OCCIDENTAL FIRE & CASUALTY COMPANY VS. HARMON (RONDAL WAYNE), ET AL.
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RENDERED: DECEMBER 4, 2009; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2008-CA-001575-MR
OCCIDENTAL FIRE & CASUALTY COMPANY
v.
APPELLANT
APPEAL FROM KNOX CIRCUIT COURT
HONORABLE RODERICK MESSER, JUDGE
ACTION NO. 05-CI-00118
RONDAL WAYNE HARMON
AND PAUL B. STEELE
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE: CLAYTON AND THOMPSON, JUDGES; LAMBERT,1 SENIOR
JUDGE.
CLAYTON, JUDGE: Occidental Fire & Casualty Company (Occidental) appeals
from the June 30, 2008, judgment that followed a jury verdict in favor of the
plaintiff, Rondal Harmon, and awarded him $250,448.14 in damages. As a result
1
Senior Judge Joseph E. Lambert sitting as Special Judge by assignment of the
Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and
Kentucky Revised Statutes (KRS) 21.580.
of the judgment, Occidental, as Harmon’s contract provider of underinsured
motorist (UIM) benefits, was held responsible for $120,000. Occidental also
appeals the circuit court August 8, 2008, order overruling Occidental motion to
alter, amend, or vacate the verdict or, in the alternative a new trial. For the reasons
stated below, we reverse and remand for a new trial.
On March 4, 2003, Harmon and Steele were driving vehicles that
collided. Steele’s car hit Harmon’s car because, according to Steele, he was
blinded by the sun. The evidence showed that both vehicles were moving at a
speed of approximately five to ten miles per hour. No ambulance was called as
both parties appeared unharmed and were able to drive their vehicles away from
the accident scene. Harmon, however, was later diagnosed with whiplash as a
result of the accident.
Harmon initially filed suit against Steele, and later filed suit against
his own insurance carrier, Occidental, pursuant to his UIM coverage. Steel was
insured by State Farm Mutual Insurance Company (State Farm) with liability
policy limits of $25,000. Harmon had $120,000 UIM coverage with Occidental.
Thereafter, on July 27, 2007, Steele filed a motion to exclude the existence of the
UIM coverage and Occidental, the UIM insurance provider, joined in Steele’s
motion. Occidental did not want to be identified and participate in the trial.
Nevertheless, in an order, entered on August 9, 2007, the circuit court overruled
Steele’s motion to exclude mention of Occidental. Occidental was ordered to
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participate at trial despite its objection and even though the underlying tortfeasor
never offered to settle within its policy limits.
A trial was held on May 22, 2008, and the jury returned a verdict in
favor of Harmon. In the judgment, the jury found Steele 100 percent liable for the
accident. A judgment was entered in accordance with the verdict. The judgment
directed that Harmon recover $260,448.14 less $10,000, for the set off of No-Fault
Personal Injury Protection coverage, for a total judgment of $250,448.14. Further,
the judgment ordered that the intervening plaintiff, Occidental, would not recover
from the intervening defendant, State Farm on its intervening complaint for
subrogation of No-Fault Personal Injury Protection payments. Finally, the
judgment stated that Harmon receive $120,000 from Occidental under his contract
with them for UIM benefits. On August 8, 2008, the trial court, without
explanation, denied Occidental’s Kentucky Rules of Civil Procedure (CR) 59.01
and 59.05 motion to alter, amend or vacate or in the alternative grant a new trial.
This appeal follows.
After the verdict was rendered, State Farm, on behalf of Steele,
entered into settlement negotiations with Harmon and agreed to pay $110,000 in
settlement, a sum that exceeds its liability limits of $25,000. (This settlement
remains pending as the Court of Appeals on January 20, 2009, denied Harmon’s
motion to enforce the settlement under KRS 304.39-320.)
Occidental argues, as it did throughout the proceedings, that the
circuit court erred when it allowed Occidental to be named as a party defendant in
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this action based on its contractual relationship with Harmon to provide UIM
benefits. Second, Occidental contends that, notwithstanding resolution of the first
issue, the jury returned an excessive verdict including future medical treatment and
future impairment of the power to earn money that did not comport with the
evidence presented at trial. Given our decision in this case, it will not be necessary
for us to address the issue concerning whether the verdict was excessive with
regards to its assessment of damages.
In Earle v. Cobb, 156 S.W.3d 257 (Ky. 2004), the Kentucky Supreme
Court required the identification of the UIM carrier at trial, but only in situations
where the UIM carrier had protected its subrogation rights with a Coots procedure.
The Court felt that it was fundamentally misleading to the jury to conceal the
carrier's involvement under the circumstances of that case. A Coots settlement is a
procedure wherein the UIM carrier substitutes its liability for that of the tortfeasor
in order to preserve its subrogation rights against the tortfeasor. Coots v. Allstate
Ins. Co., 853 S.W.2d 895 (Ky. 1993). The Coots procedure essentially provides
that when settlement with the liability carrier occurs, and when such settlement
reaches the policy limits of the liability carrier, the UIM carrier may elect to
substitute its money for that of the liability carrier. In so doing, the UIM carrier
retains a subrogation right against the tortfeasor.
When a Coots settlement procedure is used, Earle requires that the
UIM carrier be identified. The rationale is that, under such circumstances, the
UIM carrier becomes the only real party in interest at the trial when it substitutes
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its payment for that of the liability insurance carrier. By substituting its payment
for the liability insurance carrier, the UIM carrier retains its subrogation rights
against the tortfeasor. Earle, 156 S.W.3d. at 258. As held by the Earle Court:
. . . UIM carrier should be so identified as a party [at
trial] because it was named as a party by virtue of its
contract and because it chose to retain its subrogation
rights by substitution of its payment for that of the
liability insurance carrier.
