Kentucky Tort Report

INSURANCE: WORKERS COMP SUBROGATION AGAINST UNDERINSURED MOTORIST BENEFITS

G & J PEPSI-COLA BOTTLERS, INC. v. FLETCHER
INSURANCE:  WORKERS COMP SUBROGATION AGAINST UNDERINSURED MOTORIST BENEFITS
2003-CA-000129
PUBLISHED: AFFIRMING
PANEL: KNOPF, PRESIDING; KELLER, NICKELL CONCUR
COUNTY: BOURBON
DATE RENDERED: 7/13/2007

In this case, the COA held that a workers compensation carrier has no subrogation claim against the claimant's underinsured motorist benefits.

The single question in this appeal is whether the Circuit Court erred in summarily dismissing the subrogation claim of appellant, G&J Pepsi-Cola Bottlers, Inc., for workers' compensation benefits paid to appellee, Nicholas Fletcher. This appeal was held in abeyance pending resolution by the Supreme Court of Kentucky of the issues advanced in Cincinnati Insurance Company v. Samples, 192 S.W.3d 311 (Ky. 2006). Having fully considered those supplemental briefs, the original briefs filed in this appeal, and the record, the COA affirmed the circuit court dismissal.

Fletcher was seriously injured in a car accident and received workers compensation benefits. Fletcher sued Urmson, the at fault driver, and Ohio Casualty, his personal automobile insurance carrier, for underinsured motorist's (“UIM”) benefits. Fletcher subsequently amended his complaint to add a UIM claim against United States Fire Insurance Company (“US Fire”), the insurer of his employer G&J's fleet of vehicles. Finally, G&J intervened to assert a $370,000.00 subrogation claim for workers' compensation benefits paid to Fletcher as a result of the same automobile accident.

The primary issue became whether G&J could assert a subrogation claim against the benefits Fletcher was seeking from US Fire and Ohio Casualty. COA answered no.

Relying upon the language of KRS 342.700(1) and the rationale set out in State Farm Mutual Insurance Company v. Fireman's Fund American Insurance Company, 550 S.W.2d 554 (Ky. 1977), the circuit court concluded that the employer's statutory subrogation rights extend only to recovery of benefits paid “from the other person in whom legal liability for damages exists” in other words, the tortfeasor.

Applying the holding in State Farm, the trial court noted that the payment of benefits by a UIM carrier is the performance of a contractual obligation, not the payment of damages by the person in whom legal liability rests. Thus, the trial court granted the motion for summary judgment because it found no case or statute which would permit G&J to assert its subrogation claim against the amounts paid under the two separately purchased UIM policies.

The COA first prefaced it discussion of the merits of G&J's appeal with a reiteration of the the analysis set out in State Farm v. Firemen's Fund concerning the nature of UIM benefits and the genesis of an employer's subrogation rights. The following analysis was from that earlier UM decision, and since the appellate courts analyze UIM and UM similarly, the Judge Knopf's analysis is addressed (as it incorporates the analysis from Justice Palmore):

KRS 342.055 [now KRS 342.700(1)], the subrogation statute, provides that “the other person in whom legal liability for damages exists” quite clearly refers to the third-party tortfeasor who is liable at common law. A payment made in performance of a contractual obligation is not a payment of “damages.” Hence the liability of an insurance company under its uninsured motorist coverage cannot be the “legal liability for damages” mentioned in KRS 342.055.

Moreover, the satisfaction of an injured party's claim by his own insurance company under its uninsured motorist coverage does not inure to the benefit of the uninsured motorist. His liability is not extinguished, and it may be enforced by both the carrier which has paid workmen's compensation benefits and the carrier which has paid under the uninsured motorist coverage.

To hold that the contractual rights of an insured party under the uninsured motorist clause of an automobile liability insurance policy must inure to the benefit of a workmen's compensation carrier to the extent of compensation paid or payable to him would confer upon the compensation carrier an additional right which it does not have under the subrogation statute. The injured party, or the person under whose insurance policy he is defined as an “insured,” has no obligation to his employer's compensation carrier to carry any automobile liability insurance or underinsured motorist benefits whatever.

