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Foster v. American Fire and Casualty Co.

United States District Court, E.D. Kentucky, Central Division, Lexington

May 5, 2015




After Plaintiff Ernest Foster was injured in an auto accident with an underinsured motorist, he sought UIM benefits from his two insurers, Philadelphia Indemnity Insurance Company and Defendant American Fire and Casualty Company. American Fire now moves for partial summary judgment on the issue of priority among these two insurers. [ See R. 70-7]. American Fire argues that the two policies apply on a pro-rata basis, while Foster claims that American Fire is the primary insurer. The Court agrees with American Fire - though for reasons different than those argued in its brief - and will GRANT its motion for partial summary judgment.


On June 8, 2008, Ernest Foster was driving his Ford Ranger pickup truck when he was struck by another driver, Gary Washabaugh. At the time of the collision, Foster was the named insured under the two insurance policies at issue here. His 1988 Ford Ranger is insured by American Fire. That policy includes UIM coverage up to $100, 000. Foster also owns a 1949 Ford Anglia, which is insured by Philadelphia with up to $60, 000 in UM and UIM motorist coverage. Foster, who suffered serious injuries to his knee, settled with Washabaugh for his policy limits of $25, 000. He also received $50, 000 in basic and added reparations benefits (BRB and PIP) from American Fire. Alleging that his medical expenses, lost wages, and impairment exceeded that $75, 000 amount, Foster sought UIM benefits from both of his insurers. American Fire and Philadelphia agreed to provide coverage, but the parties were unable to reach a settlement. Foster filed this action, claiming UIM benefits, breach of contract, and bad faith failure to settle.[1] He later settled his claims with Philadelphia for an undisclosed amount. [R. 86].

Shortly before the final pre-trial conference in this case, American Fire filed a Motion for Leave to File a Motion for Partial Summary Judgment, or in the Alternative, a Motion for Declaratory Judgment. [R. 70]. Foster filed a response to the substantive motion for partial summary judgment, [R. 101], and American Fire submitted an expedited reply, [R. 105], so as to allow the Court to resolve the motion prior to trial.


Rule 56 provides that a party may move for summary judgment on either an entire claim or defense or a "part of each claim or defense." Fed.R.Civ.P. 56. Summary judgment is appropriate where "the movant shows that there is no genuine dispute as to any material fact and [that] the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c)(2); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). "A genuine dispute exists on a material fact, and thus summary judgment is improper, if the evidence shows that a reasonable jury could return a verdict for the nonmoving party.'" Olinger v. Corp. of the President of the Church, 521 F.Supp.2d 577, 582 (E.D. Ky. 2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).

This Court is tasked with determining a purely legal issue: the priority of the two UIM insurance policies that cover Foster's injuries. Because it is not uncommon for two or more insurers to be liable for the same loss, insurance companies have long included "other insurance" provisions in their policies. Two clauses common to such provisions are the "pro-rata clause" and the "excess clause." A pro-rata clause provides that if the injured person is covered by other insurance, the insurer is only obligated to cover the proportion that its limits of liability bear in relation to the total limits of liability under all available policies. Robert D. Monfort, Kentucky Motor Vehicle Insurance Law § 12.2 (2014-2015 ed.). An excess clause provides that the insurer will only provide coverage for amounts exceeding the injured person's recovery from the other insurer. Id. at § 12.3.

Recent Kentucky decisions have brought sweeping changes to this area of insurance law. Previously, where two "other insurance" provisions were "mutually repugnant, " with each purporting to make the other's coverage primary, a court was required to presume that both provisions were void and order that coverage be apportioned between the two insurers, up to the limits of liability. E.g., Ohio Cas. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 511 S.W.2d 671 (Ky. 1974); Gov. Emp. Ins. Co. v. Globe Indem. Co., 415 S.W.2d 581 (Ky. 1967); Great Am. Ins. Co. v. Lawyers Mut. Ins. Co. of Kentucky, 492 F.Supp.2d 709, 712 (W.D. Ky. 2007). In Kentucky Farm Bureau Mutual Insurance Co. v. Shelter Mutual Insurance Co., 326 S.W.3d 803 (Ky. 2010), however, the Kentucky Supreme Court rejected the automatic apportionment approach in favor of a bright-line rule for liability insurance: Where two excess clauses are inconsistent, "the vehicle owner's [liability] insurance is primary, " and the non-owner driver's liability insurance is secondary. Id. at 811. The Court reasoned that this rule avoids the problematic side-effects of the repugnancy rule - delayed payments, "drafting wars, " and increased litigation, as well as the "exceedingly inequitable" result that automatic apportionment can allow an insurer to "collect premiums from its insured while hiding behind an excess clause that purports to subvert its primary liability." Shelter, 326 S.W.3d at 812. Instead, the brightline rule follows the "spirit and intent" of the Kentucky Motor Vehicle Reparations Act. Id. at 810; see also Progressive Max Ins. Co. v. Nat'l Car Rental Sys., Inc., 329 S.W.3d 320 (Ky. 2011) (applying Shelter to the basic reparations benefits context to hold that priority lies with the vehicle owner's insurance rather than the driver's insurance when BRB are owed to an injured third party). But see Owners Ins. Co. v. State Auto Prop. & Cas. Co., 977 F.Supp.2d 708 (W.D. Ky. 2013) (declining to extend Shelter to the context of homeowners' insurance liability coverage).

