KENTUCKY NATIONAL INSURANCE COMPANY v. GORDON LESTER
Annotate this Case
Download PDF
RENDERED:
March 19, 1999; 2:00 p.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1998-CA-000280-MR
KENTUCKY NATIONAL INSURANCE COMPANY
APPELLANT
APPEAL FROM FLOYD CIRCUIT COURT
HONORABLE JOHN DAVID CAUDILL, JUDGE
ACTION NO. 94-CI-00197
v.
GORDON LESTER
APPELLEE
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
GARDNER, HUDDLESTON AND JOHNSON, JUDGES.
JOHNSON, JUDGE:
Kentucky National Insurance Company (Kentucky
National) has appealed from the judgment of the Floyd Circuit
Court entered on December 3, 1997, which summarily determined
that it was liable to its insured, Gordon Lester (Lester), under
the terms of its contract to provide underinsured motorist (UIM)
coverage, and from the trial court’s order of January 13, 1998,
denying its motion to alter, amend or vacate the summary
judgment.
We reverse and remand.
The facts necessary for a resolution of the issues in
this appeal are not in dispute.
On April 1, 1993, Lester was
involved in a two-car accident in Floyd County, Kentucky, which
caused him serious injuries.1
Lester, a resident of West
Virginia, was driving his own automobile at the time of the
accident and was insured by Kentucky National.
On March 28,
1994, Lester commenced this action by filing a complaint in the
Floyd Circuit Court against Cynthia Williams (Williams), the
driver of the other vehicle involved in the collision.
Williams,
a Kentucky resident, was insured by Allstate Insurance Company
(Allstate).
Lester alleged that Williams was negligent in the
operation of her vehicle and that as a result of her negligence,
he sustained injuries for which he had already incurred medical
expenses in excess of $125,000.
Williams denied that she was at fault in causing the
accident and filed a counterclaim against Lester in which she
alleged that the accident was caused by Lester.
On May 31, 1995,
Kentucky National, on Lester’s behalf, filed an answer to the
counterclaim and alleged that Williams’ negligence was the “sole
cause of the accident and damages complained of.”
1
Alternatively,
According to his answers to interrogatories, deposition
testimony and medical records, Lester sustained multiple injuries
in the collision, including a broken hip, a broken pelvis, five
broken ribs, separation of the thoracic nerves along the left
side of his spine, and ulceration of his stomach. Lester was
required to be hospitalized because of these injuries for over
two months, and had to use a tube to feed himself and was
confined to a wheelchair for over six months. The injuries have
left him with permanent and serious impairments.
-2-
the answer stated that Lester was “entitled to a determination of
the comparative negligence of all the parties to this action in
causing the alleged injuries to the defendant[].”2
On October 14, 1996, Allstate offered to settle
Lester’s claim against Williams for $25,000, the limits of its
insured’s liability policy.
Kentucky National was advised of the
offer and given the opportunity to “front” the limits pursuant to
the procedure established in Coots v. Allstate Insurance Company,
Ky., 853 S.W.2d 895 (1993), to protect a UIM carrier’s
subrogation rights.
Kentucky National chose not to “front”
Williams’ settlement.3
On April 19, 1997, Lester settled his
claim against Williams for the limits of her liability policy and
executed a release in favor of Williams and Allstate, which
provides in part as follows:
2
The record reveals there to be a considerable issue
regarding fault. In his discovery deposition, Lester testified
that he approached KY 80, came to a complete stop for over 30
seconds, and looked in both directions. He recalled observing
Williams’ vehicle coming down KY 80 on his left, that the
vehicle’s turn signal was on, and that the automobile appeared to
be slowing down as if to turn. He pulled onto KY 80 and does not
remember anything else that happened until he was being assisted
by emergency personnel. Williams stated that she was traveling
on KY 80, at or below the speed limit. She saw Lester’s vehicle
approaching the highway from a side road and assumed it would
stop at the intersection. However, she stated that Lester did
not stop, but pulled out in front of her, and that she was not
able to prevent the collision. The police report also indicates
that Lester pulled in front of Williams’ vehicle from a secondary
road.
3
Considering the significant issue concerning fault, the
large amount of Lester’s medical expenses, and the fact that
Williams was a twenty-two-year-old student, Kentucky National
probably did not consider its subrogation rights to be worth
protecting under the circumstances.
-3-
I [Lester] understand said Payers [Williams
and Allstate], by reason of agreeing to this
compromise payment, neither admit nor deny
liability of any sort, and said Payers have
made no agreement or promise to do or omit to
do any act or thing not herein set forth and
I further understand that this Release is
made as a compromise to avoid expense and to
terminate all controversy and/or claims for
injuries or damages of whatsoever nature,
known or unknown, including future
developments thereof, in any way growing out
of or connected to said accident.
