AUTO OWNERS INSURANCE COMPANY V. OMNI INDEMNITY CO.
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RENDERED : NOVEMBER 25, 2009
TO BE PUBLISHED
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APPELLA
ON REVIEW FROM COURT OF APPEALS
CASE NO. 2007-CA-001165-MR
JEFFERSON CIRCUIT COURT NO . 02-CI-005712
OMNI INDEMNITY CO.
APPELLEE
OPINION OF THE COURT BY JUSTICE SCOTT
REVERSING AND REMANDING
I. Introduction
This is an appeal from an opinion of the Court of Appeals affirming the
decision of the Jefferson Circuit Court dismissing Auto Owners Insurance
Company's (Appellant's) claims against Omni Indemnity Company (Appellee) on
the grounds that Appellant had no independent cause of action against
Appellee because Troy Edlin, the purported tortfeasor, was dismissed from the
case after filing a Chapter 13 Bankruptcy action and any payment made by
Appellant was merely an overpayment for which it bore the risk of loss. For
reasons that Appellant is entitled to seek subrogation from Appellee in the
amount paid to its policy holder, Connie Herre, we hold that the trial court
improperly dismissed Appellant's claim. We, therefore, reverse the decisions of
the Court of Appeals and the Jefferson Circuit Court and remand this matter to
the trial court for further proceedings consistent with this opinion .
IL Background
Connie Herre and Troy Edlin were involved in an automobile accident in
1999 . Edlin had a liability insurance policy through Omni Indemnity Company
with a coverage limit of $25,000. Herre had an underinsured motorist (UIM)
policy with Auto Owners Insurance Company. In an effort to settle the matter,
Omni offered Herre $25,000-the policy limit. In order to preserve its
subrogation rights (against Edlin and Omni) pursuant to Coots v. Allstate Ins.
Co., 853 S.W.2d 895 (Ky . 1993) and KRS 304 .39-320(4) (which substantially
codified the Coots decision), Auto Owners substituted its payment for that
offered by Omni. In 2002, Herre filed a personal injury claim against Edlin and
sought UIM benefits from Auto Owners. Auto Owners filed a cross claim
against Edlin and a third-party complaint against Omni seeking subrogation of
the payment A made to Herre under the UIM policy.
Subsequently, in June 2003, Edlin filed a Chapter 13 Bankruptcy action.
Neither Herre nor Auto Owners filed a proof of claim or a motion to lift the
automatic stay issued by the bankruptcy court, so as to proceed only against
the insurance amounts. In August 2004, after the deadline for filing a proof of
claim had passed, Edlin moved to be dismissed from the personal injury action.
Thereafter, in February 2006, the trial court entered an order dismissing all
claims against Edlin . This dismissal of Edlin effectively terminated any
subrogation right Auto Owners may have had against Edlin for any UIM
payments to Herre. Omni then filed a motion to clarify this order of dismissal
and sought the dismissal of Auto Owners' subrogation claims against them as
well . The trial` court ultimately denied Auto Owners' subrogation claim against
Omni for its $25,000 substituted payment. All other claims were settled by the
parties. Auto Owners appealed this ruling to the Court of Appeals, which
affirmed the decision of the trial court . Because Auto Owners is entitled to
seek subrogation from Omni for its $25,000 substituted payment, we reverse.
III. Analysis
Auto Owners argues it has a right to recover the substituted payment it
made to Herre under KRS 304 .39-320(4) . 1 Auto Owners did just as the statute
requires: refused to give its consent to settle, paid Herre the amount offered in
the proposed settlement (Omni's $25,000 policy limit), and then attempted to
seek subrogation from Omni. Auto Owners' attempts at subrogation, however,
were denied by both the trial court and the Court of Appeals . Under the
statute, Auto Owners would also normally be able to seek subrogation from the
1 KRS 304 .39-320(4) reads:
If an underinsured motorist insurer chooses to preserve its
subrogation rights by refusing to consent to settle, the
underinsured motorist insurer must, within thirty (30) days
after receipt of the notice of the proposed settlement, pay to
the injured party the amount of the written offer from the
underinsured motorist's liability insurer. Thereafter, upon
final resolution of the underinsured motorist claim, the
underinsured motorist insurer is entitled to seek subrogation
against the liability insurer to the extent of its limits of liability
insurance, and the underinsured motorist for the amounts
paid to the injured party.
underinsured motorist, Edlin . Id. However, in the case at hand, Edlin had
filed bankruptcy and Auto Owners had not filed a proof of claim or motion to
lift the automatic stay issued by the bankruptcy court, thereby barring their
subrogation claims-against him. Omni argues that because Auto Owners and
Herre were no longer entitled to recover damages from Edlin, they, in turn,
could not seek subrogation from Omni . However, Auto Owners' inability to
seek subrogation from the tortfeasor has no bearing on its statutory right to
seek subrogation from Omni . The language of the statute does not inextricably
link these two subrogation rights together such that if one is lost, the fate of
the other is determined . Id.
Furthermore, in Padgett v. Long, our predecessor court (then the Court of
Appeals) held that the bankruptcy of a tortfeasor does not prevent the
plaintiff's claim from being heard . 453 S.W.2d 272 (Ky. 1970) . Once the
tortfeasor files bankruptcy, "[t]he judgment, if obtained, would be collectible
only by claiming against the insurance company." 453 S .W .2d at 276. Just as
in the case at bar, the plaintiff in Padgett had not filed any claims in the
tortfeasor's bankruptcy proceedings, but was still entitled to recover from the
liability insurance carrier up to the limits of the policy. Id . While Padgett was
decided before Coots and its subsequent codification in KRS 304 .39-320(4),
these later developments merely served to allow a UIM insurer, such as Auto
Owners, to stand in the shoes of its insured (Herre in this instance) to seek a
determination of liability and damages, and ultimately collect a judgment
against the tortfeasor's liability carrier, Omni.
It is not clear at this point, however, if Auto Owners will, in fact, reclaim
the $25,000 substituted payment it made to Herre. This will depend on a
determination of liability -and damages. Pursuant to USAA Cas . Ins . Co . v .
Kramer , if it is determined that Edlin was not at fault, and thus Herre was
entitled to no damages, then Auto Owners would not be able to recover any of
the $25,000 substituted payment. 987 S .W.2d 779 (Ky. 1999) . Likewise, if it
is determined that Herre was entitled to an amount of damages less than
$25,000, then Auto Owners bears the risk of loss-it will be able to recover
only the amount of damages rather than the full $25,000 substituted payment.
Nationwide Mutual Ins . Co v. State Farm Auto Ins. Co ., 973 S .W.2d 56 (Ky.
1998) . While it is clear from Kramer and Nationwide that the UIM carrier bears
the risk of overpayment once liability has been determined and damages
assessed, this is not necessarily the case here as it cannot be determined
whether Auto Owners overpaid until an assessment of fault and damages has
been made .
IV. Conclusion
For the foregoing reasons, the decisions of the Court of Appeals and the
Jefferson Circuit Court are hereby reversed and this matter is remanded to the
trial court for further proceedings consistent with this opinion.
Minton, C .J. ; Cunningham, Noble, Schroder, and Venters, JJ., concur.
Abramson, J ., not sitting.
COUNSEL FOR APPELLANT:
Hon. Walter L . Porter
Barnett, Porter 8v Dunn
Lakeview Building, Suite 401
100 Mallard Creek Rd .
Louisville, KY 40207
COUNSEL FOR APPELLEE :
Hon. Christopher T. Coburn
Weber 8v Rose, PSC
471 W Main St . Ste . 400
Louisville, KY 40202
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