In the absence, therefore, of a statute or agreement to the contrary, what can be the source of the compensation carrier's right to have the benefits of such insurance? The answer, we think, is that there is none.

Judge Knopf also emphasized that this result does not deprive the employer of its subrogation rights; it can still look to the tortfeasor as provided for in KRS 342.700(1).

The import of that distinction is that KRS 342.700 operates as “a limitation on the rights of the worker that is attendant to his right to collect workers' compensation benefits” and is not a defense personal to the tortfeasor.

The purpose and intent of the uninsured and underinsured motorist statute is to treat the insured victim as if the tortfeasor is insured. Hence, the UM and UIM carrier stands in the wrongdoer's shoes for purposes of paying damages.

KRS 304.39-320(2) requires “every insurer” to make available upon request UIM coverage to pay “for such uncompensated damages as he may recover on account of injury due to a motor vehicle accident because the judgment recovered against the owner of the other vehicle exceeds the liability policy limits thereon . . . .”

In other words, the UIM carrier is liable only for damages for which the insured would have been compensated but for the fact that the tortfeasor was underinsured. It follows that if the underinsured tortfeasor could not be held liable for an item of damages, that item is not “uncompensated damages” payable by the UIM carrier.

The UIM carrier is liable for damages only to the extent to which the underinsured tortfeasor is or could have been held liable.

Thus, it is clear that the holding in Samples is directed to the question of what damages an injured employee may recover from his own or his employer's UIM carrier; it neither addresses nor changes the law regarding an employer's subrogation rights as set out in State Farm v. Fireman's Fund.

The COA noted that while Samples makes clear that the UIM carrier's liability is measured by the liability of the tortfeasor, it does not follow that payments made under a UIM contract are the payment of legal damages in the traditional sense. While the UIM carriers may stand in the shoes of the tortfeasor for the sole purpose of making the injured party whole, the UIM contract does not provide an additional right of subrogation not provided for in KRS 342.700(1).

Because the COA concluded that as a matter of law G&J is not entitled to subrogation against the UIM carriers, there was no error in failing to conduct an evidentiary hearing to resolve a factual question.

By Michael Stevens

Nonpublished Decision enforcing mediation agreement with unilateral mistake holds PIP carrier feet to the fire. Can the underlying prohibition against splitting causes of action be extended to other areas of the law?

I copied my post en toto from the Kentucky Law Blog/Review since it is classic tort and insurance subject - Nonpublished COA Decision Upholds Mediation Agreement Even Though Insurer forgot about the PIP - Epling v. Lib. Mutual Ins. Co..  Although the decision is directly applicable to a settlement agreement, the underlying pricipals involving a single cause of action and its implications on a settlement might/should apply with equal force on first party claims with a bad faith count included.  A single cause of action has come into play in statutes of limitations, property damage vs.personal injury, and now settlement agreements.  Can it have force in UIM advances  and bad faith scenarios?

In Epling, the decedent's estate pursued a claim for the decedent's wrongful death in a car accident asserting claims against the tortfeasor and the decedent's underinsured motorist carrier, Liberty Mutual.  Liberty Mutual had also paid a total of $70,000 in added and basic reparation benefits as a result of the accident.

At the mediation, the parties had settled as follows:

The settlement was allocated with $235,000 for the wrongful death of Hiram McCoy; $10,000 for personal injury to Hiram McCoy; and $10,000 to Barbara McCoy for loss of consortium. Liberty Mutual contributed $5,000 of the total payment of $255,000. After reciting allocation of the settlement amounts and in connection with the total payment to McCoy, the Agreement provides, “settlement proceeds are exclusive of PIP.” This language is commonly used in releases to clarify that no other claims, offsets or subrogation rights will reduce the Plaintiff’s receipt of the total settlement amount.