On June 9, 1997, an agreed order was entered dismissing Lester’s
complaint against Williams with prejudice.4
In the meantime, in March 1997, Lester amended his
complaint to join Kentucky National as a party defendant and to
assert a claim against his insurer to recover UIM benefits.
Kentucky National answered and raised numerous defenses to the
claim, including its assertion that it was Lester who “was the
sole cause of the accident and damages complained of.”
On August
1, 1997, Lester filed a second amended complaint to assert a
claim against Kentucky National for the alleged breach of its
“duty of good faith and fair dealing” as evidenced by its refusal
to pay him UIM benefits “at a time when [Kentucky National] had
sufficient information within its possession to conclude that
[he] was rightfully entitled to said benefits.”
Lester moved for summary judgment on the issue of
Kentucky National’s obligation to pay him $20,000, the limits of
4
Williams’ counterclaim had already been dismissed by agreed
order entered on December 9, 1996. The order does not reveal the
terms of the agreement reached between Williams and Lester, but
merely recites that an agreement had been reached.
-4-
his policy for UIM coverage.
Lester argued that Kentucky
National “waived its opportunity” to insist on a finding that
Williams was at fault by failing to “front” the money for
Williams’ settlement.
In the alternative, Lester argued that
Kentucky National was estopped from contesting his claim for UIM,
as in part of its defense to Williams’ counterclaim, Kentucky
National had denied that Lester was negligent.
Kentucky National responded that Lester was not
automatically entitled to UIM coverage and argued that it was
entitled to a jury trial on the issue of comparative
fault/negligence.
It also argued that a “jury could easily find
that [Lester] was 100% at fault/negligent.”
Kentucky National
insisted that Lester’s entitlement to UIM only “kick[ed] into
play” after he had established Williams’ status as a tortfeasor.
As to Lester’s estoppel argument, Kentucky National pointed out
that its answer to Williams’ counterclaim also included a
comparative fault defense.
In its December 3, 1997 order which granted Lester’s
motion for summary judgment, the trial court concluded that
“Lester’s settlement with Williams for her policy limits for
$25,000.00 place[d] Williams in the position of an “underinsured
motorist” as [a] matter of law.”
In reaching this conclusion,
the trial court relied upon the language in the “exhaustion
clause” of the insurance contract which provided that Kentucky
National would be liable after the tortfeasor’s limits of
-5-
liability “’have been exhausted by payment of judgements or
settlements [emphasis in original].’”
Kentucky National moved the trial court to alter, amend
or vacate the summary judgment pursuant to Kentucky Rules of
Civil Procedure (CR) 59.05.
For the first time, Kentucky
National argued that the law of West Virginia should apply to the
resolution of the contract action.
It argued that if West
Virginia law were applied, Lester could not establish entitlement
to UIM coverage until he had established the fact that Williams
was a tortfeasor and liable to Lester for damages.
It cited
State, ex rel. Motorists Mutual Insurance Company v. Broadwater,
192 W.Va. 608, 453 S.E.2d 591 (1994), which also concerned the
“enforceability of a judgment order entered directly against an
underinsurance carrier in the absence of an initial judgment
against the underinsured motorist due to pretrial settlement.”
Id., 192 W.Va. at 610, 453 S.E.2d at 593.
Like our Supreme
Court’s decision in Coots supra, the Court in Broadwater held
that a judgment against the tortfeasor is not necessary to secure
UIM benefits.
“[W]e are not convinced that ’judgment’ is in fact
the operative term.
Instead, it appears that the establishment
of liability is the key prerequisite to permitting direct
recovery against an underinsurance carrier.”
Id., W.Va. at 612,
453 S.E.2d at 595.
Kentucky National continued to insist that the trial
court must try the tort action to determine who was at fault
before taking any action on the contract claim.
-6-
Lester responded
that the law in both states required that insurance contracts be
interpreted in favor of the insured and that the “magic words” of
Kentucky National’s policy allowed recovery of UIM upon “judgment
or settlement.”
The CR 59.05 motion was denied and this appeal
followed.5
Kentucky National first argues that this Court should
decide the merits of the appeal with reference to West Virginia
law.
It relies upon Bonnlander v. Leader National Insurance
Company, Ky.App., 949 S.W.2d 618 (1996), a case in which this
Court upheld the application of Indiana law by the trial court to
issues relating to underinsurance coverage.
The injured parties
in Bonnlander were residents of Indiana, the policies providing
UIM were sold and issued in Indiana and referenced Indiana law,
and the vehicle in which the injured plaintiffs were riding, was
licensed and garaged in Indiana.
