INSURANCE & STATUTE OF LIMITATIONS: Second Panel of COA holds statute of limitations for UIM underinsured motorist benefits ACCRUES from date insurer denies the claim and not based upon date of accident of last PIP payment (Hensley v. State Farm, COA Published 8/15/2014)

Court of Appeals has now held in a second published decision that  the statute of limitations on a UIM claim begins to run when the insurer denies a claim for UIM coverage.  I have addressed this issue of accrual multiple times over the years in this blog and my earlier blog the Kentucky Law Review, all to no avail.  Click here for my most recent commentary which addresses some additional practical reasons in support of the decisions in Riggs and Hensley below.

When applying the statute of limitations to a contract action sounding in tort you are presented with a hybrid  of analytical frameworks, neither of which seem to look at it from the insured’s perspective – eg. tort law for car collisions (2 years from date of accident or date of last pip payment, whichever is later) vs. contract (written contracts are 15  years) coupled with the fuzzy standard that an insurance company can unilaterally shorten the period if it is reasonable and not a violation of public policy.  We  now have the Court of Appeals taking a look at the rules and conditions behind the statute of limitations and applying both common sense and legal analysis.

Supreme Court Justice John Marshall Harlan, born in Boyle County.  Marker outside of court house in Danville, Kentucky.

Supreme Court Justice John Marshall Harlan, born in Boyle County. Marker outside of court house in Danville, Kentucky.

In order to be time barred, you need a start date and and end date.  The end date is clear – suit filed, yes or no?  Start date until now has been applied illogically since the start date for a tort action is not the same as a contractual action, especially a contractual action premised upon an accrual date that has no reasonable relationship with the underlying tort.

Two panels and four Court of Appeals judges get it.  The first panel held  that the the contractual provisions of an insurance policy requiring any action for UIM benefits must be brought within 2 years of accident or last PIP payment paid was unreasonable (see, Riggs v. State Farm Mut. Ins. Co. , COA Published 7/19/2014 (Judges Acree writing the majority joined by Judge Taylor, with Judge Vanmeter dissenting), pending discretionary review 2013-SC-000555).  Counsel for Mr. Riggs is Louisville personal injury attorney Timothy McCarthy; counsel for State Farm at the Supreme Court is David Klapheke.

INSURANCE (UM): UM Policies. Do they follow the car or the named insured, and are they primary or subject to excess and pro rata provisions? Well, let the Supreme Court decide! (Countryway vs. United Financial Cas. Co., COA 1/24/2014 pending discretionary review)

A heretofore sacred cow rule for uninsured motorist benefits that the uninsured motorist benefits (UM) follows the car  was re-examined with a new rule emanating from the Kentucky Court of Appeals in Countryway Ins. Co. v. United Financial Casualty Co..  However, this decision is not final and is up at the Supreme Court.

The following fact pattern comes across the desk of Kentucky personal injury attorneys frequently on a question of both underinsured and uninsured motorist benefits.

The scenario:  two car collision with the at fault car having no liability insurance leaving injured parties in the other car looking to uninsured motorist benefits for compensation.  Sometimes the car of the driver that was not at fault has UM benefits, sometimes it does not; sometimes the driver is not the owner  and/or a passenger in the car has therir own policy of UM benefits.    But what happens when there is a UM policy covering the vehicle with the non-owner driver or passenger all having UM coverages.  That’s when “other insurance” clauses come into play.  Until today, the UM “followed” the car and/or looked at the “other insurance” clauses which in Countryway resulted in the trial judge pro-rating the policies.  However, the Countryway decision reversed the Warren Circuit Court decision pro-rating the UIM policies and held  the UM policy covering the injured person (eg., UM is first-party coverage) will be deemed primary as a matter of public policy and judicial economy.  Well, don’t go jumping the UM adjusters on this issue just yet,  because the Supreme Court granted discretionary review, and all the insurance lawyers and companies as well as the automobile injury lawyers a little concerned which way the Supreme Court will go on this.

Some practical considerations beyond the legal analysis is that the insured owner of the car who paid for the UM coverage now has claim against his or her policy which may or may not affect underwriting and the insured owner’s  future premiums; and this arises from a collision when she did nothing wrong!   Next, imagine the complications under the follow the car rule and “other insurance” clauses when the coverages are different and the adjuster’s damages assessment also different.  How many adjusters does it take to make a claim go on forever and encourage suit and not settlement?  Any number greater than one.

Cary Grant looking a little perplexed in the movie, Gunga Din.

Cary Grant looking a little perplexed too in the movie, Gunga Din.