* * *

However, the Agreement provides that it includes “all parties” and “all claims.” Specifically, the Agreement states:

IT IS HEREBY AGREED by and between the parties hereto
that all claims contained therein between the parties to this
Agreement are fully and finally settled with the Plaintiff
receiving a total settlement of $255,000 from the defendants
in exchange for which the Plaintiff agrees to execute a full
and final Release of all claims including Underinsured
Motorist Claims (UIM) against said Defendants arising out of
this litigation and an entry of dismissal with prejudice, with
each party to this litigation paying the parties respective court
cost and attorneys fees. (Emphasis added).

* * *

Unfortunately, Liberty Mutual’s counsel was unaware of [pip] these payments and did not raise subrogation issues during mediation. Nor had Liberty Mutual’s counsel asserted any subrogation rights after being sued. It is now clear that no cross-claim was made by Liberty Mutual against any party for recovery of basic or added reparation benefits because counsel for Liberty Mutual was simply unaware of these payments.

Liberty Mutual raised the unilateral mistake and the release agreement to effect the mediation settlement agreement hit a snag.

However, the COA held the unilateral mistake was not enough to get around the clear and unambiguous language of the mediation agreement which settled all claims of all parties and required a dismissal with prejudice.

In holding Liberty Mutual's feet to the fire for representations made by it and relied upon other parties, Judge Dixon writing for the panel stated:

The problem of this case arose when Liberty Mutual and its attorney were apparently unaware of the earlier payments. This mistake on Liberty Mutual’s part was a subjective mistake. If Liberty Mutual was allowed to proceed with the subrogation at this time, it would be in derogation of the settlement proceeding that guaranteed the $255,000 payment to McCoy. It would also violate the long established rule against splitting a cause of action. Kirchner v. Riherd, 702 S.W.2d 33 (Ky. 1985); Egbert v. Curtis, 695 S.W.2d 123 (Ky. App. 1985); and Hayes v. Sturgill, 302 Ky. 31, 193 S.W.2d 648 (1946). These cases acknowledge a long, well established history of pleading that requires all claims that arise out of the same facts to be litigated together. To hold otherwise would result in piecemeal litigation. This rule is essential to efficient management litigation (sic).

Now, if the law is a moving stream, then one can only assume, expect and hope that the stream flows smoothly and in the same direction after accounting for the natural eddies and changes in the current.  The courts have applied the rule against splitting a cause of action to statutes of limitation and now settlements, not to mention property damage claims and personal injury claims cannot be split either.

Now will the courts be consistent and that the "well established history of pleading that requires all claims that arise out of the same facts to be litigated together" apply with equal force and effect against the insurance company in a first party claim?  When an insured sues on a contractual uninsured/underinsured motorist claim, he is required by this rule to assert all claims (including statutory and common law bad faith).  If he/she is required to bring those claims, and there is obviously no prejudice to another party or tortfeasor, then there really should be no basis for splitting the trial and join all claims to the jury as an "efficient management litigation (sic)."

The facts are the facts, and each party in a lawsuit must live with those actions and conduct.  The reasons for bifurcating a bad faith claim from a pure contractual first party claim don't hold water when compared to the underlying third party claims and claims against a tortfeasor identified at trial. 

Now this adds another twist of the screw when the "official" reason for "advancing" funds under KRS 304.39-320 and Coots v. Allstate is to preserve subrogation rights.

Would it be legitimate for an undersinsured motorist carrier to advance the liability limits when there are no assets upon which to assert or protect those subrogation rights and the "apparent" reason for advancement would thus be "trial strategy" (eg., identifying a tortfeasor to the jury as the person ultimately bearing financial responsibility for the verdict and to insure bifurcation of any bad faith claims)?

As most may know, this is a lot of speculation and thinking outside the box.  But the questions are nonetheless intriguing.

