Opinion ID: 1996492
Heading Depth: 2
Heading Rank: 3

Heading: Beal's Underinsured Motorist Benefit Claim

Text: [¶ 25] Notwithstanding the preclusive effect of the $135,000 arbitration award, the court ultimately concluded that Beal had agreed through the high-low provision to accept $100,000 in total compensation for her injuries, that she had received the full $100,000 through Prosky's insurance, and that, as a result, she ceased to have any legal entitlement to damages resulting from this accident. Beal argues that the arbitrator established her total damages at $135,000 and that she remains legally entitled to recover the $35,000 balance after settling her claim against Prosky and his insurer for $100,000 pursuant to the high-low provision. Resolution of this issue requires interpretation of the terms of the parties' arbitration contract, the language of Beal's UIM policy, and the purpose of 24-A M.R.S. § 2902.
[¶ 26] The interpretation of a contract and whether or not its terms are ambiguous are questions of law that we review de novo. Farrington's Owners' Ass'n v. Conway Lake Resorts, Inc., 2005 ME 93, ¶ 10, 878 A.2d 504, 507. [C]ontractual terms should be read in context to give effect to the intention of the makers of the instrument. Id. ¶ 11 n. 2, 878 A.2d at 508 (quotation marks omitted). [¶ 27] According to the language of the arbitration agreement, the agreement was between Beal and Prosky. The agreement specified that [t]he parties hereto agree to submit for final determination by arbitrator all of Beal's claims for personal injury and related damages. (Emphasis added.) The high-low provision stated that [t]he parties agree that regardless of the amount the arbitrator shall award, Plaintiff [Beal] shall receive from Defendant [Prosky] or his insurer no less than $60,000 and no more than $100,000, except that the Defendant/Allstate shall get credit for prior payments.... (Emphasis added.) Finally, the agreement provided for Beal's release and stipulation of dismissal in favor of Prosky. There was no provision for the release of Beal's UIM insurer. [¶ 28] A plain reading of these provisions leads to the conclusion that Allstate's responsibilities as Beal's UIM insurer were not addressed in the arbitration agreement. The language agreed to by the parties provided that Prosky and Beal intended for the arbitrator to determine all of Beal's personal injury and related damages, but that regardless of that determination, Prosky and his insurer, would only pay Beal within the high-low range. The terms his insurer and Allstate, used in the same sentence of the high-low provision, are not ambiguous and only refer to Allstate as Prosky's liability insurer. Furthermore, because Allstate is not mentioned elsewhere in the arbitration agreement, there is no other context that would suggest a different meaning. Contrary to Allstate's position, the arbitration agreement and its high-low provision did not reduce, eliminate, or directly address Allstate's responsibility to Beal, as her UIM insurer. [4] [¶ 29] Thus, after Beal settled her damages up to the policy limits of Prosky's liability insurance, the question remains whether, pursuant to section 2902 and the terms of her UIM policy, she is still legally entitled to recover damages from [the] owner[] or operator[ ] of [an] underinsured... motor vehicle[ ]. See 24-A M.R.S. § 2902(1).
