General Liability Seminar Handbook

Dallas July 18th Renaissance Dallas Richardson Hotel 900 East Lookout Drive Richardson, TX 75082 St. Louis August 22nd Sheraton Westport Hotel Plaza Tower 900 Westport Plaza St. Louis, MO 63146 General Liability Seminar Handbook Kansas City October 17th Overland Park Convention Center 6000 College Boulevard Overland Park, KS 66211 www.mvplaw.com

I. WHAT IS BAD FAITH? AVOIDING THE WRATH OF THE COURT A. Basic Definition First Party Insurance Refusal to pay a claim without a reasonable basis or even if insurer has a reasonable basis for denial, failing to properly investigate the claim in a timely manner. Third Party Insurance Failure to defend or indemnify or settle claim within policy limits without a reasonable basis, or failing to properly and timely investigate or defend the claim. B. Types of conduct which may be bad faith: 1. Deceptive practices or deliberate misrepresentations to avoid paying claims. 2. Deliberate misinterpretation of records or policy language to avoid coverage. 3. Unreasonable litigation conduct. 4. Unreasonable delay in resolving claim or failure to investigate. 5. Use of improper standard to deny a claim. 6. Arbitrary or unreasonable demands for proof of loss. 7. Abusive and coercive tactics to settle claim. 8. Compelling an insured to contribute to settlement. 9. Failing to thoroughly investigate the claim in accordance with your own procedures. 10. Failing to maintain adequate investigative procedures. 11. Failing to disclose policy limits and explain applicable policy provisions or exclusions. C. Sources of bad faith law 1. Common Law The implied duty of good faith and fair dealing. 2. State Legislation While some states have enacted statutes which generally prohibit bad faith or vexatious refusal to pay policy benefits, others have enacted Unfair Claims Practices Acts which specifically set forth various types of conduct which are prohibited. States may also attempt to control insurance claim adjudication through regulations promulgated by an insurance commission. 3. Federal Legislation The most obvious example of federal legislation which governs insurance practices is the Employee Retirement Security Act of 1974, 29 U.S.C. 1001-1461 1

(ERISA) which governs group employee benefit plans. ERISA generally preempts any state law claims referencing an employee benefits plan. Hall v. Blue Cross/Blue Shield, 134 F.3d 1063 (11th Cir. 1998). In the past, it has also been suggested that bad faith conduct by insurance companies might fall within the scope of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961-1968 (RICO). D. Bad faith may exist even in the absence of coverage 1. Judah v. State Farm Fire and Casualty, 266 Cal.Rptr. 455 (Cal. App. 1990). Judah v. State Farm has been rejected by many courts, including California courts, but this principle was supported in Lloyd v. State Farm Mutual Automobile Ins. Co., 943 P.2d 729 (Ariz. Ct. App. 1996). 2. Even if there is no coverage, the manner in which the claim is handled as opposed to the fact that the claim is denied may subject the insurer to a bad faith claim. 3. Determination of whether an incident or occurrence is "covered". E. Unenforceable Provisions One potential source of bad faith claims is attempting to enforce a provision of an insurance policy which is not enforceable. Provisions contained within the may still be unenforceable if they are contrary to the law or impossible of performance. F. Bad Faith Law From Selected States 1. Oklahoma Bad Faith Law Oklahoma bad faith law springs from the Oklahoma Supreme Court decision in Boling v. New Amsterdam Cas. Co. 46 P.2d 916 (Ok., 1935). The Court recognized that an insurer may be liable for the entire amount of a verdict in excess of its policy limits where it fails or refuses, in bad faith, to take advantage of an opportunity to settle within those limits prior to trial. Id. However, not until the late 1970 s did the Oklahoma Supreme Court establish bad faith as an independent tort upon which an insurer could be held liable for both compensatory and punitive damages for the delay or denial in payment of a claim not reasonably in dispute. Christian v. American Home Assur. Co., 577 P.2d 899 (Ok., 1977). For decades, Oklahoma recognized bad faith as an intentional tort (see McCorkle v. Great Atlantic Ins. Co., 637 P.2d 583 (Ok., 1981); see also Buzzard v. Farmers Ins. Co., 824 P.2d 1105 (Ok., 1991) but this language was repudiated in 2005 when the Oklahoma Supreme Court held that, the minimum level of culpability necessary for liability against an insurer to attach is more than simple negligence, but less than the reckless conduct necessary to sanction a punitive damage award against an insurer. Badillo v. Mid Century 2

Ins. Co., 121 P.3d 1080 (Ok., 2005). The compensatory damages recoverable in a bad faith case include those for financial losses, embarrassment and loss of reputation, and emotional distress proximately resulting from the insurer s improper conduct. See Oklahoma Uniform Jury Instruction 22.4. Oklahoma has also extended bad faith liability to TPA s under certain limited circumstances. See Wathor v. Mutual Assur. Admin. Inc., 87 P.3d 559 (Ok., 2004). The Court noted that, In a situation where a plan administrator performs many of the tasks of an insurance company, has a compensation package that is contingent on the approval or denial of claims, and bears some of the financial risk of loss for the claims, the administrator has a duty of good faith and fair dealing to the insured. Id. In 2006, the Oklahoma Supreme Court handed down the Sizemore decision. See 142 P.3d 47, (Ok., 2006). This decision held that an insurer or self-insured employer would be subject to bad faith liability for the failure to pay a workers compensation award but that such liability would only arise where the workers compensation claimant had first followed the procedure set forth within 85 O.S. Ann., 42(A). It is arguable that this ruling allows for a bad faith claim to be filed in District Court if benefits are not paid within 10 days. The most recent case regarding bad faith in Oklahoma was handed down in 2009. See Summers v. Zurich American Ins. Co., 213 P.3d 565 (Ok., 2009). Summers involved the failure to provide non-monetary benefits ordered by the Workers' Compensation Court for medical treatment and extended the duty of good faith to all benefits, not just monetary. The Court explained Sizemore stating that a claimant need not "seek enforcement of a certified order" in order to bring an action for bad faith. Rather, the Court held that the order need only be "certified for enforcement" before a bad faith action could be maintained. In Summers, the Workers' Compensation Court Orders evidenced that the Insurer had repeatedly failed to comply with prior Final Orders of the Workers' Compensation Court directing Insurer to provide Claimant with medical care. Notably, the language in Summers appears to provide a District Court remedy regardless of whether the prior unsatisfied order was for specific medical treatment or reasonable and necessary medical treatment. For monetary awards, there is essentially an election of remedies. Once the order is certified, a claimant may seek enforcement in District Court or bring an action for bad faith. On non-monetary awards, the Court held that a claimant must utilize a similar method so as to give the insurer the same 10 day period to show good cause why the order for medical treatment should not be certified as "not provided." 2. Kansas Bad Faith Law 3