INSURANCE: COA Opinion Refines "Samples" Decision by Explaining Difference Between Contractual UIM Damages vs. Tort Injury Damages

COA Opinion Refines "Samples" Decision by Explaining Difference Between Contractual UIM Damages vs. Tort Injury Damages - KENTUCKY LAW BLOG

Subrogation (Medicaid): NC Trial Law Blog Contains some useful posts on dealing the the post-Ahlborn world of Medicaid Subrogation

The North Carolina Trial Law Blog has some useful pages on the post-Arkansas v. Ahlborn world of Medicaid subrogation.  The post entitled "NC Injury Lawyers: Ahlborn Resources for Medicaid" contains  links to the decision, briefs, other posts from the blog and elsewhere addressing the implications of the decision which allows an attorney to argue that Medicaid should not receive full reimbursement of a lien for payment of medical bills if the lien exceeds the portion of the settlement "allocated" for medical costs.   Another post at the site addressing the case's implications can be found at NC Trial Law Blog on Ahlborn.

When you have personal injury case with Medicaid subrogation and your client has not been fully compensated (eg., you obtained limits which are not enough to cover all the damages, or when the Medicaid lien is greater than the recovery), the you need to read Ahlborn decision plus the insights from this blog.  This decision provides a plan for a pro-rata reduction of the Medicaid lien based upon the total damages and limited recovery!

He even found a "company" memo (one from the feds themselves) which might help you apply their own rules to your advantage since typical administrative law requires an agency to be bound by their own regulations:

This highly useful memo from the Department of Health and Human Services dated July 3, 2006,  provides the summary of how DHHS (The Fed. department charged with overseeing Medicare and Medicaid) interprets the Ahlborn decision in light of their own statutes.  This is a GREAT memo because it is the Fed's own instructions to "All Associate Regional Administrators for Medicaid and State Operations".   (a copy is below the fold of this post).

This is not the only site with a quality post of resources.  See,

• What Does the Ahlborn Decision Really Mean? at Trial Lawyer Resource Center by Matt Garretson
• Matt also has three podcasts available for loading into your iPod (tm) or MP3 player or just play at your PC (to download rather than play, right click on PLAY IT then save to target).
  • (Play It) Matt Garretson on Ahlborn decision Part I
  • (Play It) Matt Garretson on Ahlborn Part II
  • (Play It) Matt Garretson on Alborn Part III

Subrogation: Tennessee Case Holds Insured Does not Need Health Insurer's OK to settle tort claim

This Tennessee health insurance subrogation case puts the claimant in charge of his own lawsuit! 

Thanks to Day on Torts for his digest of the decision.  Basically, the claimant can settle with the tortfeasor without requiring the consent of any health insurer subrogors.  Click on the heading for the entire post at New Tennessee Subrogation Case. 

On a Kentucky Kaveat to this:  Kentucky clearly has the made whole rule as explained in Wine v. Globe with a provision that it can be done away via contract or statute.  However, there are no published decisions explaining or expanding on those criteria (such as we have in the Sixth Circuit decisions in the ERISA field which make it abdantly clear that made whole, priority, and partial recovery issues must be addressed).  There is one nonpublished decision, however, which found the policy language did not address the priority issue.

The Tennessee Supreme Court issued an opinion yesterday in the Abbott v. Blount County, Tennessee case.

In an opinion by now retired Justice Al Birch, the Court made it crystal clear that an insurance company could not require a plaintiff to get approval of plaintiff's health insurance company before settling a personal injury suit.  The Court said that it is  "clear that the made-whole doctrine applies regardless of the language found in the insurance contract. Contract terms that require the consent of the insurer would allow the insurer to withhold consent from any settlement that does not make the insured whole and thereby compel the insured to seek a larger award at trial. We disapproved of allowing insurers to contract away the right to be made whole in York, and we do so again today. Finally, we note that the lack of an insurer’s consent does not make an insured more likely to receive a double recovery."