INSURANCE – UIM, “Coots” Notice of Tender requirements per KRS 304.39-320: James Malone v. Kentucky Farm Bureau Mutual Insurance Company (SC 6/25/2009)

James Malone v. Kentucky Farm Bureau Mutual Insurance Company
2007-SC-000468-DG June 25, 2009
Opinion by Justice Abramson; all sitting.

After sustaining injuries in a car accident, Malone sued the other driver and Malone’s underinsured motorist carrier (KFB). The tortfeasor’s insurer offered to settle for the policy limits and Malone’s counsel sent a certified letter to KFB indicating Malone was “considering whether to accept” the offer and demanding that, consistent with KRS 304.39-320 and Coots, that KFB either consent to the settlement or preserve its subrogation rights by advancing a check for the amount equivalent to the tortfeasor’s policy limits. KFB responded to the letter, advising Malone’s counsel to notify KFB when his client had made a final decision on the settlement offer from the tortfeasor’s insurer. Malone subsequently accepted the settlement offer and executed a release. KFB then filed a motion for summary judgment which the trial court granted on the grounds that Malone’s UIM claim was extinguished for lack of proper notice to KFB of the settlement. The Court of Appeals affirmed.

The Supreme Court affirmed, holding that KRS 304.39-320 requires notice to the UIM carrier when the injured party “agrees to settle.” Since Malone’s letter merely stated the offer was being considered, there was no agreement in place and notice to KFB was insufficient. The Court rejected Malone’s argument that he had substantially complied with the intent of the statute, noting that the central underpinning of the statute was the existence of a binding agreement to settle between the injured party, the under-insured motorist and the under-insured motorist’s liability carrier. Justice Cunningham (joined by Justice Schroder and Justice Scott) dissented, asserting that the letter satisfied the notice requirements and that the majority was, in effect, adopting a “magic phrase” component. The dissent contended that the majority was focusing solely on the “considering whether to accept” phrase while ignoring the plain meaning of the overall letter. The minority discounted KFB’s response to Malone’s letter saying objective analysis trumped KFB’s subjective interpretation.