Court Opinion

ID: 9778958
Source: CourtListenerOpinion
Date Created: 2023-08-29 21:28:16.64429+00
Date Added: 2024-06-11T07:33:16.711966
License: Public Domain

COOPER, Justice,
dissenting.
If not qualified as a self-insurer, every owner of a motor vehicle in Kentucky is required to provide tort liability insurance coverage for that vehicle with minimum limits established by KRS 304 .39-110(1). KRS 304.39-010(1); KRS 304.39-080(5). Under the liability coverage provisions of the owner’s policy, the insurer agrees to pay, up to the maximum limits of the coverage purchased, any damages caused to another because of the negligence of the owner or anyone operating the insured vehicle with the owner’s permission. Additionally, an owner of a motor vehicle in Kentucky may purchase underinsured motorist (UIM) coverage by which the insurer agrees to pay, up to the maximum limits of the coverage purchased, any damages incurred by the owner as a result of the negligence of the operator of another vehicle, to the extent that such damages exceed the maximum limits of liability coverage provided for the other vehicle. KRS 304.39-320(2). Conceptually, the UIM statute affords an insured the right to purchase additional liability coverage for the vehicle of a prospective underinsured tortfeasor. LaFrange v. United Serv. Auto. Ass’n, Ky., 700 S.W.2d 411, 414 (1985). KRS 304.39-320(2) specifically provides that UIM coverage applies only to the extent that “the judgment recovered against the owner of the other vehicle exceeds the liability policy limits thereon.” Thus, the tortfeasor’s liability coverage is primarily liable for the injured party’s damages, and the injured party’s UIM coverage is payable only if those damages exceed the limits of the tortfeasor’s liability coverage.
As originally enacted, KRS 304.39-320(2) contained the following provision:
His [the UIM insured’s] insurance company shall be subrogated to any amount it so pays, and upon payment shall have an assignment of the judgment against the other party to the extent of the money it pays.
That sentence was deleted in 1990. 1990 Ky.Acts, ch. 103, 2. However, it was held in Coots v. Allstate Ins. Co., Ky., 853 S.W.2d 895, 901 (1993) that the UIM carrier retained its contractual and common law subrogation claim for indemnity against the tortfeasor whose negligence had exposed it to liability for damages sustained by its insured. See Brown Hotel Co. v. Pittsburgh Fuel Co., 311 Ky. 396, 224 S.W.2d 165, 168 (1949).
Coots also held that the injured party was not required to obtain a judgment against the tortfeasor in order to preserve a claim against the UIM coverage of his own policy. He could negotiate a policy limits settlement with the tortfeasor without abrogating the UIM coverage, so long as he notified the UIM carrier of his intent to do so and “provided the carrier an opportunity to protect its subrogation rights.” Id. at 900, overruling Kentucky Central Ins. Co. v. Kempf, Ky.App., 813 S.W.2d 829 (1991). Of course, the carrier’s subrogation rights needed no protection. “The common law right of indemnity is a jural right which existed prior to the adoption of our Constitution and may not be abolished_” Kentucky Util. Co. v. Jackson County R.E.C.C., Ky., 438 S.W.2d 788, 790 (1968). Nor can it be impaired. Williams v. Wilson, Ky., 972 S.W.2d 260, 261 (1998). Nevertheless, it was held in Coots that in order to protect its jural right of indemnity, the UIM carrier must substitute its own money for the amount offered in settlement to its insured by the tortfeasor’s liability insurer. Thus, if the tortfeasor had one million dollars of liability coverage and the injured party had $50,000 of UIM cover*60age, and if the liability carrier for the tortfea-sor offered its policy limits in settlement, the UIM carrier would be required to pay one million dollars of its own money in substitution for a proposed settlement, which it did not owe, in order to protect its jural right of indemnity in the event it was subsequently required to pay its $50,000 UIM coverage. Such a requirement would seem to substantially impair the' UIM carrier’s jural right of indemnity.
Of course, Coots was not concerned about the jural rights of UIM carriers. It was concerned with designing a procedure by which an injured party in a tort action could receive the settlement amount offered by the tortfeasor’s liability insurer and still retain his UIM claim against his own insurer. (The liability carrier’s settlement offer necessarily would be conditioned upon receipt of a release and indemnity agreement in favor of its insured, the tortfeasor.. Coots, supra, at 901. However, execution of such an agreement would require the injured party to indemnify the tortfeasor for any amounts which the tortfeasor subsequently might have to pay to indemnify the UIM carrier, thus effectively abrogating the UIM claim. The substitution procedure allows the injured party to pocket the settlement offer without executing a release and indemnification agreement.) However, Coots did contemplate that the UIM carrier ultimately would recoup the substituted payment.