[¶ 30] Beal's UIM policy with Allstate provides, in part: We will pay damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an uninsured auto.  [5] (Emphasis altered.) The legally entitled to recover language of the insurance contract tracks with the language of section 2902: 1. A policy insuring against liability arising out of the ownership, maintenance or use of any motor vehicle may not be delivered or issued for delivery in this State with respect to any such vehicle registered or principally garaged in this State, unless coverage is provided in the policy or supplemental to the policy for the protection of persons insured under the policy who are legally entitled to recover damages from owners or operators of uninsured, underinsured or hit-and-run motor vehicles, for bodily injury, sickness or disease, including death, sustained by an insured person resulting from the ownership, maintenance or use of such uninsured, underinsured or hit-and-run motor vehicle. 24-A M.R.S. § 2902(1) (emphasis added). [¶ 31] We have not had occasion to decide whether an insured who fully settles a claim against an underinsured tortfeasor for the tortfeasor's insurance policy limits remains legally entitled to recover damages from the tortfeasor for the purposes of UIM coverage. There is a split of authority in other jurisdictions that have interpreted similar statutes and insurance policies. See 3 Alan I. Widiss & Jeffrey E. Thomas, Uninsured and Underinsured Motorist Insurance § 34.1, at 172-73 (Rev.3d ed.2005). [¶ 32] Some courts have construed legally entitled to recover damages [from a tortfeasor] strictly and literally such that an insured's settlement with or release of a tortfeasor cuts off the insured's further legal entitlement to damages. E.g., Nationwide Mut. Ins. Co. v. Nacchia, 628 A.2d 48, 51-53 (Del.1993); Gosselin v. Auto. Club Ins. Co., 574 A.2d 1243, 1246 (R.I.1990) (holding that an injured insured could not claim UIM benefits after settling with and releasing an underinsured tortfeasor because, as a result of the settlement, the insured was no longer legally entitled to recover from the tortfeasor pursuant to Rhode Island's UIM statute); [6] see also 9 Steven Plitt, Daniel Maldonado & Joshua D. Rogers, Couch on Insurance 3D § 123:20 (Rev. ed.2008). [¶ 33] Other courts have construed legally entitled to recover to allow an insured to claim UIM benefits after settling with a tortfeasor. See Gilbert v. Nationwide Mut. Ins. Co., 275 S.W.3d 690, 692-93 (Ky.2009) (citing Coots v. Allstate Ins. Co., 853 S.W.2d 895, 900 (Ky.1993) (construing a UIM statute to accomplish its remedial legislative purpose, and holding that settlement with a tortfeasor does not abrogate UIM coverage as long as the insurer has an opportunity to protect its subrogation rights)); Farmers Alliance Mut. Ins. Co. v. Holeman, 289 Mont. 312, 961 P.2d 114, 120 (1998) (interpreting a policy's legally entitled to recover language under contract law and holding that the entitlement exists at the time of the accident, not at the time of the UIM claim). [¶ 34] We have previously held that the legislative purpose of section 2902 was to allow an injured insured `the same recovery which would have been available... had the tortfeasor been insured to the same extent as the injured party.' E.g., Jipson v. Liberty Mut. Fire Ins. Co., 2008 ME 57, ¶ 8, 942 A.2d 1213, 1216 (emphasis added) (quoting Tibbetts v. Me. Bonding & Cas. Co., 618 A.2d 731, 734 (Me.1992)). By enacting section 2902, the Legislature has also indicated a strong public policy in favor of the just compensation of accident victims. Wescott v. Allstate Ins., 397 A.2d 156, 167 (Me.1979). To effectuate the purposes of this remedial statute, we construe the protections of section 2902 liberally in favor of insureds and strictly against insurers. Molleur, 2008 ME 46, ¶ 10, 942 A.2d at 1201; Wescott, 397 A.2d at 169. For the same reason, we construe limiting conditions in insurance policy contracts liberally in favor of insureds and strictly against insurers. Wescott, 397 A.2d at 167. [¶ 35] Following this guidance, we decline to adopt a strict construction of the phrase legally entitled to recover damages from [an underinsured] as used in section 2902(1). Therefore, when an insured settles with an underinsured tortfeasor for the limits of the tortfeasor's liability insurance, the insured will remain legally entitled to recover damages from the tortfeasor for purposes of claiming UIM benefits pursuant to 24-A M.R.S. § 2902 if the injured party's damages exceed the tortfeasor's policy limits, and either (1) the UIM carrier consented to the settlement, or (2) there is no prejudice to the UIM carrier's subrogation rights resulting from its lack of consent to the settlement. [¶ 36] In addition to effectuating the legislative purpose of section 2902, this holding is consistent with our policies of encouraging settlements between injured parties and their tortfeasors, see Wescott, 397 A.2d at 169; ensuring compensation for accident victims, id. at 167; and allocating the economic risks of injury fairly between primary insurers and UIM insurers, see id. at 166; Levine v. State Farm Mut. Auto. Ins. Co., 2004 ME 33, ¶ 14, 843 A.2d 24, 29. [¶ 37] Accordingly, we conclude that the court erred when it held that Beal ceased to be legally entitled to damages for purposes of her UIM benefits claim after the implementation of the arbitration agreement. Although the high-low provision capped the damages that Prosky and his insurer would have to pay Beal at the limits of Prosky's coverage, that settlement alone does not preclude Beal from seeking UIM coverage, and she remains legally entitled to $35,000 in damages pursuant to her UIM policy unless Allstate was prejudiced by a loss of its subrogation rights from Beal's failure to obtain Allstate's consent before settling her claim against Prosky. See Greenvall v. Me. Mut. Fire Ins. Co., 1998 ME 204, ¶ 12, 715 A.2d 949, 954.
