United States District Court, W.D. Kentucky, Louisville
CHARLES R. SIMPSON, III, District Judge.
This matter is before the court on cross-motions for partial summary judgment. This action arose from an accident between a motor vehicle driven by non-party Kevin Newton and a Jefferson County, Kentucky, school bus carrying fifty (50) elementary school students. The accident occurred on September 28, 2012. It is unclear to the court exactly how many of the fifty children suffered injuries in the collision, but Newton's liability insurance carrier, Progressive, represented that it had made offers of settlement to approximately thirty-five of approximately fifty potential claimants as of June 10, 2013. DN 11-4.
The plaintiff, Kay Dawson, on behalf of her minor child, D.M., received basic reparations ("PIP") benefits in the amount of $12, 443.25. Dawson demanded "policy limits." Newton's policy had a $50, 000 per person and $100, 000 per occurrence liability limit. Adam Luhrs in Progressive's claims department indicated that it was his "intention to exhaust the $100, 000.00 in available coverage trying to resolve these claims, " but he "had not yet offered the entire $100, 000.00..." DN 11-4. He concluded that "For my purposes, I can state that it appears that the Newton's policy limits are fully exposed, given the nature and number of claims being made against those limits." DN 11-4.
In the intervening seven months from Luhrs' June 10, 2013 letter to the filing of the crossmotions for summary judgment, the underlying information was not supplemented. It has not been supplemented to date. Two Claim Information letters from Progressive, filed in support of her summary judgment motion, are the sole pieces of evidence of record concerning the settlement of any of the claims by the liability carrier. They were both authored by Luhrs on June 10, 2013 and contain similar material, with the exception of the settlement amounts. Diamond Macklin settled for $5, 000.00 and Tania Ross settled for $1, 500.00. DN 11-4.
Dawson settled with Progressive for $5, 000, and now seeks underinsured motorist benefits from defendant Travelers Indemnity Company of Connecticut ("Travelers"), the provider of underinsured motorist ("UIM") coverage to the Jefferson County Board of Education ("JCBE") for its buses. It appears that JCBE's policy in force at the time of the accident provides $1, 000, 000 of UIM coverage for bodily injury for "each accident." DN 10-2, p. 16.
KRS 304.39-320 of the Kentucky Motor Vehicle Reparations Act ("MVRA") provides that Every insurer shall make available upon request to its insureds underinsured motorist coverage, whereby subject to the terms and conditions of such coverage not inconsistent with this section the insurance company agrees to pay its own insured for such uncompensated damages as he may recover on account of injury due to a motor vehicle accident because the judgment recovered against the owner of the other vehicle exceeds the liability policy limits thereon, to the extent of the underinsurance policy limits on the vehicle of the party recovering.
KRS 304.39-320(5) states, in pertinent part, that:
The underinsured motorist insurer is entitled to a credit against total damages in the amount of the limits of the underinsured motorist's liability policies in all cases to which this section applies, even if the settlement with the underinsured motorist...is for less than the underinsured motorist's full policy limits. The UIM endorsement in the Travelers policy tracks the KRS provisions. In paragraph 5 of Section D, the policy states that the insured's total damages will be reduced "by any amount available to that insured under any liability bonds or policies applicable to the underinsured motor vehicle that such insured did not recover as a result of the settlement between that insured and the insurer of an underinsured motor vehicle."
It is beyond doubt that KRS 304.39-320(5) applies to create a threshold for recovery of UIM benefits of amounts which exceed the limits of the tortfeasor's liability policy. The provision is crystal clear in its meaning and application to a claimant's UIM claim with an excess carrier.
In this instance, the statute establishes that Travelers is entitled to a credit against Dawson's total damages in the amount of $50, 000, the Progressive per person policy limit for the accident, despite the fact that she settled her claim with Progressive for $5.000.00. The result is that Dawson can recover a sum from Travelers for her actual damages to the extent they exceed $62, 443.25. The portion of the $50, 000.00 available under the $50, 000.00 per person limit but unrealized in settlement (referred to in many cases as "the gap") does not become the responsibility of the underinsured motorist insurer. As states in Progressive Max Insurance v. Jamison, 431 S.W.3d 452 (Ky.App. 2013),
KRS 304.39-320(5)'s unambiguous language also makes clear that the injured party, not that injured party's UIM carrier, bears the burden of any settlement below the tortfeasor's liability policy limits. At first blush, this result may appear inequitable to the injured party. A closer look at the rationale underlying UIM benefits reveals that this is not the case.
"[T]he purpose and intent of the [underinsured motorist] statute is to treat the insured victim as if the tortfeasor is insured[.]" Robertson v. Vinson, 58 S.W.3d 432, 434 (Ky. 2001)(citation omitted). Without question, "[t]he tortfeasor's liability insurance is the primary coverage, and the UIM insurance is the secondary or excess coverage[.]" Samples, 192 S.W.3d at 315. It logically follows, then, that the injured party must exhaust the tortfeasor's liability insurance before turning to its own carrier for compensation. If the injured party chooses to settle for less than the tortfeasor's policy limits, he does so at his own risk, for KRS 304.39-320(2) and (5) are clear that the nature and purpose of UIM benefits is to compensate the injured party only for those damages that exceed the limits of the tortfeasor's liability insurance policy.
The Travelers UIM endorsement employs a "damages less limits"-type of UIM coverage, as does the Kentucky statute, where UIM benefits kick in where the tortfeasor's liability limits leave off. Kentucky courts have found that it is no inequity in the UIM claimant being required to bear the loss for any gap between the ...