Kansas does not recognize a common law action for bad faith. Spencer v. Aetna Life & Casualty, 227 Kan. 914 (1980). Kansas has adopted a Uniform Trade Practices Act which includes a section identifying and prohibiting unfair claim settlement practices. K.S.A. 40-2404(9). Courts have found, however, that this Act does not give rise to a private right of action as the sole authority under the Act to redress violations is granted to the Kansas Insurance Commissioner. Bonnel v. Bank of America, 284 F.Supp.2d 1284, 1289 (D.Kan. 2003); Earth Scientists v. United States Fidelity & Guarantee, 619 F.Supp. 1465, 1468 (D.Kan. 1985). In Kansas, the sole remedy for an insured with a first party claim against an insurance company is for breach of the contract and/or to report the insurer to the Kansas Insurance Commissioner under the Unfair Claim Settlement Practices Act. However, Kansas law does provide for extra-contractual damages for first party claims under certain circumstances through K.S.A. 40-256: That in all actions hereafter commenced, in which judgment is rendered against any insurance company as defined in K.S.A. 40-201, and including in addition thereto any fraternal benefit society and any reciprocal or interinsurance exchange on any policy or certificate of any type or kind of insurance, if it appear from the evidence that such company, society or exchange has refused without just cause or excuse to pay the full amount of such loss, the court in rendering such judgment shall allow the plaintiff a reasonable sum as an attorney s fee for services in such action, including proceeding upon appeal, to be recovered and collected as a part of the costs: Provided, however, That when a tender is made by such insurance company, society or exchange before the commencement of the action in which judgment is rendered and the amount recovered is not in excess of such tender no such costs shall be allowed. Determination of whether the refusal was without just cause or excuse is based on the facts and circumstances of each case. If there is a bona fide and reasonable factual ground for contesting the insured s claim, there is no failure to pay without just cause or excuse. Evans v. Provident Life & Accident Ins. Co., 249 Kan. 248, 261 (1991). When an insurance controversy involves an issue of first impression, the award of attorney fees is inappropriate. O Donoghue v. Farm Bureau Mut. Ins. Co., 30 Kan.App.2d 626, 636 (2002). The presence of an issue raised in good faith bars an award of attorney fees under K.S.A. 40-256. Id. 3. Missouri Bad Faith Law The tort of bad faith in first party disability insurance cases has not been recognized in Missouri (although a tort claim for bad faith refusal to settle is recognized in Missouri). Rossman v. GFC Corp. of Missouri, 596 S.W.2d 469 (Mo.App.E.D. 1980). Missouri does provide a statutory claim for vexatious refusal through RSMo. 375.420: 4

In any action against any insurance company to recover the amount of any loss under a policy of automobile, fire, cyclone, lightning, life, health, accident, employers' liability, burglary, theft, embezzlement, fidelity, indemnity, marine or other insurance except automobile liability insurance, if it appears from the evidence that such company has refused to pay such loss without reasonable cause or excuse, the court or jury may, in addition to the amount thereof and interest, allow the plaintiff damages not to exceed twenty percent of the first fifteen hundred dollars of the loss, and ten percent of the amount of the loss in excess of fifteen hundred dollars and a reasonable attorney's fee; and the court shall enter judgment for the aggregate sum found in the verdict. The vexatious penalty cannot be used as a weapon to intimidate insurers from asserting a good faith defense. Hammontree v. Central Mutual Insurance Co., 385 S.W.2d 661, 668 (Mo.App. 1965). An insurer "has the right to defend a suit with all weapons at its command so long as it has reasonable ground to believe its defense is meritorious." Loulos v. United Security Insurance Co., 350 S.W.2d 87, 89 (Mo.App. 1961) (citing Suburban Service Bus Co. v. National Mut. Casualty Co., 183 S.W.2d 376, 378 (Mo.App. 1944)). "[W]hen there is an open question of law or fact, the insurer may insist upon a judicial determination of these questions without being penalized." Mears v. Columbia Mutual Insurance Co., 855 S.W.2d 389, 394 (Mo.App. 1993). 4. Illinois Bad Faith Law Illinois law regarding the existence of a common law action for breach of the implied covenant of good faith in the context of first party actions is confused. This action was initially recognized by some Illinois courts. In 1996, the Illinois Supreme Court finally concluded that while a common law action for bad faith is available in third party claims for bad faith failure to settle, Illinois does not recognize such an action for first party claims. Cramer v. Insurance Exchange Agency, 675 N.E.2d 897 (Ill. 1996). The Court did recognize that well established torts (such as fraud) may arise in addition to a breach of insurance contract action from an insurer s conduct. The Cramer decision was based in large part upon the existence of 215 ILCS 5/155 which provides additional remedies for breach of insurance contract: 1) In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees, other costs, plus an amount not to exceed any one of the following amounts: 5

a. 60% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs; b. $60,000; c. the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action. 2) Where there are several policies insuring the same insured against the same loss whether issued by the same or by different companies, the court may fix the amount of the allowance so that the total attorney fees on account of one loss shall not be increased by reason of the fact that the insured brings separate suits on such policies. G. Why bad faith is important DAMAGES 1. An insurer which is found to have operated in bad faith could be liable for damages far in excess of the policy limits. 2. The types of damages a plaintiff is allowed to seek in a bad faith claim vary from state to state. They include: a. Statutory penalties b. Statutory interest c. Liability for judgments in excess of the policy limits d. Attorneys fees e. Emotional distress f. Economic loss i. This may include loss of credit reputation, loss of business and loss of property. g. Punitive damages i. Juries and judges have shown a tremendous willingness to enter huge punitive damage awards against insurers when they perceive that the insurer acted in bad faith. ii. Punitive damages are assessed against an insurer based on the insurer's assets or wealth, not on the losses incurred by the claimant. iii. Perez v. Farmers Groups of Insurance Companys d/b/a Fire Insurance Exchange (Tulare County, California, 2003) (a.) Plaintiff sought representation through his homeowners policy after he was sued in connection with a collision between a tractor trailer and a farm tractor borrowed by plaintiff from a farm at which he was employed and operated by a non party after it stalled on a state highway. Plaintiff claimed that the default judgment entered against him after defendant refused to defend him caused emotional distress. Jury returned a verdict for $327,231 pain and suffering, $535,769 for the default judgment and $25,000,000 in punitive damages for insurance bad faith. iv. Amoco Chemical Co. v. Certain Underwriters at Lloyd's of London (Cal. Super. Ct. 1993) 6

(a.) Jury returned a verdict of $425,600,000 for refusal to defend and indemnify in a series of lawsuits. This included $386M in punitive damages which the trial court later lowered to $71M. v. Fox v. Health Net (Cal. Super. Ct. 1993) (a.) Total verdict of $89,320,000 ($12.32M in compensatory damages and $77M in punitive) vi. Even small coverage questions can balloon into huge punitive damage awards for the insured. vii. Principal Fin. Group v. Thomas, 585 So.2d 816 (Ala. 1991) (a.) Refusal to pay burial expenses of deceased child under life insurance policy (no reasonable basis for denial). $750,000 punitive damage award for bad faith denial of $1000 claim. This amount was affirmed on appeal. Court suggested that the very fact that the policy was so small was a reason to impose such severe punitive damages because very few insureds would proceed with such a case and insureds would have an extremely difficult time obtaining an attorney to take a case with such a small policy at issue. This could be a cause of the insurers intentional and reckless failure to properly investigate the claim prior to denying coverage. viii. Fuller v. Preferred Risk Life Insurance, Montgomery County, Alabama Circuit Court, Case No. CV 88 744 (a.) Plaintiff alleged that defendant misrepresented the policy deductible of her health insurance. Plaintiff claimed past medical of $14,000. Defendant offered $6,000 prior to trial. Jury returned a verdict of $14,000 for past medical expenses and $1,000,000 in punitive damages. 3. Understand that the insurer/insured relationship is one which invokes sympathy for the insured and not the insurer as shown in the following quote from the California Supreme Court: As one commentary has noted, 'The insurers' obligations are... rooted in their status as purveyors of a vital service labeled quasi-public in nature. Suppliers of services affected with a public interest must take the public's interest seriously, where necessary placing it before their interest in maximizing gains and limiting disbursements...' Moreover, 'the relationship of insurer and insured is inherently unbalanced: the adhesive nature of insurance contracts places the insurer in a superior bargaining position. Hunter v. Up-Right Inc., 864 P.2d 88, 90 (Cal. 1993). H. Appearance is everything It is easy to avoid actually acting in bad faith in administering claims. However, given the apparent willingness of juries to return astronomical bad faith verdicts and a judicial willingness to allow bad faith claims to proceed to a jury, not acting in bad faith may not be sufficient to avoid a bad faith verdict. The mere appearance of impropriety must also be avoided. 7

