Opinion ID: 1881223
Heading Depth: 2
Heading Rank: 1

Heading: Policy Language Due by Law

Text: In rejecting the claim by the Hatfields, Nationwide relied on the following language in the policy: We will pay compensatory damages, including derivative claims, because of bodily injury suffered by you or a relative and due by law from the owner or driver of... an underinsured motor vehicle.... (emphasis ours) Nationwide argues that because the City of Montgomery is protected from monetary liability by the doctrine of sovereign immunity, the language above prevents the Hatfields from recovering under their underinsured motorist coverage. We do not agree. In Kentucky, the exclusionary or limiting language in policies of automobile insurance must be clear and unequivocal and such policy language is to be strictly construed against the insurance company and in favor of the extension of coverage. See Louisville Gas & Electric v. American Ins. Co., 412 F.2d 908 (6th Cir.1969); Eyler v. Nationwide Mutual Fire Ins. Co., Ky., 824 S.W.2d 855 (1992); Wolford v. Wolford, Ky., 662 S.W.2d 835 (1984); B. Perini & Sons, Inc. v. Southern Ry. Co., Ky., 239 S.W.2d 964 (1951). In Preston, supra , the insured filed a lawsuit in the State of Georgia where his automobile accident had occurred. The jury found that he was 60 percent at fault. Because Georgia has a modified comparative fault statute, the insured was precluded from recovering against the tortfeasor and his Georgia lawsuit was dismissed. Thereafter, the insured filed suit in Kentucky seeking uninsured motorist coverage benefits from his own carrier, USF & G. The carrier rejected the claim relying on the following language in the policy: We will pay all sums the insured is legally entitled to recover as compensatory damage from the owner or driver of an uninsured motor vehicle. Ultimately, we held that an insured was legally entitled to recover damages from an uninsured motorist even though the insured was 60 percent at fault and Georgia law of modified comparative fault precluded recovery. Further, we held that the liability of USF & G is not vicarious or purely derivative, but is based on an independent contract that could be enforced even if the tortfeasor had been unidentified. This Court adopted the essential facts approach in interpreting such policy language even though the insured was not capable of obtaining a judgment against the tortfeasor. This approach requires an insured to prove 1) the fault of the uninsured motorist, and 2) the extent of damages caused by the uninsured motorist. Preston , cited with approval Puckett v. Liberty Mutual Ins. Co., Ky., 477 S.W.2d 811 (1971), where it was held that a requirement of a judgment was not essential to a claim for uninsured motorist coverage even though the inability to obtain a judgment effectively abolished the subrogation rights of the carrier. We recognize that the trial judge did not have the benefit of the Preston decision when she considered the summary judgment motions in this case. There is no material distinction between the policy language due by law used by Nationwide and legally entitled to recover used by USF & G. In Preston , this Court cited with approval cases from various foreign jurisdictions which support the essential facts approach. In summary, they are as follows: Harvey v. Mitchell, 522 So.2d 771 (Ala.1988); Hettel v. Rye, 251 Ark. 868, 475 S.W.2d 536 (1972); Allstate Ins. Co. v. Elkins, 63 Ill.App.3d 62, 21 Ill.Dec. 66, 381 N.E.2d 1 (1978); Allied Fidelity Ins. Co. v. Lamb, 361 N.E.2d 174 (Ind.Ct.App.1977); Patrons Mutual Ins. Ass'n v. Norwood, 231 Kan. 709, 647 P.2d 1335 (1982); Reese v. Preferred Risk Mutual Ins. Co., 457 S.W.2d 205 (Mo. Ct.App.1970); Pemberton v. Farmers Ins. Exchange, 109 Nev. 789, 858 P.2d 380 (1993); Satzinger v. Satzinger, 156 N.J.Super. 215, 383 A.2d 753 (Ch.Div.1978); In the Matter of the Arbitration between De Luca and MVAI Corp., 17 N.Y.2d 76, 268 N.Y.S.2d 289, 215 N.E.2d 482 (1966); Torres v. Kansas City Fire & Marine Ins. Co., 849 P.2d 407 (Okla.1993); Sahloff v. Western Casualty & Surety Co., 45 Wis.2d 60, 171 N.W.2d 914 (1969). Under the facts here, the policy language in question was not intended to exclude the application of underinsured motorist coverage. It simply requires that the insured establish fault on the part of the underinsured motorist and uncompensated damages sustained as a result of that fault. The policy language is not to be interpreted so as to deny coverage when both essential elements are clearly established. We are persuaded by the analysis provided by Professor Alan Widiss in his treatise, Widiss, Uninsured and Underinsured Motorist Coverage, § 35:10 (1992). He concludes that such phrases should not be interpreted to preclude the right of an insured to recover underinsured motorist insurance when tort immunity either precludes securing or restricts the indemnification from a tortfeasor. A majority of courts in the United States have accepted this interpretation. See Jay M. Zitter, Validity, Construction & Application of Exclusion of Government Vehicles from Uninsured-Motorist Provision, 58 A.L.R. 5th 511, 1998 WL 210783 (1998). Seventeen states have held that such clauses are void as against public policy while five states are listed as upholding such exclusions. Kentucky is listed among the latter category by reason of the Delaney, supra , decision. Most of the cases in the A.L.R. article deal with uninsured coverage as contrasted with underinsured coverage. As noted by the Court of Appeals, this distinction is of critical importance. Uninsured coverage is required by statute and consequently it is not separately bargained for. However, underinsurance coverage must be requested by the insured and a separate additional premium is required. Such an interpretation of policy language is consistent with other Kentucky case law. In Philadelphia Indemnity Insurance Co. v. Morris, Ky., 990 S.W.2d 621 (1999), the issue was whether the exclusive remedy provision of the Workers' Compensation Act barred an employee from recovering underinsured motorist benefits from his employer's motor vehicle insurance policy. This Court observed that a suit to recover underinsured motorist coverage is a direct action against the carrier who alone is the real party in interest. As noted in that case, the purpose of the 1988 revisions to the underinsured motorist statute are to provide full recovery for the insured. The clear intent of the underinsured motorist statute is to allow an insured to purchase additional coverage so as to be fully compensated for damages when injured by the fault of another individual. The inability of a tortfeasor to respond in damages for whatever reason is of no consequence. We cannot interpret the language of the policy to prevent the extension of underinsured motorist benefits to an insured that specifically purchases the coverage for his or her protection. This would be clearly contrary to the expectation of the insured and the intent of the legislature in requiring that such coverage be provided to its citizens upon request. The language used by Nationwide does not compel the interpretation which the company promotes. Another interpretation of this policy language could require the establishment of fault on the underinsured motorist rather than the ability to pay money damages. Cf. Puckett, supra . Where a policy of insurance is susceptible to two interpretations, the insured is entitled to the interpretation most favorable to the extension of coverage. American Ins. Co., supra ; Eyler, supra ; Wolford, supra , and B. Perini & Sons, Inc., supra .