AUTO OWNERS INSURANCE CO. VS. CONSUMERS INSURANCE USA, INC.
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RENDERED: OCTOBER 8, 2010; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-000955-MR
AUTO OWNERS INSURANCE COMPANY
v.
APPELLANT
APPEAL FROM HOPKINS CIRCUIT COURT
HONORABLE JAMES C. BRANTLEY, JUDGE
ACTION NO. 02-CI-00901
CONSUMERS INSURANCE
USA, INC.
APPELLEE
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE: DIXON AND KELLER, JUDGES; LAMBERT,1 SENIOR JUDGE.
LAMBERT, SENIOR JUDGE: Auto Owners Insurance Company (“Auto
Owners”) appeals from the April 30, 2009, judgment of the Hopkins Circuit Court
which granted summary judgment to Consumers Insurance USA, Inc.
(“Consumers”) in the underlying civil action between the parties. Upon our
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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 KRS 21.580.
conclusion that the trial court erred in holding that it lacked personal jurisdiction
over Consumers, we reverse and remand.
The underlying circuit court civil action arose from an automobile
accident on November 20, 2000, in Hopkins County, Kentucky. Marilyn Stafford,
a Kentucky resident, was injured due to the negligence of Sharon Sweatt, a
Tennessee resident, who was operating her automobile in Kentucky. As a result of
Ms. Stafford’s injuries, her insurer, Auto Owners, paid her $10,000 pursuant to its
policy and Kentucky law in basic reparations benefits (“BRB”)/personal injury
protection (“PIP”).
On November 19, 2002, Auto Owners filed suit in the Hopkins Circuit
Court against Ms. Sweatt, the party at fault, seeking recovery of its payment to Ms.
Stafford. Ms. Sweatt moved for summary judgment which was granted. However,
the trial court later reversed itself and returned the case to its active docket. On
May 18, 2007, Auto Owners amended its complaint to include Ms. Sweatt’s
insurer, Consumers, alleging bad faith for Consumers’ failure to reimburse Auto
Owners for its payment to Ms. Stafford.
Consumers is domiciled in Tennessee and at the time of the accident,
Consumers was not authorized to do business nor doing business in Kentucky.2
Auto Owners sought summary judgment against Ms. Sweatt for the
sums it had paid its insured, Ms. Stafford. Its motion was granted on February 15,
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Consumers registered to conduct business in Kentucky in September of 2002. However,
Consumers maintains, and Auto Owners does not dispute, that it has never actually conducted
business in Kentucky and has never issued an insurance policy in Kentucky or for a Kentucky
garaged vehicle.
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2008, and judgment was entered in favor of Auto Owners against Ms. Sweatt in the
amount of $10,000, plus costs, prejudgment interest, and post-judgment interest.
Next, Consumers, Ms. Sweatt’s insurer, sought summary judgment. In that
motion, Consumers asserted that it did not conduct business in Kentucky, and
further maintained that its policy with Ms. Sweatt did not provide PIP coverage to
a Kentucky resident for an accident that occurred in Kentucky. Auto Owners again
amended its complaint seeking to enforce its judgment against Ms. Sweatt from her
insurer, Consumers. Consumers’ motion for summary judgment was denied and
discovery was ordered by the trial court. Consumers then filed a motion to dismiss
for lack of personal jurisdiction. On April 30, 2009, the trial court granted
summary judgment to Consumers on grounds that the Hopkins Circuit Court
lacked jurisdiction. This appeal followed.
The standard of review, when examining a trial court’s issuance of
summary judgment, is well established in Kentucky law.
The standard of review on appeal when a trial court
grants a motion for summary judgment is whether the
trial court correctly found that there were no genuine
issues as to any material fact and that the moving party
was entitled to judgment as a matter of law. The trial
court must view the evidence in the light most favorable
to the nonmoving party, and summary judgment should
be granted only if it appears impossible that the
nonmoving party will be able to produce evidence at trial
warranting a judgment in his favor. The moving party
bears the initial burden of showing that no genuine issue
of material fact exists, and then the burden shifts to the
party opposing summary judgment to present at least
some affirmative evidence showing that there is a
genuine issue of material fact for trial.
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Suter v. Mazyck, 226 S.W.3d 837, 841 (Ky.App. 2007) (quotations and citations
omitted). See also CR3 56.03. Because the determination of whether a court
possesses jurisdiction over a party is a legal question, we will review the issue de
novo.
On appeal Auto Owners first argues that Kentucky possesses personal
jurisdiction over Consumers based on its minimum contacts with Kentucky.