II. INVESTIGATING THE CLAIM A. Duty to Investigate - The duty to investigate, and the specific conduct which is required to fulfill that duty, arise from a variety of sources: 1. Statutes 2. Internal claim handling policy 3. Common Law - implied covenant of good faith and fair dealing B. Timing 1. Investigation should begin as quickly as possible following notice of the claim. 2. Investigation itself should progress in a timely manner. 3. Timely decision to deny coverage must be made, particularly in the context of third party claims where the insured may be prejudiced by a last minute denial of coverage. C. Evaluating the investigation 1. Principal yard stick is whether the investigation was "reasonable." 2. Does it appear that the claims adjuster was investigating the claim to determine if coverage existed, or investigating the claim to determine that no coverage existed? D. Develop evidence of the insured's bad faith 1. Some courts have recognized the application of comparative bad faith in which the amount of the insured's bad faith will reduce the damage award against the insurer and may even act as a complete bar to the insured's bad faith claim. 2. Examples of insured's bad faith: a. failure to completely fill out relevant information on claims forms when that information would harm insured's chances of coverage b. misrepresentation of relevant information c. abusive conduct by insured (profanity, yelling, threats, etc.) d. failure to cooperate 3. Reverse bad faith: a. At least one court has even recognized that an insurer may bring a claim against its insured for bad faith. Liberty Mutual Insurance Co. v. Altfillisch Constr. Co., 139 Cal Rptr. 91 (Cal. App. 1977) (doctrine of bad faith creates an independent tort that allows the insurer to seek affirmative relief for an insured s breach of the duty of good faith and fair dealing). E. Third party coverage - two part investigation 1. Is the insured required to defend and indemnify? 8

a. Duty of defense arises for claims that are even potentially within coverage. 2. If there is coverage, what is the extent of the insured's (and therefore the insurer's) liability? 3. Excess coverage - Second part of analysis is central to an insurer's liability in excess of the policy limits for failure to settle within policy limits. a. An insurer who fails to accept a settlement within the policy limits by not giving the insured's interests at least as much consideration as its own, is liable for any resulting judgment against its insured regardless of policy limits. Crisci v. Security Ins. Co. of New Haven, 426 P.2d 173 (Cal. 1967). One test that has been applied is to consider whether a prudent insurer without policy limits would have accepted the settlement offer. b. Court reinstated a $590,000 bad faith judgment against an insurer, finding that a jury may consider an insurer's failure to inform its insured of a settlement offer as "some evidence of bad faith. Smith v. General Accident Ins. Co., 697 N.E.2d 168 (N.Y. 1998). c. Courts have delineated several factors used to determine if an insurer's failure to settle was "reasonable." d. Brown v. Guarantee Insurance Co., 319 P.2d 69 (Cal. App. 1958) i. strength of the injured claimant's case on the issues of liability and damages; ii. attempts by the insurer to induce the insured to contribute to a settlement; iii. failure of the insurer to properly investigate the circumstances so as to ascertain the evidence against the insured; iv. the insurer's rejection of advice of its own attorney or agent; v. failure of the insurer to inform the insured of a compromise offer; vi. the amount of financial risk to which each party is exposed in the event of a refusal to settle; vii. the fault of the insured in inducing the insurer's rejection of the compromise offer by misleading it as to the facts; and viii. any other factor tending to establish or negate bad faith on the part of the insurer. e. Some courts will look beyond the settlement context to evaluate the reasonableness of the insurer's failure to settle. f. Commercial Union Insurance Co. v. Liberty Mutual Insurance Co., 393 N.W.2d 161 (Mich. 1986) i. failure to inform the insured of relevant litigation developments; ii. failure to keep the insured informed of all settlement demands outside policy limits; iii. failure to solicit a settlement offer or to initiate settlement negotiations when warranted; iv. failure to accept a reasonable compromise offer of settlement in situations when the facts demonstrate blatant liability and serious 9

injury; v. rejecting a reasonable settlement offer within policy limits; vi. attempting to coerce or obtain an involuntary contribution from the insured in order to settle within policy limits; vii. failure to properly investigate a claim before rejecting a serious and recurrent negligence by the insurer; viii. disregarding the advice of an adjuster or attorney; ix. serious and recurrent negligence by the insurer; x. undue delay in accepting a settlement offer within policy limits where the potential verdict is high; xi. refusing to settle a case within policy limits following an excessive verdict when the chances of reversal on appeal are slight; xii. failing to appeal following a verdict in excess of policy limits where there exist reasonable grounds for such an appeal. g. Edward Johnson, Virginia Johnson and Wayne Davis Jr. v. Allstate Insurance Co. (Jackson County, MO. 2006) i. failure to timely notify the Insured of Policy limit demand within time limit. ii. failure to timely investigate the claim of medical expenses of $325,000. iii. underlying tort case resulted in $5,000,000 judgment against Allstate insured in excess of $50,000 policy limits. iv. Allstate claimed it lost the original demand letter and lacked adequate information about the of tortfeasor's injuries. v. insured assigned 90% of his claim against Allstate to tortfeasors vi. Verdict against Allstate for $5,821,729.97 compensatory damages and $10,500,000 punitive damages. III. AVOIDING BAD FAITH IN FIRST PARTY INSURANCE A. Documenting files 1. To avoid successful claims of bad faith, you must do more than just act reasonably, you must be able to prove you acted reasonably. 2. It is important to keep accurate and complete records of the claim as litigation can occur years later. Important events could easily be forgotten over time if they are not reflected in the claims file. 3. Date stamp all materials received into file. The importance of being able to effectively reconstruct when certain materials were received, sometimes several years after the fact, cannot be overstated. While the underlying breach of contract claim will be determined by looking at all the evidence developed at the time of and after the claims decision, a bad faith claim is decided by examining 10

what information was available at the time the claims decision was made. In addition, allegations of specific conduct which might be bad faith (e.g. failure to timely respond to demand letter) may rely upon when certain materials were received and how quickly they were acted upon. 4. Keep complete and accurate phone memorandums, even if the person called is not reached. It is important to keep record of all attempted calls as it shows diligence in the administration of the claim. Failure to keep such memorandums may allow the insured to argue that relevant phone calls were never returned when in fact the adjuster attempted unsuccessfully to reach the insured. 5. Make notations of activity undertaken in connection with the claim. 6. Assume that everything in the claims file will be discovered by the insured in the event of litigation. a. Courts are particularly generous in granting all records made prior to the date litigation begins or the date benefits are terminated to the insured in bad faith cases. b. Example: "Bad faith actions against an insurer, like actions by client against attorney, patient against doctor, can only be proved by showing exactly how the company processed the claim, how thoroughly it was considered and why the company took the action it did. The claims file is a unique, contemporaneously prepared history of the company's handling of the claim; in an action such as this the need for the information in the file is not only substantial, but overwhelming." (Prisco Serena Sturm Architects, Ltd. v. Liberty Mutual Insurance Company, No. 94 C 5716, 1996 U.S. Dist. LEXIS 2216, at *1 (N.D. Ill. February 26, 1996) (citing Brown v. Superior Court In and For Maricopa County, 670 P.2d 725, 734 (Ariz. 1983)). c. Do not make gratuitous comments in correspondence or internal memorandums. Ex: "Who does this guy think he's kidding?" "Give me a break." "This lady is such a liar." "I am sick of this guy." 7. Protect the sanctity of the independent medical evaluation. a. Denial of claims will often be based at least in part on the opinions of doctor retained by you to review the medical records. The insured and his or her attorney will already be highly suspicious of the doctor's opinions and will consider him your accomplice. b. Deal at arms length in all written communications. c. Only set forth the facts in correspondence with the doctor. Do not state your opinions. 8. Denying coverage. 11

