State Farm Automobile Insurance Co. v. Newburg Chiropractic, P.S.C.

Michael Plambeck owned Newburg Chiropractic, P.S.C. and the Cane Run chiropractic clinic (defendants) in Kentucky. Plambeck had a chiropractic license in another state but not in Kentucky. Plambeck did not personally treat patients in these clinics, but hired chiropractors licensed in Kentucky. Plambeck was under the mistaken belief that he did not need a Kentucky license because he was not actually treating patients. In fact, however, Kentucky law required an owner of a chiropractic clinic to have an in-state license. The law carried criminal penalties for a violation. The defendant clinics treated several patients injured in car accidents, including many State Farm Automobile Insurance Company (plaintiff) policyholders. The defendants did not receive any complaints about its service to these customers. Under Kentucky insurance law State Farm paid chiropractors directly, even though no direct contractual relationship existed. State Farm assumed that Plambeck had a Kentucky license. State Farm did not independently verify this, however. Over a period of four years, State Farm paid the defendants more than $500,000 for their chiropractic services. State Farm sued the defendants seeking to recoup its payments on the ground that Plambeck was unlicensed in Kentucky. State Farm argued, among other things, that the contracts between the defendants and State Farm’s policyholders were void as against public policy. The district court granted State Farm summary judgment based on State Farm’s mistake of fact. The defendants appealed.