Many UM carriers use the “excess” language in their policies which means if two UM policies are deemed  “excess” then you go to pro-rata. Then add the “step down” language to minimum UM limits for second class insureds that Shelter uses, then the math gets a little complicated for some.  Although the Countryway decision does have some logic to it – “you bought it, you got it”, some fail to appreciate that UM and UIM coverages are nothing more than liability insurance purchased to protect yourself and your passengers against the possibility that the negligent vehicle has no or not enough liability insurance.  Thus, if you cut the labels of UM and UIM, you already have another car’s liability insurance being primary which works easily for UIM coverage but breaks down for UM coverage and which runs afoul of the number of cases that attempts treating UIM and UM benefits no differently. [if you can connect those dots in your head and follow my reasoning, then “You’re a better man than I am, Gunga Din!” from Rudyard’ Kipling’s poem Gunga Din.]

I like the “bought it, got it” rule since it’s easy to apply, only one adjuster at a time, and makes sense to the owner of the car who is not crazy about all those people making claims under his/her policy.

Again, the Supreme Court has this one.  Click here for the case information and status of the case at the Kentucky Supreme Court.

Uninsured motorist benefits and priority between two policies
Countryway Ins. Co. v. United FinancialCountryway Ins. Co. v. United Financial Casualty Co. Co.
Warren Cir. Ct., Judge John R. Grise
COA, PUB 1/24/2014, Presiding Judge Allison Jones

The Warren Circuit Court determined that the policies contained mutually repugnant excess coverage provisions and, therefore, damages should be prorated between the two policies. On appeal, Countryway asserts that the trial court should have deemed United’s policy primary because it covered the vehicle involved in the accident. For the reasons more fully explained below, we hold that the policy covering the injured person should be deemed primary to the policy covering the vehicle. Accordingly, we reverse the Warren Circuit Court’s order prorating the coverage.

While we agree with Countryway that Shelter’s underlying logic in favor of a bright-line rule should be adopted with respect to UM coverage, we do not agree that Shelter compels us to follow the same order of priority when dealing with UM coverage as when dealing with general liability coverage. After a review of the applicable statutes and relevant case law dealing with UM coverage, we conclude that because UM coverage is first-party coverage, it should follow the person, not the vehicle, as a matter of priority.

In conclusion, we hold that under Shelter the repugnancy rule and apportionment are no longer applicable where two excess/other insurance UM provisions clash. Instead, the UM policy covering the injured person, in this case, Countryway’s policy, will be deemed primary as a matter of public policy and judicial economy.

 

INSURANCE (UM): “Other insurance”, excess insurance and priority of UM coverage with vehicle in collision and personal policy (Countryway vs. United Financial Cas. Co., COA PUB 1/24/2014)

Uninsured motorist benefits and priority between two policies; “other insurance”
Countryway Ins. Co. v. United Financial Casualty Co.
Warren Cir. Ct., Judge John R. Grise
COA, PUB 1/24/2014, Presiding Judge Allison Jones

The Warren Circuit Court determined that the policies contained mutually repugnant excess coverage provisions and, therefore, damages should be prorated between the two policies. On appeal, Countryway asserts that the trial court should have deemed United’s policy primary because it covered the vehicle involved in the accident. For the reasons more fully explained below, we hold that the policy covering the injured person should be deemed primary to the policy covering the vehicle. Accordingly, we reverse the Warren Circuit Court’s order prorating the coverage. 

Of UIM, Statutes of Limitation and Gordian Knots. Riggs v. State Farm Holds Contractual limitation for Underinsured Motorist Claim Matching Up with Tort Claim is Unreasonable.

Alexander Cuts the Gordian Knot

Alexander Cuts the Gordian Knot

Court of Appeals held that State Farm’s contractual limitation in the automobile insurance policy requiring any action for underinsured motorist (UIM) benefits be brought within two years of the date of the injury or the last reparation benefits paid, whichever is later,  was unreasonable.  Thus, the contractual limitation period fell back to fifteen years.

This is an interesting decision, and a must read for all personal injury lawyers.  It highlights a problem I have noted for years that inherent nature of underinsured claims being married to the underlying tort claim not only creates a hybrid cause of action, but worse produces an unfair and unreasonable result.

The key problem for me is the accrual date of the cause of action.  This applies with equal logic to claims for uninsured motorist benefits.