a. Clearly state all bases upon which the claim can be denied. Failure to cite all bases upon which it is denied may not foreclose the opportunity to argue all grounds in defense to a breach of contract action, but could limit defenses in a bad faith claim. b. Cite the specific language of the policy upon which you are relying in denying coverage. Do not paraphrase. A possible ground for bad faith is denying coverage for reasons not in the policy. A loose paraphrase of the actual policy provision might lead to this appearance. 9. Ensure that relevant portion of policy is enforceable. a. Generally the state law of the state in which the policy was issued will control. Each state's insurance act may have provisions which apply to the policy in question. If these provisions are found to apply to the policy they may: i. require certain provisions which are read into the policy even if they are not expressly stated in the policy ii. prohibit certain provisions or exclusions iii. allow some types of provisions or exclusions to be enforced only under certain circumstances (e.g., certain language used in policy) b. If coverage is denied based upon a policy provision or exclusion which is not enforceable under the applicable state law, this may be strong evidence in favor of bad faith. An insurer is generally deemed to have knowledge of the applicable state's law because it has issued and/or administered a policy in that state. Ignorance of the law is generally not a defense. c. Examples: Intoxication exclusions: States typically have provisions specifying when coverage may be denied in cases of intoxication or the use of narcotics. These provisions generally provide that coverage may be denied in situations where the loss sustained or contracted was in consequence of the insured being intoxicated or under the influence of narcotics. See, e.g., Cal. Ins. Code sec. 10369.12. Exclusions have been rendered invalid when they are less favorable than the statute permitting the exclusion. Olson v. American Bankers Ins. Co., 35 Cal. Rptr.2d 897 (Cal Ct. App. 1994). In Olson, the exclusion was rendered invalid because it excluded loss sustained, in whole or in part, directly or indirectly, from any intoxicant, whereas the statute only allowed exclusion for loss sustained in consequence of the insured intoxication. Pre-existing condition provisions: State law generally imposes time limits for how long a person may be barred from recovering on a pre-existing condition. These time limits are 12

often between 6 and 18 months. Permanent exclusion of a pre-existing condition would run contrary to state statute. See, e.g., Cal. Ins. Code sec. 10232.4. B. Administering the claim 1. Obtain and document all useful information from claimant and others. 2. Medical history a. Follow all medical leads. Look for references to other doctors in medical records and request records. b. Communicate with treating doctors and if necessary explain the relevant portions of the policy. c. Confirm as often as possible with the insured his or her medical history from first receipt of claim and as appropriate thereafter. d. Use Report of Claim Form. 3. Follow written procedures carefully. a. Written procedures are established as a uniform method of carefully and effectively administering claims. b. If the insured's attorney asks for claims handling procedures in subsequent litigation he will get them. c. Even conduct which is not inherently poor claims handling could look suspect if it is contrary to the written procedures. d. Example Court denied insurer's motion for summary judgment on the bad faith claim and granted the insured's motion for summary judgment on the bad faith claim. One of the reasons stated was the fact that the insurer failed to take action over an extended period of time contrary to its internal policy of responding to an insured's request for coverage with 45 days. Prisco Serena Sturm Architects, Ltd. v. Liberty Mutual Insurance Company (N.D. Ill. 1996). 4. Be cooperative, courteous and professional. C. Patterns or Practices of Bad Faith 1. Increasingly, attorneys will seek not only to establish that the handling a particular claim was bad faith, but also will try to establish a pattern or practice which goes beyond the claim at hand. 2. To support this strategy, attorneys may seek discovery of one or more of the following: a. claims handling procedures b. training material for newly hired employees c. other claims denied for the same or similar reasons d. Department of Insurance consumer complaints e. claim payment goals and incentive programs 13

f. performance evaluations g. incentive plans h. operation reports i. management conference handouts/presentations j. communications with insurance rating companies IV. SUBROGATION/ASSIGNMENT/REIMBURSEMENT A. Generally The ability to recover benefits paid to the insured will vary according to state law. Many states prohibit subrogation by health insurance policies or health and accident insurance policies which require examination of the state s insurance statutes to determine whether the policy at issue falls within the definition of a health policy. Several states recognize a common law prohibition against assignment of personal injury claims. In some instances these common law prohibitions have been adopted statutorily by the legislature or in regulations by the insurance commissioner. The insured will argue that an attempt to reimburse is an assignment and therefore contrary to statute public policy. B. Missouri Missouri law prohibits assignment of bodily injury claims as a matter of public policy. Schweiss v. Sisters of Mercy, St. Louis, Inc., 950 S.W.2d 537, 538 (Mo. Ct. App. 1997). Based upon this common law background, Missouri courts have held that an insurer may not acquire part of the insured s rights against a tortfeasor by reason of payment of medical expenses, either by assignment or by subrogation. Waye v. Bankers Multiple Line Insurance Co., 796 S.W.2d 660, 661 (Mo. Ct. App. 1990). Statutory exceptions exist for hospital liens, workers compensation liens, underinsured and uninsured motorist coverage, and Medicare and Medicaid coverage, but none of these exceptions specifies occupational accident plans. Insureds therefore argue that any subrogation provision equates to an assignment which is prohibited by public policy and for which no exception is allowed by statute. We have argued in favor of reimbursement under occupational accident plans. Missouri courts have noted a difference between the assignment of causes of actions and subrogation to a claim. When there is an assignment of a claim, there is a complete divestment of all rights from the assignor, and a vesting of the same rights in the assignee. In the case of subrogation, however, only an equitable right passes to the subrogee and the legal title to the claim is never removed from the subrogor. Hayes v. Jenkins, 337 S.W.2d 259 (Mo. App. 1967). In conjunction with this distinction, we argue that since the insurer is only seeking 14

reimbursement for benefits paid, the reimbursement clause does not divest the insured of a right of action or of any recovery for the action and therefore does not violate Missouri public policy. C. Kansas Kansas common law prohibits subrogation for accident and health policies but not for indemnity policies. This common law position was codified by the Kansas Insurance Commissioner in Kansas Administrative Regulation 40-1-20: An insurance company shall not issue contracts of insurance in Kansas containing a subrogation clause applicable to coverages providing for reimbursement of medical, surgical, hospital or funeral expenses. A subsequent opinion from the Kansas Attorney General found that the Kansas Insurance Commissioner had the authority to issue this regulation. In that opinion, the Attorney General opined that authority existed based upon statutes regulating uniform policy provisions for accident and sickness insurance which do not include a subrogation provision and prohibit inclusion of additional provisions which would be less favorable to the insured. Kansas courts have found Regulation 40-1-20 preempted to the extent there is an express statute authorizing subrogation for a particular type of policy. Hall v. State Farm Mutual Automobile Insurance Co., 8 Kan.App.2d 475 (1983). Kansas authorizes subrogation for workers compensation, uninsured motorist benefits and personal injury protection benefits. To the extent a policy is considered an accident or sickness policy, subrogation may be prohibited. Kansas defines accident and sickness policies to include any policy or contract insuring against loss resulting from sickness or bodily injury or death by accident, or both, issued by a stock, or mutual company or association or any other insurer. K.S.A. 40-2201(a). D. Illinois Illinois law does not allow for the assignment of a personal tort. In re Estate of Scott, 208 Ill. App. 3d 846, 849, 567 N.E.2d 605, 607 (Ill. Ct. App. 1991). Further, courts have traditionally held that life, accident, medical, and health insurers do not have equitable or implied rights to subrogation. American Family Ins. Group v. Cleveland, 356 Ill. App. 3d 945, 950, 827 N.E.2d 490, 494 (Ill. Ct. App. 2005). However, when an insurance policy contains an unambiguous contractual provision that provides for subrogation rights, the courts will enforce such rights. Id. In these cases, the courts regard an insurance company s claim for subrogation to be distinct and separate from an assignment. Scott, 208 Ill. App. 3d at 849, 567 N.E.2d at 607. The only public policy exception to this rule is that subrogation cannot exist in wrongful death cases. 15

Although subrogation is permitted under Illinois law, the full assignment of rights is not. Thus, it is important that contractual language reflects only what is permissible by law. Scott, 208 Ill. App. 3d at 850, 567 N.E.2d at 607. Subrogation clauses should call for reimbursement for benefits paid under the policy, but must not extend to suggest that the insurer will be assigned its insured s rights. Likewise, courts will enforce subrogation rights provided for in a contract, but will not create additional common law rights to subrogation not included in contractual language. Spirek v. State Farm Mut. Auto. Ins. Co., 65 Ill. App. 3d 440, 449, 382 N.E.2d 111, 117 (Ill. Ct. App. 1978). Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 16