As in the case sub judice, the
only contacts with Kentucky in Bonnlander were “that the accident
occurred here and the tortfeasor resided here.”
Id. at 620.
The
facts in this case bearing on the choice of law issue are
identical to those in Bonnlander.
Accordingly, if we were
persuaded that the law in West Virginia would require a different
resolution of the merits of this appeal, we would not hesitate to
decide the appeal with reference to that authority.
However, it is readily apparent that under the law of
either state, summary judgment was inappropriate.
5
It is settled
Lester’s bad faith claim is still pending in the Floyd
Circuit Court.
-7-
in both jurisdictions that Lester was not required to obtain a
“judgment” against Williams as a precondition to seeking UIM from
Kentucky National.
“UM [uninsured motorist] coverage exists
without regard to whether the obligation of the tortfeasor can be
reduced to judgment, and there is no logical way to explain UIM
coverage differently.”
Coots, supra, 853 S.W.2d at 898.
also the conclusion reached in Broadwater.
This is
See, supra, at 6.
In
both states there is a procedure established which requires the
UIM carrier to be given notice of its insured’s claim against an
alleged tortfeasor, and which allows the carrier to intervene to
protect its subrogation rights.
Code § 33-6-31(d).6
Coots, 853 S.W.2d at 902; W.Va.
In both states, the UIM carrier’s right to
subrogation is inferior to the plaintiff’s right to settle for
the tortfeasor’s policy limits.
Coots, 853 S.W.2d at 901.
Likewise, in both states, a plaintiff’s settlement with the
alleged tortfeasor does not affect defenses the insurer can raise
in a direct action against it to collect UIM coverage.
Broadwater.
453 S.E.2d at 597.
6
Kentucky National argues that the statutory scheme
contained in West Virginia Code § 33-6-31(d) would have allowed
it to participate in the defense and require “the tort action
[to] proceed to finality before the contractual underinsured
motorist benefits are to be considered for payment.” However,
the West Virginia courts have construed that provision to allow
the UIM carrier to assume primary control of the defense only if
the liability insurance carrier of the alleged tortfeasor is
“defending the claim in a bad faith manner.” State, ex rel.
Allstate Insurance Company v. Karl, 190 W.Va. 176, 183, 437
S.E.2d 749, 756 (1993). The statutory scheme is “primarily
designed to enable the carrier to raise policy defenses it may
have against the plaintiff under its uninsured or underinsured
policy.” Id., 190 W.Va. at 186, 437 S.E.2d at 759.
-8-
Kentucky National has consistently contended that
before its obligation to pay Lester is triggered, Lester must
first establish that Williams was at fault in causing the
accident.
In its answer to the amended complaint and in its
response to the motion for summary judgment, Kentucky National
argued that it is entitled to raise defenses pertinent to the
terms of its underinsured portion of its policy with Lester.
The
pertinent portion of the insurance policy reads as follows:
We will pay compensatory damages which an
“insured” is legally entitled to recover from
the owner or operator of an “uninsured motor
vehicle” or “underinsured motor vehicle”
where such coverage is indicated as
applicable in the Schedule or in the
Declarations because of:
1. “Bodily injury” sustained by an “insured”
and caused by an accident; and
2. “Property damage” caused by an accident
[emphasis added].
The owner’s or operator’s liability for these
damages must arise out of the ownership,
maintenance or use of the “uninsured motor
vehicle” or “underinsured motor vehicle.”
We will pay damages under this coverage
caused by an accident with an “underinsured
motor vehicle” only after the limits of
liability under any applicable liability
bonds or policies have been exhausted by
payment of judgments or settlements [emphases
in original].
We agree with Kentucky National’s argument that until
Lester can show that he is “legally entitled to recover” from
Williams, that is, until he proves that Williams was negligent
and that her negligence caused his injuries, he is not entitled
to a judgment under the policy.
This prerequisite to coverage
-9-
was clearly recognized in Coots, which states that while “proof
the offending motorist is a tortfeasor and proof of the amount of
damages caused by the offending motorist are not preconditions to
coverage,” such proof comprises “essential facts that must be
proved before the insured can recover judgment in a lawsuit
against the insurer on the contract of insurance.”
899.
853 S.W.2d at
Further, Coots also established that the mere exhaustion of
the alleged tortfeasor’s policy limits does not entitle one to
recover from its UIM carrier without proof of fault.
When the UIM statute speaks in terms of
measuring the insurer’s liability by “the
judgment recovered against” the underinsured
motorist, the intent of the language is no
different when the UM statute speaks to the
amount the insured is “legally entitled to
recover . . . from owners or operators of
uninsured motor vehicles” as the measure of
the insurer’s liability. . . .