The underlying tort’s statute of limitations based upon two years from MVA or last PIP payment, whichever is later, is already an artificial condition if the purpose of a limitations of action bar is to let tortfeasors know when they are no longer subject to being hauled into court.  The statute of limitations removes this dark cloud.  However, when the statute of limitations is placed under the microscope in car accident cases which ties the accrual date to date of the collision which the tortfeasor would/should know, but then has the plan B move of hitching it to the last pip payment, then the tortfeasor has no clue when it’s over.

Worse  yet, the injured person has no clue either for several reasons.

One – they clearly do not know the limitation under the no fault act.

Two – figuring out the last pip payment is now becoming a journey into Dante’s inferno with each circle never ending, never stopping, never starting.

Three – reading the PIP ledger or explanation of benefits is difficult for those who know.  Imagine for those who are not legally inclined?  Plus, getting the PIP ledger is proving a difficult task where some carriers require you to go on-line, mix the payments up between med-pay and PIP.  Add the burden that many PIP carriers do not provide logs but just an endless stream of  EOB’s (explanation of benefits) with payments, dates, and reasons for payment or nonpayment obscuring the critical information.

Now, flip it over for the tortfeasor who does not even have access to the injured claimant’s PIP information.

The statute of limitations in car accident cases is truly a mystery wrapped up in an enigma hidden in plain sight by those who have no incentive to update their insured.  In fact, the PIP carrier has an incentive to keep it buried since the same statute of limitations period applies to the PIP claims!  Remember, a closed file is a happy file, or so says many of the adjusters I have dealt with over the years.

The above rambling discourse should highlight the difficulties encountered in calculating the statute of limitations for just the tort claim.

Now, multiply that by ten for the underinsured motorist claim.

The key to any statute of limitations is the bright line start date.  Well, this does not work for UIM claims.

First.  The tort claim is in tort, and the UIM claim is in contract.  Just because you are hurt in a collision and have a rather clear starting point for filing an action against the tortfeasor even when  you don’t know the last PIP payment, that date has no applicability for when you know or have reason to know of your UIM claim.

Second.  When do you know or should know you have a UIM claim?  a.  The liability insurer resists telling the injured person the policy limits which is by most reckoning a condition precedent for knowing the tortfeasor’s liability limits are inadequate.  b.  When do you know your injuries and damages exceed those liability limits even when you are told of those limits?  It’s not unusual for the true understanding of the value of the claim is not revealed but for the passage of time, treatment, and temperment.

Now, I will share something with you that you might find irritating.  I read the ruling in this decision, but have not read anything after that holding.  My analysis above reflects views I have had for years.

A UIM claim is a hybrid.  Ditto for the uninsured claim.  It is one thing to measure the damages based upon the underlying tort case as it follows negligence, liability, causation, and winds up at damages.  And since an underinsured motorist claim does not accrue until there is reason to believe your damages exceed the heretofore unknown liability limits, then there is absolutely no reason to permit a contractual limitation on this claim since any artificial limitation for filing an action is inherently unreasonable.

Of course, the uninsured motorist claim has an entirely different condition precedent for kicking in the UM claim.  Not damages, but an uninsured motorist.  However, the complexity of this situation is evident in the fact of owners versus operators with potentially different liability policies in play;  business owners and scope of employment issues;  coverage questions; lapsed policies; new policies; incomplete information on the police report; and the list goes on and one.

The UIM claim does have a potential detour, to wit: liability settlement and the Coots procedures.  However, this is no saving grace for UM policies.

The UIM and UM statute of limitations is an insurance Gordian knot, and the legislature or the courts with their inherent common law powers and the application of jural rights serving as Alexander’s sword cutting through this knotty situation and providing a clear ruling.  Methinks, we have found our Alexander in guise of Court of Appeals Judge Acree.

Now might be a good time to parse this ruling with three opinions.

BTW.  This is my first draft, no re-read, and it’s late;  but, I think you can follow my points through all this meandering.

Download (PDF, 143KB)

UM and UIM benefits relationship to defendant covered by exclusive remedy of workers compensation act

UM and UIM benefits are not available as a result of injuries caused by worker covered under exclusive remedy provisions of workers compensation statute.

State Farm Mutual Automobile Insurance Company v. Carlene Slusher, Administratrix of the Estate of Donald Slusher
2009-SC-000513-DG     November 18, 2010
Opinion of the Court by Justice Venters.  All sitting; all concur.  Held – If, because of the exclusive remedy provisions of Kentucky’s Workers’ Compensation Act, a worker injured in a work-related motor vehicle accident caused by a co-worker, is not legally entitled to collect any further amounts from either his employer or the co-employee, he may not collect either UM or UIM benefits under an insurance policy which provides that to collect under those provisions the insured must be "legally entitled to collect" from the tortfeaser.