Id.
Therefore, according to Earle, a UIM carrier must be identified at trial when it
chooses to preserve its subrogation rights by means of a Coots settlement
procedure. The Earle Court felt that it is improper to maintain a legal fiction that
would allow the tortfeasor to defend at trial and have the UIM carrier to either
participate or sit idly by and allow the tortfeasor to defend at trial. If the UIM
carrier chose to not participate, it effectively hid the identity of a bona fide party.
Indeed, as noted in True v. Raines, 99 S.W.3d 439, 448 (Ky. 2003), when an UIM
carrier has reached a Coots settlement, the tortfeasor is “released from any further
liability to the injured party[.]” And this “legal fiction” of substituting the name of
the tortfeasor for the UIM carrier is particularly problematic when the tortfeasor's
liability to the plaintiff is totally extinguished by a Coots procedure. But Earle did
not address the fact pattern wherein an UIM carrier does enter into a Coots
procedure. The question remains as to whether an UIM carrier must be named as a
party without a Coots agreement.
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In Mattingly v. Stinson, 281 S.W.3d 796 (Ky. 2009), the Kentucky
Supreme Court specifically addressed whether the rule, set forth in Earle, 156
S.W.3d 257, which requires identification at trial of a plaintiff’s underinsured
motorist carrier, applies when there has been no Coots settlement between the UIM
carrier and the alleged tortfeasor. The Mattingly facts were similar to our case
because, prior to the trial, no Coots settlement was entered into between the
tortfeasor and the UIM carrier. The Kentucky Supreme Court held in Mattingly
that under those circumstances, the UIM carrier did not have to be identified at the
trial:
Thus, we decline to extend the holding in Earle to
situations where the UIM carrier has not utilized the
Coots settlement procedure and, therefore, has not
substituted its liability for that of the defendant.
Id at 798.
The Mattingly court went on to explain its holding:
When the UIM carrier has not reached a Coots settlement
with the tortfeasor, the tortfeasor remains primarily liable
to the plaintiff. The UIM carrier is only potentially
liable, contingent upon a judgment in excess of the
tortfeasor's own liability coverage. Because the
tortfeasor remains a real party in interest, no legal fiction
is created for the jury. The jury considers an actual case
in tort between the injured party and the tortfeasor and
decides liability and damages. Any liability of the UIM
carrier to the tortfeasor or the injured party is ancillary to
the jury's determinations in this regard, and then any such
liability exists in contract.
Id.
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Therefore, without a Coots settlement, the UIM carrier is not a real party in
interest but is only potentially liable by contract if the tortfeasor is found
liable.
Similarly, in our case, the “legal fiction” that was present in the
Earle case does not exist because no Coots procedure was used. Steele, the
defendant, was the real party interest and necessary to the action. Hence,
Occidental, as a nonessential and non-named party, if liability and damages
are established, will be contractually bound to Harmon. Therefore,
Harmon’s arguments concerning CR 17.01 language, which says that
“[e]very action shall be prosecuted in the name of the real party in interest,”
are not relevant. Occidental is not a real party in interest.
Having determined that under Kentucky caselaw it was not necessary
to name Occidental as a party to the action, we must now decide whether the trial
court’s decision to name Occidental as a named party was an abuse of discretion.
Abuse of discretion occurs when a decision is arbitrary, unreasonable, unfair, or
unsupported by sound legal principles. McKinney v. McKinney, 257 S.W.3d 130,
133 (Ky. App. 2008) (internal citations omitted). Accordingly, we shall review the
issue presented by the parties in light of the aforementioned abuse of discretion
standard.
For sound policy reasons, Kentucky courts have long adopted the rule
that liability insurance is not to be mentioned at trial for such a matter. The basis
for this policy decision is the inherent prejudice resulting from a jury’s knowledge
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of the existence of liability insurance. UIM benefits, notwithstanding the
plaintiff’s procurement of the coverage, are based on the liability of a tortfeasor,
and therefore, are considered liability insurance. KRS 304.39-320.
Here, the trial court’s decision to allow mention of UIM insurance
coverage ignored the statutory and caselaw prohibition against introduction of
liability insurance in a personal liability lawsuit. The trial court did so to the
detriment of Occidental. First, the jury’s knowledge that Harmon had UIM cover
put Occidental is in an untenable position. There was no jury instruction to find
duty on the part of Occidental or to assess fault by Occidental. And at the time of
the trial, no contract between the plaintiff and his UIM carrier needed enforcement.
Moreover, Occidental argues that it was highly prejudicial for it to be named a
party as it allowed the jury to know not only that Steele was insured but also that
he was not insured in an amount sufficient to recompense Harmon.
A trial court abuses its discretion when it makes a decision that is
unsupported by sound legal principles. Here, because Occidental was not a real
party in interest, it was legally unsound for the trial court to deny Steele’s motion
to exclude from the jury the information that Harmon had UIM benefits. Given the
prejudicial effects of giving the jury knowledge of insurance, we believe that it was
an abuse of discretion for the judge to give notice to the jury that Harmon had an
UIM benefit coverage provider, Occidental. Hence, in light of the caselaw set
forth above, and for the reasons set forth in the preceding analysis, we reverse and
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remand this case to the Knox Circuit Court for a new trial on the issues of
damages.
ALL CONCUR.
BRIEFS FOR APPELLANT:
R. Craig Reinhardt
Katherine J. Hornback
Lexington, Kentucky
BRIEF FOR APPELLEE RONALD
WAYNE HARMON:
Bruce R. Bentley
London, Kentucky
NO BRIEF FILED FOR APPELLEE
PAUL B STEELE.
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