Supreme Court of Kentucky. 

The Supreme Court of Kentucky, addressing the issue of whether a legal malpractice plaintiff may recover punitive damages he would have recovered in the underlying action but for the attorney’s professional negligence, noted that courts across the country are split on the issue. Those courts allowing the recovery of lost punitive damages do so on the basis of compensatory damages because the punitive damages were lost as a result of the attorney’s negligence. Thus, the punitive damages are converted to compensatory damages. Other courts prohibit the recovery of lost punitive damages because doing so does not advance the purpose of punitive damages. 

The Supreme Court of Kentucky sided with the latter group, explaining that the purpose of awarding punitive damages is to punish and discourage the defendant and others from similar egregious conduct in the future. This purpose strives to punish the wrongdoer instead of compensate the party harmed, thereby serving more of a societal interest than a private interest. This purpose is frustrated when a party other than the original wrongdoer is assessed the damages. Allowing Osborne to recover lost punitive damages against her attorney would not advance the policy underling punitive damages. Thus, the Court held that lost punitive damages are not recoverable from an attorney against whom a malpractice claim is brought. 

Recognizing that such a rule prohibiting the recovery of lost punitive damages may seem harsh, the Court noted that a plaintiff may seek punitive damages from the attorney for the attorney’s own conduct. So, if the attorney was grossly negligent in handling the case and acted with oppression, fraud, or malice, a legal malpractice plaintiff may recover punitive damages against the attorney.