Consumers concedes that as a result of the November 20, 2000, accident between
Ms. Stafford and Ms. Sweatt, Consumers utilized the services of an independent
adjusting service to assess the damage done to the vehicles; an independent
medical damage assessor to assess injuries suffered by Ms. Stafford; and a
Kentucky attorney, Michael Hallyburton, to defend the personal injury claim
which arose as a result of the collision. However, Consumers maintains that it
never transacted business within Kentucky and has not subjected itself to the
jurisdiction of Kentucky courts.
In a proper case, Kentucky courts may exercise personal jurisdiction
over non-resident defendants through KRS 454.210, otherwise known as the
Kentucky long-arm statute. That statute grants personal jurisdiction over a party
acting directly, or by agent, as to a claim arising from various actions of a party
within the Commonwealth of Kentucky. Qualifying actions include business
transactions; contracts for services or goods; tortious injury; use or ownership of
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Kentucky Rules of Civil Procedure.
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real property; contracting to insure; committing sexual intercourse; or making
telephone solicitations. See KRS 454.210(2)(a).
This Court has held that personal jurisdiction did not exist over a
Tennessee-based insurance company whose insured was involved in an automobile
accident in Kentucky, where the company had never conducted business in
Kentucky and its only contact with Kentucky was to obtain a police report,
examine the insured vehicle, and arrange for the vehicle to be picked up.
Tennessee Farmers Mutual Insurance Co. v. Harris, 833 S.W.2d 850 (Ky.App.
1992). However, the facts of Harris are distinguishable from those before this
Court. The plaintiffs in Harris were first-party insureds suing their own insurance
carrier. In this case, the claim is by a third party and her insurer seeking recovery
of sums paid pursuant to insurance coverage mandated by Kentucky law. In
Harris, recovery was sought under contract theory. As such it was not
unreasonable to require the plaintiff to sue in the courts of the defendant’s
domicile. In contrast, this case arises from a tort claim where a Kentucky resident
sought recovery for personal injuries she suffered in Kentucky at the hands of a
Tennessee resident who was insured by a Tennessee insurer. Ms. Stafford was a
stranger to the contract between Ms. Sweatt and Consumers. Her right to use the
courts of her state of residence should not be circumscribed by the contractual
relationship of others. Accordingly, Harris is not controlling in this case.
Although Harris is distinguishable, it nonetheless offers guidance as
we attempt to ascertain whether Consumers is subject to the jurisdiction of
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Kentucky courts. The Court in Harris set out three criteria for ascertaining
personal jurisdiction under the Kentucky long-arm statute.
First, the defendant must purposefully avail himself of
the privilege of acting in the forum state or causing a
consequence in the forum state. Second, the cause of
action must arise from the defendant's activities there.
Finally, the activities of the defendant or consequences
caused by the defendant must have a substantial enough
connection with the forum state to make the exercise of
jurisdiction reasonable.
Id. at 852 (citations omitted).
Applying these criteria to the facts before us, we are persuaded that
Consumers is subject to Kentucky jurisdiction. By its automobile insurance
contract with Ms. Sweatt, Consumers invested her with the right to drive lawfully
in Kentucky and states other than her home state of Tennessee. By express
language, the policy territory was identified as “The United States of America, its
territories or possessions; Puerto Rico; or Canada.” Consumers knew or should
have known that its insured Ms. Sweatt, would likely operate a motor vehicle
outside the borders of Tennessee. Certainly nothing in the insuring agreement
prohibited Ms. Sweatt from driving in the other forty-nine states. It was precisely
to the contrary. Citizens are entitled to travel freely throughout this nation. State
lines are not barriers. Accordingly, we have no doubt that Consumers availed itself
of the privilege of acting in Kentucky by writing an automobile insurance policy in
an adjoining state with which Kentucky shares hundreds of miles of border.
Continuing with the Harris factors, the cause of this tort action, an automobile
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accident, arose from Consumers’ insured’s activity in Kentucky. Finally,
commission of an automobile tort by the insured of a non-resident insurer is a
sufficiently substantial connection to the forum state to make the exercise of
jurisdiction reasonable.
Our view in this regard is fortified by the public policy of Kentucky as
set forth in KRS 304.39-010. As noted in Bishop v. Allstate, 623 S.W.2d 865 (Ky.
1981), enactment of the Motor Vehicle Reparations Act established a system of
compulsory insurance for the owners and operators of motor vehicles in Kentucky.