[T]he only rational interpretation of the
statute is, while the policy limits specified
in the tortfeasor’s policy must be exhausted
before the UIM carrier has an obligation to
pay, the liability of the tortfeasor and the
amount of damages sustained are elements that
must be established in measuring the UIM
carrier’s obligation and not a statutory
precondition to coverage.
Id.
Lester’s argument that this interpretation of the
policy was not “anticipated by the parties at the time of the
making of the contract” is simply not tenable.
The whole purpose
for UIM in both West Virginia and Kentucky is to “’compensate
parties for injuries caused by other motorists who are
underinsured.’”
Kronjaeger v. Buckeye Union Insurance Company,
-10-
200 W.Va. 570, 490 S.E.2d 657, 666 (1997) (citation omitted)
(emphasis added).
UIM has never been intended to provide
compensation to an insured for his own negligence.
Apparently, the trial court was of the opinion that
Lester had established Williams’ fault in causing the accident by
virtue of their settlement agreement.
However, the release
executed by Lester specifically provided that he understood that
neither Williams nor Allstate was thereby admitting liability and
that they were settling to “avoid expense and terminate all
controversy.”
It is settled in this jurisdiction that a
voluntary payment in settling a claim is “not necessarily an
admission” of liability.
Ashland Oil & Refining Company v.
General Telephone Company, Ky., 462 S.W.2d 190, 194 (1970).
“Many disputed claims are settled for a variety of reasons
without any admission of actual liability.”
Id.
See also
Bottoms v. Bottom, Ky.App., 880 S.W.2d 559 (1994).
Finally, Lester argues that Kentucky National is
estopped from asserting he was at fault in causing the accident.
This argument is predicated on the answer to Williams’
counterclaim, prepared by counsel for Kentucky National on
Lester’s behalf, in which it was pled in the alternative that
Williams’ negligence was the sole cause of the accident.
Relying
on Rowe v. Shepherd, Ky., 283 S.W.2d 188 (1955), and Center v.
Stamper, Ky., 318 S.W.2d 853 (1958), Lester insists that Kentucky
National cannot change its position on the issue of fault as
-11-
reflected in the answer prepared for Lester merely because its
economic position has changed.
We find no merit to the argument that this pleading
constituted a judicial admission binding on Kentucky National.
“Pleading in the alternative is of course a standard legal
practice, and absent extraordinary circumstances such alternative
pleading is not binding as a judicial admission.”
Huddleston, By
and Through Lynch v. Hughes, Ky.App., 843 S.W.2d 901, 904-905
(1992).
More importantly, Rowe and Center both involve pleadings
or admissions made by a party.
Kentucky National was not a party
to this litigation when it undertook to defend Lester.
This
distinction is critical.
Our customary reticence to apply the
doctrine of judicial admissions is heightened
in this case due to the lack of identity of
parties. Ordinarily, a judicial admission is
argued to have resulted from some statement
or act of a party in the pending litigation
or by such a statement or act in other
litigation between the same parties. Here,
the source of the claimed judicial admission
is a separate lawsuit involving some, but not
all, of the parties to this litigation.
While a party’s statement in one case was
held to be conclusive against him in another
case in Center v. Stamper, Ky., 318 S.W.2d
853 (1958), the parties and the underlying
controversy were the same. Unless the
circumstances and conditions virtually
eliminate the possibility of error, “a
judicial admission in one action is not
conclusive in another action.”
Goldsmith v. Allied Building Components, Inc., Ky., 833 S.W.2d
378, 380 (1992) (citations omitted) (emphases added).
Clearly,
Kentucky National, in defending itself in a subsequent complaint
-12-
by Lester, is not estopped from asserting policy defenses even
though those defenses are inconsistent with the answer it
prepared in Lester’s defense in the original tort action at a
time when it was not a party.
Because there is a factual issue as to who was at
fault in causing the accident in which Lester was injured,
summary judgment on the issue of Lester’s entitlement to UIM
benefits from Kentucky National was clearly inappropriate.
Steelvest, Inc. v. Scansteel Service Center, Inc., Ky., 807
S.W.2d 476 (1991).
Accordingly, the judgment of the Floyd
Circuit Court is reversed and this matter is remanded for further
proceedings consistent with this Opinion.
ALL CONCUR.
BRIEF AND ORAL ARGUMENTS FOR
APPELLANT:
BRIEF AND ORAL ARGUMENTS FOR
APPELLEE:
Hon. William G. Francis
Prestonsburg, KY
Hon. David G. Vest
Lexington, KY
-13-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.