Opinion ID: 1985095
Heading Depth: 2
Heading Rank: 2

Heading: coots settlement and true's personal liability

Text: In Coots, this Court established a procedure whereby an injured party with UIM coverage could settle with a tortfeasor and the tortfeasor's liability carrier and still retain a claim against his or her UIM insurer. [13] Under the Coots procedure, when the injured party, the tortfeasor and the tortfeasor's liability carrier tentatively agree to settle the injured party's claim against the tortfeasor for the policy limits, the injured party may preserve his or her UIM claim by giving notice to its UIM insurer of the parties' intent to settle and affording the UIM insurer the opportunity to preserve its subrogation rights against the tortfeasor by paying the injured party the policy limit amount. If the UIM insurer elects not to substitute its own funds by paying the liability insurer's policy limits to the injured party: (1) the UIM insurer forfeits its subrogation rights against the tortfeasor for any amounts that it is later required to pay the injured party under its UIM coverage; (2) the tortfeasor's liability carrier pays the injured party the settlement amount; (3) the tortfeasor is released from all further liability to either the injured party or UIM insurer; and (4) the injured party may proceed against his or her UIM insurer for any damages in excess of the liability insurer's policy limits. However, if the UIM insurer elects to preserve its subrogation rights against the tortfeasor and substitutes its own funds for the settlement amount by paying the policy limit to the injured party, the UIM carrier: (1) has subrogation rights against the tortfeasor's liability carrier for the substituted amount paid to the injured party; and (2) retains its subrogation rights against the tortfeasor for any amount that it is required thereafter to pay the injured party under its UIM coverage. The trial court found that True, her liability carrier Farm Bureau, Raines and her UIM carrier Preferred Risk, utilizing the Coots procedure, effectuated a settlement of Raines's claim against True. After its own review of the record, however, the Court of Appeals found the trial court's finding clearly erroneous. We disagree with the Court of Appeals because the trial court's finding was supported by substantial evidence. In particular, we observe that, although Raines has asserted a different state of facts on appeal, the record reflects that Raines filed a post-verdict motion asking the trial court to enforce the parties' Coots settlement. The body of that motion read: Comes the plaintiff, Mable Raines, by counsel, and moves the Court to compel the defendants, Lecia M. True, by and through her insurer, Kentucky Farm Bureau Mutual Insurance Company, and Preferred Risk Financial, Inc., to immediately pay to the plaintiff the sum of $100,000.00, which represents the amount of the settlement agreement achieved among these parties on the second day of trial and prior to the return of a verdict by the jury. In support of this Motion, the plaintiff states that on February 25, 1998, after the return of the verdict by the jury counsel for the plaintiff and counsel for the defendants agreed that rather than Preferred Risk issuing a check to the plaintiff pursuant to Coots v. Allstate Insurance Company, Ky., 853 S.W.2d 895 (1993), and then Farm Bureau being required to issue a check to Preferred Risk for $100,000.00, that it would be most time effective and cost effective for Farm Bureau to directly issue a check in the sum of $100,000.00 to the plaintiff. More than thirty (30) days have now elapsed since those terms of payment were agreed upon by counsel for all parties, and yet no payment has been made to the plaintiff pursuant to the settlement agreement. Shortly thereafter, the trial court entered an order sustaining Raines's motion and directing Farm Bureau to pay Raines the $100,000.00 settlement amount, which Farm Bureau subsequently did. Having determined that the parties reached a Coots settlement, we now address the question of whether that settlement released True from any personal liability to Raines. Raines argues that because no settlement in the traditional sense was reached between Raines and True, True was not released from further personal liability to Raines. We disagree. We recognize that, technically, no settlement is reached between the injured person and the tortfeasor when the UIM carrier follows the Coots procedure and substitutes its funds for those of the tortfeasor's liability insurance carrier by paying its UIM insured the contemplated settlement amount. [14] However, Coots clearly contemplates that the procedure it adopted would release the tortfeasor from further liability to the UIM insured: What the statutory change does is recognize that the subrogation right cannot be absolute because in some instances it is inimical to the right of the UIM insured to settle with the tortfeasor