The Act established a comprehensive system for the adjustment of automobile tort
claims. An essential feature of the system established was prompt payment of
basic reparation benefits and the recovery of such sums from the party at fault or
his insurer. Upon this public policy, Bishop v. Allstate held that an exclusionary
clause in an insurance contract, which reduced it below the legal minimum or
eliminated the coverage, rendered the driver uninsured to the extent of the
reduction or elimination. Holding that such a reduction or elimination contravened
the purpose and policy of the Act, the Court invalidated family or household
exclusionary clauses. If Consumers succeeds on its lack of jurisdiction claim, the
insured, Ms. Sweatt, will have been an uninsured driver in Kentucky with the
result that the public policy of Kentucky will have been entirely frustrated.
Hereinabove we discussed Tennessee Farmers Mutual Insurance Co.
v. Harris, supra, and quoted the elements it set forth for the exercise of personal
jurisdiction pursuant to the Kentucky long arm statute. While those elements are
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helpful in some cases, they may be insufficient in others. The Supreme Court of
Kentucky recently decided Cummings v. Pittman, 239 S.W.3d 77 (Ky. 2007), a
case in which the connection between the Kentucky forum and the non-resident
defendant was limited, with most of the contact between the parties having taken
place in New York. Concluding that Kentucky courts had a proper basis for the
exercise of jurisdiction, the Supreme Court of Kentucky stated:
As the U.S. Supreme Court has said, “[T]he Due Process
Clause may not readily be wielded as a territorial shield
to avoid interstate obligations that have been voluntarily
assumed.” Thus, we will continue to employ the threeprong test to determine the outer limits of personal
jurisdiction being always mindful of the International
Shoe overarching requirement of “fair play and
substantial justice,” which broadly considers the burden
on the defendant in litigating in this forum; the interests
of the forum; the plaintiff's interest in litigating in this
forum; and our system's interest in judicial economy. In
doing so, we keep faith with constitutionally-mandated
due process safeguards in asserting or declining
jurisdiction. In analyzing the first prong of the test, the
Supreme Court has stated, “[The] ‘purposeful availment’
requirement ensures that a defendant will not be haled
into a jurisdiction solely as a result of ‘random,’
‘fortuitous' or ‘attenuated’ contacts.” Thus, in
determining whether the purposeful availment test is
satisfied, courts must look beyond formalistic measures
such as physical presence in the forum and instead
evaluate the nature of the contacts and the degree to
which they represent a purposeful availment of the
forum's protections and benefits. The two cornerstones of
this analysis are foreseeability and voluntariness.
Id. at 86. (Citations omitted.)
Under the foregoing analysis, we are convinced that a Tennessee
insurer that writes a liability policy for a Tennessee resident has voluntarily
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assumed an interstate obligation. We discern no breach of fair play and substantial
justice by requiring a non-resident insurer to defend itself and its insured in the
courts of Kentucky when the injury-producing accident has occurred on Kentucky
highways. As instructed by Cummings, we look “beyond formalistic measures
such as physical presence” and look instead to the nature of the contact between
the defendant and the forum state. Other courts have recognized that the issuance
of an insurance policy is sufficient to subject an issuing company to a foreign
jurisdiction in a lawsuit brought by an injured third-party. See, e.g., Payne v.
Motorists' Mutual Insurance Companies, 4 F.3d 452 (6th Cir. 1993) (third-party
beneficiaries sought recovery under a breach of contract theory; court applied the
same three-prong test utilized by Kentucky in Harris); see also, Rossman v. State
Farm Mutual Automobile Insurance Company, 832 F.2d 282 (7th Cir. 1987) (court
considered the policy territory as outlined in the insurance policy and also applied
the standards of “fair play and substantial justice”). If an insurance company
wishes to limit the scope of its coverage, and likewise its liability, it may do so by
excluding certain geographical areas from its policies. Consumers imposed no
such limitation. Accordingly, Consumers subjected itself to the long-arm
jurisdiction of Kentucky courts. To hold otherwise would offend due process of
law and the public policy of Kentucky. We therefore hold that in this case
Consumers is subject to personal jurisdiction in the Commonwealth of Kentucky.
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Finally, we note the presence of genuine issues of material fact upon
the bad faith claim. As such, remand is necessary. See, e.g., Steelvest, Inc. v.
Scansteel Service Center, Inc., 807 S.W.2d 476 (Ky. 1991); see also, CR 56.05.
For the foregoing reasons, the April 30, 2009, judgment of the
Hopkins Circuit Court is reversed and this cause is remanded for further consistent
proceedings.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
James A. Sigler
James R. Coltharp, Jr.
Paducah, Kentucky
Michael D. Hallyburton
Madisonville, Kentucky
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