In a well-reasoned opinion, the Kentucky Court of Appeals recently extended Shelter 's logic to the uninsured motorist context. Countryway Ins. Co. v. United Fin. Cas. Co., 2014 Ky. App. LEXIS 12 (Ky. Ct. App. Jan. 24, 2014), discretionary rev. denied, 2015 Ky. LEXIS 39 (Feb. 11, 2015). Countryway announced an analogous bright-line rule to resolve conflicts between two UM policies: "[T]he repugnancy rule and apportionment are no longer applicable where two excess/other insurance UM provisions clash. Instead, the UM policy covering the injured person... will be deemed primary." Id. at *18. In that case, a passenger was injured when an uninsured motorist struck the tractor in which she was riding. Both the tractor driver's insurer, United, and the injured passenger's insurer, Countryway, provided that the other insurer would bear the primary obligation. The Court of Appeals reasoned that the policy rationales that drove the Shelter Court to reject the repugnancy rule "appl[y] with equal force when dealing with UM policies...." Id. at *15. Efficient payment of claims, avoidance of a "battle of the forms, " and reduction in litigation, it held, are important policy concerns in both UM insurance and liability insurance. Id. But the Court explained that acceptance of Shelter's rationale did not mean that its follow-the-vehicle liability insurance rule applied in the UM insurance context. Id. Instead, the unique nature of UM insurance mandated a different kind of bright-line rule. "Kentucky courts have plainly held that UM coverage follows the person, not the vehicle, regardless of whether the insured is injured as a motorist, a passenger or as a pedestrian." Id. at *16 (citations omitted). Because UM coverage is personal to the insured, the Court of Appeals reasoned, "it should follow the person, not the vehicle, as a matter of priority." Id. at *18. The passenger's insurer - and not the tractor driver's insurer - was therefore deemed the primary insurer.

American Fire's brief is premised on the contention that the two clauses here are mutually repugnant and that pro-rata apportionment is mandatory. But Countryway abrogated this repugnancy-therefore-apportionment test in the very similar context of UM insurance, and its rationales and conclusion apply equally in the UIM context. A federal court sitting in diversity must "follow the decisions of the state's highest court when that court has addressed the issue." Pennington v. State Farm Mut. Auto. Ins. Co., 553 F.3d 447, 450 (6th Cir. 2009) (internal quotation marks and citations omitted). A state appellate court decision is persuasive authority "unless it is clear the state's highest court would decide the issue differently." Owners Ins., 977 F.Supp.2d at 710 (citations omitted). The Kentucky Supreme Court declined discretionary review of Countryway; it has already extended the rule in Shelter beyond the liability insurance context. See Progressive Max Ins., 329 S.W.3d 320. Moreover, Kentucky courts have long held that UIM coverage - precisely like UM coverage - is "personal to the insured... and is not connected to any particular vehicle." Sparks v. Trustguard Ins. Co., 389 S.W.3d 121, 126 (Ky. Ct. App. 2012) (citing Dupin v. Adkins, 17 S.W.3d 538, 543 (Ky. Ct. App. 2000)). The Court is persuaded that, for the reasons set forth in Countryway, the Kentucky Supreme Court would extend Shelter to the UIM context, reject the repugnancy and apportionment rule, and adopt the same bright line rule set forth in Countryway. Accordingly, this Court will not engage in the repugnancy and apportionment analysis.

Instead, the Court's analysis begins with the contractual language itself. The Countryway rule assumes that the two policies are irreconcilable[2] - but that is not the case here. American Fire's policy generally provides coverage for its insured, Mr. Foster, for injuries sustained by underinsured motorists. Where coverage from another insurer is also available, however, the policy's "Other Insurance" provision kicks in:

If there is other applicable insurance similar to the insurance provided by this endorsement, we will pay only our share of the loss. Our share is the proportion that our limit of ...

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