[¶ 38] Beal's UIM policy contains a no-consent-to-settlement clause, which reads: Allstate will not pay any damages an injured person is legally entitled to recover because of: 1. bodily injury... to any person who makes a settlement without our written consent. (Emphasis omitted.) The purpose of no-consent-to-settlement clauses is to protect the insurer's subrogation rights [7] against a party released through a settlement. Bazinet v. Concord Gen. Mut. Ins. Co., 513 A.2d 279, 282 (Me.1986); Wescott, 397 A.2d at 168. When an insurer consents to a settlement, it assumes the risk of losing its subrogation rights, and it cannot later deny a claim on the ground that its subrogation rights were prejudiced. Therefore, if Allstate had consented to or approved Beal's settlement, it could be precluded from denying Beal's claim pursuant to its no-consent-to-settlement clause. See 3 Widiss & Thomas, Uninsured and Underinsured Motorist Insurance § 34.1, at 172. [¶ 39] Failure to obtain Allstate's consent to settlement would not, however, necessarily eliminate Beal's opportunity to seek coverage pursuant to her UIM policy. See Greenvall, 1998 ME 204, ¶ 10, 715 A.2d at 954 (When the insurer's subrogation rights are unaffected by the settlement, courts may not permit [no-consent-to-settlement] clauses to defeat the claim of insureds.) (citing Bazinet, 513 A.2d at 282). If Allstate did not consent to the settlement, then Beal could still be entitled to recover UIM benefits unless Allstate could demonstrate prejudice as a result of the loss of subrogation rights from the insured's failure to obtain the insurer's consent before settling with the tortfeasor. Id. ¶¶ 11, 12, 715 A.2d at 954. By settling with and releasing Prosky through the high-low provision, Beal eliminated Allstate's capacity, as her UIM carrier, to seek recovery from Prosky through subrogation. See id. ¶ 11, 715 A.2d at 954. By itself, however, this would not prejudice Allstate's subrogation rights because Prosky may have limited or unreachable resources such that recovery through subrogation is not realistically available. See id. (citing Galinko v. Aetna Cas. & Sur. Co., 432 So.2d 179, 182 (Fla.Dist.Ct.App. 1983)). As we held in Greenvall, Allstate has the burden of demonstrating prejudice by providing evidence of Prosky's financial situation as it relates to Allstate's subrogation rights. See id. ¶¶ 12, 13, 715 A.2d at 954-55; see also Ouellette v. Me. Bonding & Cas. Co., 495 A.2d 1232, 1235 (Me.1985) (In general, proof of prejudice to an insurer is a question of fact.). [¶ 40] In this case, although Allstate was aware of the settlement, the summary judgment record does not reveal whether Allstate, in its role as Beal's UIM carrier, consented to or approved the settlement between Beal and Prosky. Similarly, the record is silent as to facts that would demonstrate whether Allstate's subrogation rights were prejudiced by Beal's settlement with Prosky. [8] If no consent to settlement was given, and Allstate can demonstrate on remand that Prosky had income or assets that could have been available for recovery by Allstate in a subrogation action against Prosky, then Allstate could demonstrate prejudice by violation of the no-consent-to-settlement clause. With prejudice demonstrated and the no-consent-to-settlement clause effective, any further recovery by Beal under the UIM policy would be barred. [¶ 41] In sum, on the issue of Beal's claim for UIM benefits, Allstate was not entitled to judgment as a matter of law; the court incorrectly concluded that Beal was no longer legally entitled to recover damages from Allstate after settling her claim against Prosky. There remain, however, genuine issues of material facts regarding whether Allstate consented to Beal's settlement with Prosky and whether Allstate's subrogation rights against Prosky were prejudiced by the settlement. We conclude, therefore, that the court erred when it entered a summary judgment in favor of Allstate with respect to Beal's UIM benefits. [9] The entry is: Judgment vacated in part. Remanded for further proceedings consistent with this opinion.