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ARKANSAS AUTOMOBILE LITIGATION PROCEDURES AND CASE UPDATES A. Underinsured/Uninsured Defined Underinsured motorist coverage issues arise when the tortfeasor s policy limits are insufficient to cover the damages that result from the accident and is commonly referred to as UIM. Uninsured motorist issues arise when the tortfeasor lacks any insurance coverage and is commonly referred to as UM. Under the Motor Vehicle Safety Responsibility Act, the Arkansas Legislature mandates that motorists in Arkansas maintain minimum liability limits for bodily injury of $25,000 per person for bodily injury and $50,000 per accident. Ark. Code Ann. 27-19-605 (2010). The statute also requires minimum limits of $25,000 for property damage. Id. Despite mandated minimum liability coverage, many motorists remain uninsured. This risk is addressed by the Arkansas Insurance Code through UM and UIM coverages. Insurers are required to offer UM coverage in the same minimum amounts required by the Arkansas Motor Vehicle Safety Responsibility Act. Ark. Code Ann. 23-89-403 (2010). Additionally, insurers are required to offer UIM coverage when issuing an automobile liability insurance policy. Ark. Code Ann. 3-89-209 (2010). UIM coverage should only be issued in conjunction with UM coverage. Ark. Code Ann. 23-89- 209.5(b)(2) (2010). The UM and UIM coverages offered by insurers must be greater than or equal to the minimum liability limits insureds purchase for themselves as prescribed in 23-19-605. Ark. Code Ann. 3-89-209, 3-89-403 (2010). Although the UM and UIM coverages must be offered, they can be rejected by the policy holder. Ark. Code Ann. 23-89-209, 23-89-403 (2010). Should these coverages be refused by an insured, the refusal must be in writing. Id. In the event a policyholder elects UIM coverage, an insured s recovery of UIM should not be set-off or reduced by the amount received from the tortfeasor. Henderson v. Universal Underwriters Ins. Co., 768 F. Supp. 688 (E.D. Ark. 1991). If such were allowed, an insured would never recover the full UIM coverage he purchased. Id. However, an insured s compensation should not exceed his damages, thereby creating a windfall to an injured party. Id. Rather, an injured policyholder should receive his UIM coverage limits only if the policyholder s total damages are equal to or greater than the limit of his UIM coverage plus the amount received from the tortfeasor. Id. Uninsured motor vehicle property damage must also be offered in Arkansas. Ark. Code Ann. 23-89-404 (2010). Such property damage offered by the insurer only applies to losses exceeding two hundred dollars ($200). Id. Although information regarding this coverage must be provided with the initial application or renewal, once rejected in writing the insured need not be provided with the opportunity for subsequent renewal, continuation, reinstatement or replacement of such policy, unless the insured makes a written request for the coverage. Id. 1

B. Stacking Stacking issues occur when the owner of a vehicle has multiple policies and attempts to combine the limits and applicability of multiple policies to increase the total limit for one accident. Many states have cases that detail whether or not stacking is applicable under certain policies. For example, Missouri commonly allows stacking of UM policies as a matter of public policy. In Arkansas, stacking is not prohibited for UIM coverages by statute. Shelter Mut. Ins. Co. v. Williams, 9 S.W.3d 545, 548-49 (Ark. Ct. App. 2000). Stacking UIM coverages can, however, be precluded by an anti-stacking clause applicable in the insurance policy. Id. at 549. For such UIM stacking to be denied, the policy must unambiguously prohibit it. Couch v. Farmers Ins. Co., Inc., 289 S.W.3d 909 (Ark. 2008) C. Subrogation of UM/UIM An insurer paying benefits to an insured under UM coverage is to the extent of such payment, entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of the person against any person or organization legally responsible for the bodily injury for which the payment is made. Ark. Code Ann. 23-89-405. Black v. Farm Bureau Mut. Ins. Co., 614 S.W.2d 937 (Ark. 1931). Subrogation of amounts paid under UIM coverage is subject to waiver under the Arkansas Insurance Code. If the insurer is provided written notice of the insured s intent to settle with the underinsured motorist, the insurer must advance payment of the settlement to the insured within 30 days of the notice in an amount equal to the tentative settlement to preserve its right of subrogation. Ark. Code Ann. 23-89-209(c)-(d) (2010). D. Med Pay and PIP Coverage and Subrogation Medical Payments (Med Pay) coverage under an automobile insurance policy pays for the medical expenses of an insured and his/her passengers after an accident. Med Pay will pay no matter who is at fault but may include a right of subrogation for the insurer if someone else is at fault. Personal Injury Protection (PIP) coverage pays benefits for medical expenses and lost wages incurred by the insured and his/her passengers injured in an accident. Arkansas operates as an add-on state, where you are compensated for accidental damages from your own insurance company but face no restrictions regarding third party lawsuits. PIP is required in Arkansas, but Med Pay is also available. The insurer which pays its insured PIP or Med Pay benefits has a lien, right of reimbursement and credit out of third party recovery. Daves v. Hartford Acc. & Indem. Co., 788 S.W.2d 733 (Ark. 1990). However, the made-whole doctrine does apply in Arkansas. This doctrine provides an insurer is not entitled to subrogation unless the insured has been fully 2

made whole. Ryder v. State Farm Mut. Auto. Ins. Co., 268 S.W.3d 298 (2007). Under the made whole doctrine, the amount of reimbursement is equal to the third party recovery amount plus insurance proceeds that exceed the insured s loss and collection costs. S. Centra Ark. Elec. Coop. v. Buck, 117 S.W.3d 591 (Ark. 2003). E. Contract Interpretation In construing contracts, and specifically insurance policies, the first rule of interpretation mandates that the language of the contract be given the meaning intended by the parties. Couch v. Farmers Ins. Co., Inc., 289 S.W.3d 909, 913 (Ark. 2008). Although the plain and ordinary meaning of the words used by the contracting parties should be considered, the intention of the parties should be determined from the entire context of the agreement. Id. Clear, unambiguous terms of an insurance policy should control the agreement of the parties. McSparrin v. Direct Ins., 283 S.W.3d 572, 574 (Ark. 2008). Unless there is a contrary statutory stricture, exclusionary clauses should be enforced pursuant to their terms. Id. F. Case Law Update Couch v. Farmers Ins. Co., Inc., 289 S.W.3d 909 (Ark. 2008). UIM Anti-Stacking Provisions Allowed. The representative of an estate brought an action against two insurance companies when they refused to pay the UIM limits provided for in three separate insurance policies, all of which the decedent was insured under. The representative argued that UIM coverage could be stacked. The court, however, found that an insurer is allowed to prevent multiple insurance policy stacking if such policies unambiguously forbid benefit stacking. The court reasoned that because an insured had the option to opt out of UIM coverage altogether, excluding such coverage was not a violation of public policy. Ryder v. State Farm Mut. Auto. Ins. Co., 268 S.W.3d 298 (Ark. 2007) Subrogation and Made Whole Doctrine. Insurer was seeking reimbursement from insured policyholder for the medical expenses it paid on insured s behalf after she settled with the tortfeasor and received compensation in the amount of $15,000. The insured policyholder refused arguing that although she reached a settlement agreement, the compensation she received did not make her whole. Under the madewhole doctrine, which applies to reimbursement claims under Ark. Code Ann. 23-89- 207, an insurer is only entitled to subrogation if the insured has been fully made whole for losses sustained in an accident. The court found that a genuine issue of material fact - whether the insured was made whole by her settlement existed and thus remanded for determination of the same. S. Farm Bureau Cas. Ins. Co. v. Easter, 287 S.W.3d 537 (Ark. 2008). Insurance Exclusions not Void against Public Policy. Three individuals were injured in a car accident caused by insured while he was fleeing from police officers during a high speed chase. The insured was criminally charged for his actions, including a charge for felony fleeing. The injured plaintiffs sued the tortfeasor s insurance company 3

