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.