[T]he underinsurer could substitute its payment to the insured in an amount equal to the tentative settlement. In this situation, the underinsurer’s payment would protect its subrogation rights to the extent of the payment and the insured would receive the amount of the settlement offered in cash.
Id. at 902, quoting, Schmidt v. Clothier, 338 N.W.2d 256, 263 (Minn.1983) (emphasis added). Thus, the UIM carrier ultimately would be indemnified by the tortfeasor (through his liability carrier) to the extent of the substituted payment. Both logic and law support this result.
Logic requires that the liability carrier ultimately pay the settlement for which its coverage is primarily Hable and which it was willing to pay in the first place. By making the offer of settlement, the liabiHty carrier obtained the additional benefit of eHminating any possible claim premised upon “bad faith.” See State Farm Mut. Auto. Ins. Co. v. Reeder, Ky., 763 S.W.2d 116 (1988); Manchester Ins. & Indem. Co. v. Grundy, Ky., 531 S.W.2d 493 (1975), cert. denied, 429 U.S. 821, 97 S.Ct. 70, 50 L.Ed.2d 82 (1976). Although the Coots procedure leaves the tort-feasor unprotected against potential liability for the UIM carrier’s subrogation claim for indemnity, that is the same position he would have been in without Coots, assuming the UIM carrier declined to waive its right to indemnity. And, of course, the tortfeasor is no worse off than he would have been if the plaintiff had not purchased UIM coverage. In that event, the tortfeasor would have been personaHy liable to the plaintiff for any judgment in excess of the limits of his liability coverage. Even Schmidt v. Clothier, supra, the precedent relied on in Coots for the-substitution procedure, holds that, as between the UIM carrier and the underinsured tortfeasor, the equities balance in favor of the UIM carrier. 338 N.W.2d at 262-63.
The law in this Commonwealth has always been that a party who involuntarily pays the debt of another has a cause of action to recover that payment from the debtor. E.g., Armstrong’s Adm’r v. Keith, 26 Ky. (3 J.J. Marsh.) 153 (1830). One who pays such a debt in order to protect his own security or legal right does not act voluntarily. Cf. C.I.T. Corp. v. Studebaker Sales of Kentucky, 251 Ky. 349, 65 S.W.2d 84, 86 (1933). When the UIM insurer is forced to protect its jural right of indemnity by advancing its money to pay a settlement offer made by the tortfea-sor’s liability insurer, such payment can hardly be viewed as voluntary. Nor is it arguable that State Farm’s offer to settle for $50,000 was not enforceable. The offer was never withdrawn and the plaintiff clearly accepted it; otherwise, there would have been no need for Nationwide to substitute its money for ^resettlement. Whether denominated as the ancient action in assumpsit, an action for restitution of money paid, or an impHed contract premised upon unjust enrichment, the UIM carrier is entitled to indemnity from *61the liability carrier for its substituted payment.
Nevertheless, with no citation to any authority except Coots, swpra, the majority of this Court today holds that Nationwide, which was forced by Coots to pay money which it did not owe in order to protect its jural right of indemnity, cannot recoup that payment simply because the jury determined that the plaintiff was entitled to less money than State Farm was willing to pay to settle her case. This result allows the liability insurer to shift the risk of a jury verdict against its insured from its own coverage to the UTM carrier. If the verdict exceeds its policy limits, the liability insurer loses nothing more than it was willing to pay in settlement and avoids any possible “bad faith” claim. If the verdict is less than its policy limits, the liability carrier pays only the verdict and the UIM carrier, which otherwise would owe nothing, is required to pay the difference between the verdict and the liability carrier’s settlement offer. This unjust and inequitable result was never intended by Coots and is contrary to two centuries of Kentucky common law with respect to the issues of indemnity and restitution.
For these reasons, I respectfully dissent and would reverse and remand this case to the Shelby Circuit Court with directions that Nationwide be permitted to file its amended complaint and that it be awarded judgment against State Farm in the sum of $60,000.00, representing the $50,000.00 reimbursement of its substituted payment of State Farm’s settlement offer, plus $10,000.00 reimbursement for basic reparation benefits paid to its insured. KRS 304.39-070(3); Ohio Sec. Ins. Co. v. Dmry, Ky.App., 582 S.W.2d 64 (1979).
STEPHENS, C.J., and GRAVES, J., join this dissenting opinion.