for their injuries. Insurer argued that insured s policy did not cover such injuries due to an exclusion in his policy that denied payment for bodily injuries sustained when the auto is used in the commission of a felony, to elude law enforcement or to resist arrest. Alternatively, the injured plaintiffs argued such an exclusion was void as against public policy under Arkansas s compulsory insurance law. The court ultimately held that the exclusion was permitted, reasoning that the compulsory insurance law was not intended to affect the validity of policy provisions or exclusions. Further, the court reasoned, the Arkansas Insurance Code did not require every type of auto accident be covered by every liability policy and Ark. Code Ann. 27-22-101(a) expressly permitted any exclusions. Finally, because the Code allowed the risk of insured s intentional misconduct to be avoided by insurer and because the legislature did not require no-fault coverage for injuries sustained by innocent third parties in these instances, insurer was not obligated to pay for the injured plaintiffs medical expenses. Kelley v. USAA Cas. Ins. Co., 266 S.W.3d 734 (Ark. 2007). UM Status of Unidentified Driver not Presumed. Plaintiff was involved in a single car accident when an unidentified vehicle allegedly ran his car off the road. Both the driver and passenger sustained injuries. The injured passenger commenced an action against the driver s insurance company and argued that under the driver s policy and her own policy, she was entitled to UM coverage for her injuries. The court held that under the statues of Arkansas, there was no presumption allowing the injured passenger to assert an unidentified driver and vehicle were uninsured. Rather, plaintiff was required to prove that the other vehicle was uninsured. Additionally, the insurance policy s requirement of physical contact was contractually binding, was not a violation of Ark. Code. Ann. 23-89-403 and was not against public policy. Econ. Premier Assurance Co. v. Everhart, 623 F. Supp. 2d 988 (W.D. Ark. 2009). UIM and Umbrella Policies. Plaintiff was involved in a motorcycle accident and sustained physical injuries. The tortfeasor was driving another individual s car, covered by a liability poilcy. Plaintiff received the liability limit of $50,000 under that policy. Plaintiff also received the UIM coverage limits of $100,000 under a policy on his motorcycle. Both the liability and UIM coverages plaintiff received were not enough to compensate forhis damages, thus plaintiff made demand on his second insurance company under a policy that did not initially cover his motorcycle. Plaintiff had, how, however, requested the addition of a Personal Umbrella Liability Policy (PULP) to the policy with this second insurance company, which did cover his motorcycle. When this second insurance company issued the umbrella policy endorsement, the company did not offer UIM coverage to the plaintiff. The endorsement explicitly provided that it would not cover losses involving UM or UIM motorist claims. The issue was whether Arkansas s UIM motorist statute, Ark. Code Ann. 23-80-209, required an insurance company issuing an umbrella policy to offer UIM coverage in 4

conjunction with the policy. More specifically, the issue was whether umbrella insurance was considered automotive liability insurance under the statute. The requirement to offer UIM, under Ark. Code Ann. 23-89-403(a)(3)(B), arose when an insurer offered UM to an insured and they accepted. The plain language of the statute said the offer of UM is not required in conjunction with an umbrella policy. Thus, because UM must be offered to trigger the obligation of offering UIM, an insurer is not obliged to offer UIM coverage when issuing an umbrella policy and umbrella insurance does not fall within the UIM statute. Given this, the insurer was not obligated to offer UIM coverage to the insured. Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 5

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ILLINOIS AUTOMOBILE LITIGATION PROCEDURES AND CASE UPDATES A. Underinsured/Uninsured Defined Underinsured motorist coverage issues arise when the tortfeasor s policy limits are insufficient to cover the damages that result from the accident and is commonly referred to as UIM. Uninsured motorist issues arise when the tortfeasor lacks any insurance coverage and is commonly referred to as UM. In 1970 the Illinois General Assembly passed the Illinois Safety and Family Financial Responsibility Act. 625 ILCS 5/7-201 et seq. This Act requires Illinois motorists to maintain minimum liability limits of $20,000 for bodily injury per person and $40,000 per accident. It also requires minimum limits of $15,000 for property damage. Despite mandated minimum liability coverage, many motorists remain uninsured. This risk is addressed by the Illinois Insurance Code through UM and UIM coverages. Insurers are required to offer UM coverage in the same minimum amounts required by the Illinois Safety and Family Financial Responsibility Law. 215 ILCS 5/143a(1). Insurers are also required to offer UIM and UM coverage in the same amount as the insured purchases for their own liability coverage. 215 ILCS 5/143a-2. UM and UIM coverages must not only be offered, but the coverages must be described to the policyholder before issuing the policy. 215 ILCS 5/143a-2. Failure to properly identify and describe UM and UIM coverage can be the basis for a claim by an insured after an accident that such coverage should be implied by the court. Abram v. United Services Automobile Association, 916 N.E.2d 1175 (Ill. App. 1 st Dist. 2009). Although the UM and UIM coverages must be offered, they can be declined by the policyholder. If these coverages are declined, they must be declined by the policyholder in writing. 215 ILCS 143a-2. In the event the policyholder elects UM coverage, a person insured under the policy who is injured in a qualifying accident by an uninsured motorist will be compensated for their damages up to the amount of the policy's UM coverage. If UIM coverage is in place and the at-fault driver's coverage is insufficient for full compensation, the insured can collect damages suffered in excess of the at-fault driver s liability under the UIM coverage. The injured person's claim will be set off by the amount obtained from the underinsured at-fault driver. 215 ILCS 5/143a-2(4). The Insurance Code also requires all policies to provide that disputes between the insured and the insurer with respect to coverage or the amount of damages be submitted to arbitration. 215 ILCS 5/143a(1). Formerly, policies were silent on the time for making arbitration demands, in which case the 10-year statute of limitations for enforcement of contracts applied to making arbitration demands. Now, however, an 7

increasing number of policies require the arbitration demand to be made within two or four years of the occurrence. Uninsured motor vehicle property damage (UMPD) must also be offered in Illinois. 215 ILCS 5/143a(2). The insurer must offer coverage of actual cash value or $15,000, whichever is less, for property damage to the motor vehicle described in the policy caused by uninsured motorists and hit-and-run vehicles. There is no liability for uninsured motorist property damage if the owner or operator of the at fault uninsured vehicle or hit-and-run vehicle cannot be identified. Although information regarding this coverage must be provided with the initial application or renewal, it need not be provided with subsequent renewal, reinstatement or reissuance. This coverage need not be declined in writing B. Stacking Stacking issues occur when the owner of a vehicle has multiple policies and attempts to combine the limits and applicability of multiple policies to increase the total limit for one accident. Many states have cases that detail whether or not stacking is applicable under certain policies. For example, Missouri commonly allows stacking of UM policies as a matter of public policy. In Illinois, antistacking clauses do not contravene public policy. Grzeszczak v. Illinois Farmers Insurance Co., 659 N.E.2d 952 (Ill. 1995). The Illinois Insurance Code expressly authorizes the use of antistacking provisions in motor vehicle insurance policies: Nothing herein shall prohibit an insurer from setting forth policy terms and conditions which provide that if the insured has coverage available under this Section under more than one policy or provision of coverage, any recovery or benefits may be equal to, but may not exceed, the higher of the applicable limits of the respective coverage, and the limits of liability under this Section shall not be increased because of multiple motor vehicles covered under the same policy of insurance. 215 ILCS 5/143a-2(5) A clear an unambiguous antistacking clause can defeat a plaintiff s claim for stacked benefits even where the plaintiff has paid separate premiums for uninsured motorist coverage for separate cars. Menke v. Country Mutual Insurance Co., 401 N.E.2d 539 (Ill. 1980). Declaration pages of a policy that set out multiple listings of coverage in a column format have been found to be ambiguous and must be interpreted in favor of the insured to allow stacking. Pekin Insurance Co. v. Estate of Goben, 707 N.E.2d 1259 (Ill.App. 1999). 8

