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Ray v. Encompass Indemnity Co.

United States District Court, W.D. Kentucky, Louisville Division

October 23, 2017

STEPHANIE RAY PLAINTIFF
v.
ENCOMPASS INDEMNITY CO. DEFENDANT

          MEMORANDUM OPINION AND ORDER

          Greg N. Stivers, Judge United States District Court

         This matter is before the Court on Plaintiff's Motion for Declaratory Judgment (DN 19) and Defendant's Motion for Declaratory Judgement (DN 20). For the reasons outlined below, Plaintiff's motion is DENIED, and Defendant's motion is GRANTED.

         I. STATEMENT OF FACTS AND CLAIMS

         On September 8, 2014, Plaintiff Stephanie Ray (“Plaintiff”) was injured in an automobile collision caused by Pete Mayfield (“Mayfield”) in Elizabethtown, Kentucky. (Compl. ¶¶ 3, 6-7, DN 1-1). Mayfield's insurance provider, State Farm Mutual Automobile Insurance Company (“State Farm”), offered to pay Plaintiff $50, 000 to settle her claim and $50, 000 to Plaintiff's husband to settle his derivative loss of consortium claim, which together represented the total liability policy limit of $100, 000. (Compl. ¶ 7; Def.'s Mem. Supp. Mot. Summ. J. 2, DN 20-1 [hereinafter Def.'s Mem.]). Plaintiff contends that Mayfield was an “underinsured driver, ” as his policy with State Farm was insufficient to adequately compensate Plaintiff for her damages. (Compl. ¶ 8).

         At the time of the accident, Plaintiff held an insurance policy (“Policy”) issued by Defendant Encompass Indemnity Company (“Defendant”) which provided underinsured motorist (“UIM”) benefits. (Compl. ¶ 11; (Def.'s Mem. 2; Def.'s Mem Supp. Mot. Summ. J. Ex. 1, DN 20-2 [hereinafter Policy]).[1] In relevant part, the Policy provided that Defendant “will reduce total damages to any covered person by any amount available to that covered person, under any bodily injury liability bonds or policies applicable to the underinsured motor vehicle, that the covered person did not recover as a result of a settlement between that covered person and the insurer of any underinsured motor vehicle.” (Policy 4 (emphasis deleted)). The Policy further stated that Defendant “will not make duplicate payment under this coverage for any element of loss for which payment has been made by or on behalf of persons or organizations who may be legally responsible.” (Policy 4).

         Pursuant to KRS 304.39-320 and Coots v. Allstate Insurance Co., 853 S.W.2d 895 (Ky. 1993), Plaintiff's counsel sent a letter informing Defendant of the settlement offer and its terms. (Compl. ¶ 9; Def.'s Mem. 2). Defendant failed to respond within 30 days to advance Mayfield's policy limits and reserve its subrogation claims against State Farm and Mayfield. (Compl. ¶ 9; Def.'s Mem. 3). Thereafter, Defendant informed Plaintiff's counsel that it did not intend to advance the policy limits and consented to the settlement, but later sent a letter offering settlement on terms inconsistent with those previously disclosed. (Compl. ¶ 9).

         Plaintiff then filed suit in Hardin Circuit Court, stating claims against Defendant for UIM benefits and breach of contract. (Compl. ¶¶ 10-17). Defendant removed the action to this Court. (Notice Removal, DN 1). The parties have agreed to resolve the legal dispute over the amount of credit for liability coverage that Defendant could “set off” against Plaintiff's UIM benefits claim. (Agreed Order, DN 18; Pl.'s Br. 1, DN 19 [hereinafter Pl.'s Mem.]; Def.'s Mem. 3). Plaintiff contends this amount is $50, 000, as received by her in her settlement with State Farm; Defendant argues it is entitled, both under the plain language of the Policy and Kentucky law, to set off the full amount of Mayfield's $100, 000 liability policy limit. (Pl.'s Mem. 1; Def.'s Mem. 1-2).

         II. JURISDICTION

         The Court has subject matter jurisdiction under 28 U.S.C. § 1441(a), as a civil action originally brought in a state court of which the district courts of the United States have original jurisdiction, under 28 U.S.C. § 1332(a) because there is diversity of citizenship between the parties and the amount in controversy exceeds $75, 000, exclusive of interest and costs, and as the Defendant removed the action to this Court, as the district court of the United States for the district and division embracing the place where the state court action was pending.

         III. DISCUSSION

         Under the Declaratory Judgment Act, 28 U.S.C. § 2201(a), “any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” Exercise of jurisdiction under the Declaratory Judgment Act is discretionary, not mandatory. Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d 807, 812 (6th Cir. 2004) (citing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942)).

         The Court considers five factors to determine whether it should exercise jurisdiction over a request for a declaratory judgment. Grand Trunk W. R.R. Co. v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984); Bituminous, 373 F.3d at 812-13 (citing Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 967 (6th Cir. 2000)). Neither party challenges this Court's exercise of jurisdiction to issue a declaratory judgment and, on balance, the factors weigh in favor of the Court's exercising jurisdiction.[2] See Bays v. Summitt Trucking, LLC, 691 F.Supp.2d 725, 735 n.3 (W.D. Ky. 2010). Therefore, the Court will determine Defendant's obligations.

         Defendant argues that it is entitled, both under the plain language of the Policy and Kentucky law, to set off the full amount of Mayfield's $100, 000 liability policy limit against Plaintiff's UIM benefits claim, regardless of Plaintiff's unilateral attempt to set the value of her settlement at $50, 000. (Def.'s Mem. 1-2). Plaintiff contends that where the tortfeasor's liability limits are, in fact, exhausted because of multiple claimants, the UIM carrier is credited for the amount paid by the liability carrier to the individual claimant, not the entire liability limit split between multiple claimants. (Pl.'s Mem. 2).

         To review the parties' cross motions for declaratory judgment, the interpretation of the insurance policy is a question of law to be enforced under Kentucky law as written, with clear and unambiguous terms given their ordinary meaning. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-79 (1938); K.M.R. Foremost Ins. Grp., 171 S.W.3d 751, 752 (Ky. App. 2005); Goodman v. Horace Mann Ins. Co., 100 S.W.3d 769, 772 (Ky. App. 2003). KRS 304.39-320 requires that insurers make UIM coverage available to their insureds, providing coverage in instances when the insured sustains damages beyond the tortfeasor's liability limits.[3] In construing and applying a statute, the Court's “duty is to ascertain and give effect to the intent of the Legislature.” Steward v. ELCO Admin. Servs., Inc., 313 S.W.3d 117, 121 (Ky. App. 2010) (internal quotation marks omitted) (quoting Beckham v. Bd. of Educ. of Jefferson Cty., 873 S.W.2d 575, 577 (Ky. 1994)). “To ...


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