and his liability insurer for the policy limits. This is so because, before making such payment of the policy limits the tortfeasor's insurer will routinely demand, as was done in the present cases, full release and indemnification against future claims against the tortfeasor by the UIM carrier. Indeed the liability carrier's obligation to its own insured to defend in good faith requires that it extract such a release rather than leave its own insured unprotected. The 1991 statutory change recognizes that there is potential for this irreconcilable clash of interest. If UIM coverage is to accomplish its remedial purpose as intended by the MVRA, the UIM carrier's contractual subrogation right must not obstruct the UIM insured's right to settle for the policy limits even if it means releasing subrogation. .... This is not to say the UIM carrier's contractual subrogation should be totally disregarded. It should be disregarded only to the extent it is in conflict with the UIM insured's superior right to accept the tortfeasor's policy limits when offered, when to do so requires executing a release and indemnity agreement. Again, turning to Widiss [ Uninsured and Underinsured Motorist Insurance, 2d Ed. (1992)] § 43.5, p. 122: ... if the claimant has initiated a lawsuit against the tortfeasor, the settlement agreement will usually require the claimant to agree to have that suit `dismissed with prejudice' so that no further legal action is possible. .... Addressing those cases where the UIM insurer believes the tortfeasor has substantial assets beyond his policy limits which should be pursued when those limits are paid, the Minnesota Supreme Court has offered UIM insurers a viable solution to their dilemma in Schmidt v. Clothier, 338 N.W.2d 256, 264 (Minn.1983): The underinsurer, however, will have this subrogation right against the tortfeasor only if it has paid underinsurance benefits prior to release of the tortfeasor. Thus, the underinsurer is entitled to notice of the tentative settlement and an opportunity to protect those potential rights by paying underinsurance benefits before release.  .... Nor do we write without recognizing that the claimant may execute a release recognizing he intends to release not only the tortfeasor, but his own UIM carrier, specifying he has been fully compensated for all damages and the release constitutes payment in satisfaction of all claims. Richardson v. Eastland, Inc., Ky., 660 S.W.2d 7, 9 (1983). [15] And, because a UIM insurer's substitution of funds operates as the equivalent of a settlement between the party claiming damages and the tort-feasor because the tort-feasor is released from further liability to the party claiming damages, [16] we hold that, when a Coots settlement has been effectuated, the tortfeasor is released from further personal liability to the injured party. While a Coots settlement does not release a tortfeasor's subrogation liability to an injured party's UIM insurer, such settlement does release the tortfeasor from any further liability to the injured party. To hold otherwise would remove the underlying purpose behind the Coots procedure. After all, if a Coots settlement does not release the tortfeasor from any further personal liability to the injured party, the tortfeasor would have no incentive to participate in a Coots settlement. [17] Prior to Coots, an injured party could not settle with a tortfeasor with a release from further liability to the tortfeasor and still retain his or her claim against his UIM insured. Only after Coots was an injured party permitted to do so, and, in turn, the Coots procedure allows the UIM insurer to elect whether to preserve its subrogation rights. If the UIM insurer does not elect to preserve its subrogation rights, the tortfeasor will certainly obtain a release from the injured party and thereby be released from any further liability to the injured party and, as a result of its inferred waiver, to the UIM insurer as well. To hold that the tortfeasor is not released from further personal liability to the injured party if the UIM insurer does elect to preserve its subrogation rights would abrogate an essential component of a Coots settlement. We hold, therefore, that, under Coots, a tortfeasor's liability carrier's settlement offer is conditioned upon a release of its insured from any further liability to the injured party, and the injured party's acceptance of the UIM insurer's payment of the contemplated settlement is an acceptance of that condition and a release of the tortfeasor from any further liability to the injured party. The injured party's UIM insurer, however, preserves its subrogation claim against the tortfeasor for any amount that it is thereafter required to pay its insured under its UIM coverage. Accordingly, by virtue of the Coots settlement in this case, True was released from any further liability to Raines personally. The trial court's final judgment thus properly adjudicated all claims.