C. Subrogation of UM/UIM An insurer paying benefits to an insured under UM coverage is to the extent of such payment entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of the person against any person or organization legally responsible for the property damage, bodily injury or death for which the payment is made. 215 ILCS 5/143a(4). This right is subject to the language of the policy so the right of subrogation can be waived by policy provisions or conditions. Subrogation of amounts paid under UIM coverage is subject to waiver under the Illinois Insurance Code. If the insurer is provided written notice of the insured s intent to settle with the underinsured motorist, the insurer must advance payment of the settlement to the insured within 30 days of the notice in an amount equal to the tentative settlement to preserve its right of subrogation. 215 ILCS 5/143a-2(6). D. Med Pay and PIP Coverage and Subrogation Medical Payments (Med Pay) coverage under an automobile insurance policy pays for the medical expenses of an insured and his/her passengers after an accident. Med Pay will pay no matter who is at fault but may include a right of subrogation for the insurer if someone else is at fault. Personal Injury Protection (PIP) coverage pays benefits for medical expenses and lost wages incurred by the insured and his/her passengers injured in an accident. Illinois operates under a traditional tort liability system with no limitations on the right to sue negligent third parties. Med Pay coverage exists but PIP coverage, usually associated with no fault systems, is generally not available. The insurer which pays its insured Med Pay benefits has a right of reimbursement and/or subrogation if it is provided for in the policy language. Bernardi v. Home & Automobile Ins. Co., 212 N.E.2d 499 (Ill.App. 1965). The right to reimbursement of Med Pay benefits can be subject to reduction under the common fund doctrine. The common fund doctrine allows a party that creates a fund from which others benefit to seek reimbursement from those other parties. Illinois courts recognize the equitable principle of the common fund doctrine. Baier v. State Farm Ins. Co., 361 N.E.2d 1100 (Ill. 1977). The general requirements for applying the common fund doctrine are: 1) the fund for which fees are sought was created as a result of legal services performed by the plaintiff s attorney; 2) the claimant of the fund did not participate in its creation; and 3) the claimant will benefit from the fund. Taylor v. State Universities Retirement System, 560 N.E.2d 893 (Ill. 1990). 9

As applied in automobile subrogation, the plaintiff s attorney creates the common fund from which the plaintiff/insured is paid and from which the plaintiff/insured reimburses the insurer. If the common fund doctrine applies, the plaintiff s attorney is entitled to compensation from the monies recovery in favor of the insurer and therefore the insurer s recovery from the common fund is offset by the plaintiff s attorney s fees and costs in creating the fund. An insurer may avoid application of the common fund doctrine by sending a letter stating the insurer s intention to seek collection of the subrogated amount on its own, making it an unwilling recipient of payment from a common fund. Tenney v. American Family Mutual Insurance Co., 470 N.E.2d 6 (Ill.App. 4 th Dist. 1984). Such letters are commonly referred to as a Tenney letter. More recent court decisions indicate that in addition to simply sending a letter, the insurer likely must also follow up and participate in creating the fund. Taylor v. American Family Insurance Group, 725 N.E.2d 816 (Ill.App. 5 th Dist. 2000). These decisions often look for meaningful participation by the insurer which might include seeking arbitration with the tortfeasor s carrier or intervening in an action filed by the insured. E. Contract Interpretation An insurance policy is a contract, and the general rules of contract construction apply. Hobbs v. Hartford Insurance Co., 823 N.E.2d 561 (Ill. 2005). A court will attempt to determine and give effect to the intention of the parties as expressed in the policy language. Unambiguous policy language will be applied as written unless it violates public policy. Policy terms that limit an insurer s liability will be liberally construed in favor of coverage, but only if the policy is ambiguous. Ambiguity exists in an insurance contract if the language is subject to more than one reasonable interpretation. A court will not strain to find ambiguity where none exists. If two or more clauses within the policy conflict or are inconsistent, then the clause affording greater coverage will govern. Yates v. Farmers Automobile Insurance Ass n, 724 N.E.2d 1042 (Ill. 2000). F. Additional Issues Recovery of insured s deductible. If the deductible amount is included in the subrogated claim, the insurer must pay the insured a full pro rata deductible share out of the net recovery of the subrogated claim. Administrative expenses of the insurer cannot be deducted from the gross recovery, only incurred expenses such as attorney s fees and collection fees. 215 ILCS 5/143b. G. Case Law Update Johnson v. Davis, 883 N.E.2d 521 (Ill. App. 1 st Dist. 2007). The court found an automobile insurance policy was ambiguous and construed the policy in favor of the insured where the policy s antistacking clause stated that the limits of liability shown in the declarations page was the maximum limit of liability and the declarations page then showed liability limits of $50,000 per person and listed those limits four separate times and showed four separate premiums. 10

McElmeel v. Safeco Insurance Co. of America, 851 N.E.2d 99 (Ill. App. 2006). Plaintiffs brought a declaratory judgment action against the insurer seeking to stack UM coverage for three vehicles. The declarations pages of the policy set out multiple listings of coverage in a column format in the manner which have been found to be ambiguous and must be interpreted in favor of the insured to allow stacking. However, the Court found that the ambiguity in the declarations pages and the antistacking clauses that incorporated them was resolved by the unambiguous other insurance clause which provided as follows: a. For Uninsured Motorist Coverage only: If there is other applicable similar insurance available under more than one policy or provision of coverage: 1) Any recover for damages for bodily injury sustained by an insured may equal but not exceed the higher of the applicable limit for any one vehicle under this insurance or any other insurance. Abram v. United Services Automobile Association, 916 N.E.2d 1175 (Ill. App. 1 st Dist. 2009) Representative of estate brought action seeking court declaration that UM coverage could be stacked following collision with uninsured motorist which killed husband and wife. Decedents had a single policy which covered two vehicles with different coverages. One of the policies did not include UM coverage. Plaintiff argued that the insurer failed to offer UM coverage on the second vehicle and therefore such coverage is implied in an amount equal to the liability coverage and further argued that stacking between the two coverages should be allowed when two covered parties are killed in one accident with an uninsured driver. The Appellate Court did not address the argument that UM coverage would be implied. Instead, it found that stacking was clearly prohibited, making implication of additional UM coverage moot. The Court found that Johnson v. Davis (above) provided no support for plaintiff s argument as there was not a separate premium charged for UM coverage for both vehicles. The Court also found that even if the declaration pages and antistacking clauses created ambiguity, that ambiguity was resolved by the other insurance clause as in McElmeel v. Safeco Insurance Co. (above). Pajic v. Old Republic Insurance Company, 2009 Ill. App. Lexis 951 (1 st Dist. 2009) Plaintiff was involved in hit and run auto accident with an unknown vehicle while driving a truck for his employer. Plaintiff filed a declaratory judgment action seeking a finding that the insurer failed to provide an adequate description of UM and UIM coverage to his employer (the policyholder) prior to issuing the policy. The court began by recognizing that the Insurance Code provision at issue was amended in 1990 to remove reference to the offer and replace it with brief description. Cases decided under the earlier version of the statute required an insurer 11

to make an offer in a commercially reasonable manner and to advise the insured that such coverage was available for modest premium increase. The court found such an analysis does not apply to the 1990 Insurance Code version of the statute. Instead, this version merely requires an insurer to provide a brief description of UM and UIM coverage before issuing a policy and the insurer in this case presented uncontroverted evidence of complying with this requirement. Schultz v. Illinois Farmers Insurance Co., 901 N.E.2d 957 (Ill. App. Ct. 2009) This was a consolidated appeal of two cases. Both cases involved policies in which the definition of insured differed between UM and UIM coverage. The court recognized that the Illinois Insurance Code requires UIM coverage to be equal to UM coverage and finds the variance in definition of insured between UM and UIM coverage violates this requirement. Under Illinois law, once the parties to the insurance contract set the definition of insured it must apply uniformly to liability, UM and UIM coverage. Progressive v. Kocher, 932 N.E.2d 1094 (2010) The minor was riding as a passenger on an all-terrain vehicle (ATV). The minor's brother was driving a motorcycle. The motorcycle and the ATV collided. The minor sustained serious injuries. Both vehicles were covered under an insurance policy issued by the insurance company. The policy also covered a third vehicle, another motorcycle, that was not involved in the collision. A policy section titled "Limits of Liability" stated that the limit of liability shown on the "Declarations Page" was the most the insurance company would pay. The "Declarations Page" itself stated that the policy limits shown could not be combined with the limits for the same coverage on another vehicle. The insurance company filed a declaratory judgment action seeking a declaration that its bodily injury liability limit was that for a single vehicle. The appellate court found that the policy limited traditional stacking of coverage, but also determined that an ambiguity existed permitting the coverage limits of each vehicle involved in the collision to be available for recovery, regardless of whether another covered vehicle was or was not involved. Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 12

