Opinion ID: 1723196
Heading Depth: 1
Heading Rank: 3

Heading: uninsured motorist statute

Text: Next we turn to the uninsured motorist statute to determine if there is any statutory intent which modifies the equitable principle favoring the insured person being made whole before subrogation rights arise in favor of an uninsured motorist carrier. Uninsured motorist coverage is mandated to be included in every automobile liability or motor vehicle liability policy unless specifically rejected. KRS 304.20-020(1). This legislation was adopted to provide indemnification to persons injured by financially irresponsible persons. This purpose is accomplished by the insured paying premiums to an insurance carrier guaranteeing that, if injured by an uninsured motorist, the insured will be compensated as if injured by a motorist with the statutory minimum liability coverage. The appellee insurance carriers argue that the uninsured motorist statute establishes a priority of subrogation in favor of insurance carriers over the injured insured. They cite KRS 304.20-020(4) which provides: In the event of payment to any person under the coverage required by this section and subject to the terms and conditions of such coverage, the insurer making such payment shall, to the extent thereof, be entitled to the proceeds of any judgment resulting from the exercise of any rights of recovery of such person or organization legally responsible for the bodily injury for which such payment is made, including the proceeds recoverable from the assets of the insolvent insurer. We find no statutory preference in the subrogation rights of an uninsured motorist carrier in the above statute. The statute merely establishes a right of subrogation to the carrier. It is void of any reference to the priority of rights between the injured insured and the insurance carrier. Said another way, the statute establishes a right of subrogation but says nothing about when that right arises. Cases in sister states and our own decisions lead us to conclude that the underlying purpose behind the uninsured motorist statute requires the injured insured to be fully compensated before the carrier's right of subrogation arises. To hold otherwise would defeat the purpose of the statute and reduce it to an illusion. Milbank Mutual Insurance Co. v. Kluver, 302 Minn. 310, 225 N.W.2d 230 (1970), a case decided by the Minnesota Supreme Court, is instructive. Minnesota's uninsured motorist statute was remarkably similar to our statute in all relevant ways. The Kluver court held that to allow the insurance carrier subrogation before its insured was fully compensated would lead to an absurd result and permit the carrier to avoid the statutory obligation imposed by the Minnesota uninsured motorist statute. Kluver, 225 N.W.2d at p. 232. In previous cases we have held that the remedial purposes intended by the uninsured motorist statute and the underinsured motorist statute outweigh a carrier's contractual subrogation rights. For example, in Puckett v. Liberty Mutual Insurance Co., Ky., 477 S.W.2d 811 (1972), we held unenforceable an insurance policy provision requiring joinder of the tortfeasor. Fully recognizing the unavoidable consequence of destroying the insurance carrier's subrogation right, we stated: [I]nsurance against uninsured motorist owes its existence to the probable and usual worthlessness of a claim against an uninsured tortfeasor. The policy of our statute places the insured party's right to sue in this state above the dubious value of the insurer's right of subrogation. Id. at 814. In Coots v. Allstate Ins. Co., Ky., 853 S.W.2d 895 (1993), we discussed the younger sibling to uninsured motorist coverage, underinsured motorist coverage, and highlighted their similarities. In Coots, we recognized that a carrier's subrogation right cannot be absolute because in some instances it is inimical to the right of the policy holder. Id. at 901. We quoted from Widiss, Uninsured and Underinsured Motorist Insurance, 2nd ed. (1992), sec. 44.4, p. 129-30: The fundamental characteristic of the underinsured motorist insurance is that it is only relevant when the tortfeasor's insurance is not adequate to provide indemnification. When this is the case, the assertion of a right of subrogation  by the underinsured motorist insurer in regard to the tortfeasor or the tortfeasor's insurer  is inimical to the very character of the underinsured motorist coverage so long as the insured has not been fully indemnified. The proposition that an insurer should be precluded from seeking reimbursement unless the insured has been fully indemnified seems to be almost beyond rational dispute. (Emphasis added.) The uninsured motorist statute must be construed to effect its purpose. To interpret it in a manner which would permit a carrier's right of subrogation to arise before the insured is fully compensated would defeat the purpose of the statute. Accordingly, we hold that under the uninsured motorist statute, absent valid contractual terms to the contrary, an insurance carrier's right to subrogation does not arise until the injured insured has been fully compensated (made whole) for injuries and losses sustained.