KANSAS AUTOMOBILE LITIGATION PROCEDURES AND CASE UPDATES A. Underinsured/Uninsured Defined Underinsured motorist coverage issues arise when the tortfeasor s policy limits are insufficient to cover the damages that result from the accident and is commonly referred to as UIM. Uninsured motorist issues arise when the tortfeasor lacks any insurance coverage and is commonly referred to as UM. The Kansas Legislature has provided a two-step analysis to determine whether or not underinsured motorist coverage is available. See. K.S.A. 40-284(b). The adverse party s coverage must be below the claimant s liability coverage and the plaintiff must have damages in excess of the opposing party s liability coverage. As you can see, a determination must be made as early as possible to determine whether or not UIM is applicable. The Kansas Courts have liberally construed this statute to ensure that innocent persons damaged by tortfeasors who can t provide compensation due to their lack of appropriate coverage. Kansas law mandates that any UM coverage issued by an insurance company must also include UIM. (Missouri does not have a statutory requirement). However, Kansas does allow policies to exclude instances of applicable UIM. K.S.A. 40-284(e) specifically allows the exclusion of: 1. When the insured is occupying or struck by an uninsured automobile or trailer owned or provided for the insured's regular use; 2. when the uninsured automobile is owned by a self-insurer or any governmental entity; 3. when there is no evidence of physical contact with the uninsured motor vehicle and when there is no reliable competent evidence to prove the facts of the accident from a disinterested witness not making claim under the policy; 4. to the extent that workers' compensation benefits apply; 5. when suit is filed against the uninsured motorist without notice to the insurance carrier; and 6. to the extent that personal injury protection benefits apply. It is important to remember that UIM/UM benefits only apply to bodily injury, not property damages. Thus, the exclusions for workers compensation benefits and PIP benefits. B. Stacking Stacking issues occur when the owner of a vehicle has multiple policies and attempts to combine the limits and applicability of multiple policies to increase the total limit for one accident. Many states have cases that detail whether or not stacking is applicable under certain policies. For example, Missouri commonly allows stacking of UM policies as a matter of public policy. 13

The Kansas Legislature has ended any debate over whether or not stacking is allowable through the enactment of K.S.A. 40-284(d). The language clearly states that coverage is limited in total to the highest limit of a single applicable policy. C. Contract Interpretation A majority of litigation surrounding UIM/UM issues involves interpretation of the policy language. What is commonly referred to as Kansas Financial Responsibility Laws are formally known in Kansas as the Kansas Automobile Reparations Act. See K.S.A. 40-3101 et seq. Currently, the minimum limits are $25,000 per person, $50,000 per accident and $10,000 property. See K.S.A. 40-3107(e). As with a majority of litigated issues, the definitions in the policy will be a significant issue in the determination of benefits. How the policy defines such terms as uninsured motor vehicle and insured are important. One example of how this contract language can be relevant is the specific definition of an uninsured motor vehicle to include or not include a phantom vehicle. An important question the Courts will examine when reviewing a policy s provisions on a phantom vehicle is whether or not the language is a condition for payment or excluded. A condition for payment could be waived, but the wavier of that condition would not expand the policy s coverage for an excluded act. D. Additional Issues The decision whether or not to intervene in the insured s action against the tortfeasor can be a critical decision. Failure to intervene can act as a waiver of subrogation rights under K.S.A. 40-284(f). See Bartlett v. CAN, 33 Kan.App.2d 519 (2005). Additionally, the failure to intervene could result in the Insurance Carrier being bound by the judgment. An insurer can require consent to any settlement the insured reaches with the tortfeasor, if the matter does not ultimately end up in formal litigation. However the Courts will prohibit the carrier from unreasonably withholding its consent. The basis for this provision is that the purpose of the consent clause is to protect the carrier s subrogation interest and not to be used as a tool to void coverage based on failure to obtain consent E. Case Law Update Moses v. Halstead, 581 F.3d 1248 (10th Cir. 2009). A car accident which occurred in Missouri involved a vehicle driven by a Kansas resident and insured by a policy issue in Kansas. The passenger in the car filed a case against the driver/insured in Missouri resulting in a judgment of $100,000. The insurance company refused to settle the Missouri case, but paid the policy limits of $25,000. The passenger obtained an order of garnishment against the insurer in Kansas, and filed suit in Missouri for bad faith refusal to settle. 14

In determining whether Kansas or Missouri law governed the case, the Tenth Circuit held that when a question is raised about the substance of a contractual obligation, the law of the state in which the contract was made applies. When a question is raised about performance of a contractual obligation, the law of the state where performance occurred governs. Because the contract was made in Kansas and the refusal to settle occurred in Kansas, Kansas law governed the case. Additionally, under Kansas law, the court held that the passenger did not need to obtain an assignment from the insured before requesting garnishment from the insurance company. Hudson v. State Farm Mutual Auto Ins. Co., 2009 U.S. Dist. LEXIS 91401 (D. Kan.). In this case, the insured was rear-ended by a negligent driver and pushed into another negligent driver. One of the vehicles fled the scene of the accident. The plaintiff sued the known tortfeasor, but failed to name the phantom driver or the insurance company in the suit. Liability was assessed against the named driver and the phantom driver. The plaintiff then sought uninsured motorist benefits from her insurance company due to the liability of the phantom driver. The issue was whether the insurance company should be bound by the underlying judgment or given an opportunity to litigate the issues of fault. The court held that generally an insurer who receives notice of a suit must intervene or is bound by the judgment. In Kansas, the only options for a plaintiff to provide notice to the insured providing UM benefits are as follows: He may file an action directly against the uninsured motorist liability carrier without joining the uninsured motorist as a party defendant; he may file an action joining both the insurer and the uninsured motorist as party defendants; or he may file an action against the uninsured motorist alone without joining the insurer as a party defendant. In each of these options he may litigate all of the issues of liability and damages. Winner v. Ratzlaff, 211 Kan. 59, 65, 505 P.2d 606, 611 (1973). Because notice was not provided by one of these three methods, the insurer was not bound by the judgment. State Farm Mutual Auto Ins. Co. v. Oursler, 2008 U.S. Dist. LEXIS 97785 (D. Kan.). The District Court was faced with a conflict of laws question dealing with stacking UIM benefits. The insured, who was insured in Kansas, was hit by a negligent driver in Missouri. The insured had multiple policies in Kansas and wanted to stack them to maximize UIM benefits. The insurance policy prohibited stacking, as does Kansas statutory authority. In Missouri, stacking of UM benefits is generally allowed, and UIM benefits are generally treated the same. The court held that Kansas law controls, and therefore the insured could not stack benefits. Additionally, the Missouri statute which mandates stacking only applies to vehicles registered or housed in Missouri. Marshall v. Mayflower Transit, Inc., 249 Kan. 620 (1991)(accident reconstruction testimony). A multi-vehicle accident on the Kansas Turnpike prompted a family to file a wrongful death and survival action. The main issue at trial was percentage of fault attributable to the drivers involved. Defendant Mayflower hired an accident reconstruction expert to offer the opinion that Mayflower was driving slow and caused minimal damage to 15

decedent s vehicle. The accident reconstructionist was not permitted to testify at trial because the court found his opinions were not beyond the common knowledge of ordinary persons. Several witnesses testified about weather, road conditions, relative speed of vehicles, and which cars hit which other cars. Because there were a lot of witnesses to the accident and many photographs and testimony about the accident, a jury could determine without an expert who was at fault. Hiring accident reconstruction specialists may be helpful to determine how an accident happened when there are few or no witnesses, but the expert s opinions may not be admitted at trial if there is ample testimony and other evidence setting forth the scene of the accident. Roberts v. Printup, 2008 U.S. Dist. LEXIS 53254 (D. Kan.)(bad faith). Passenger injured in automobile accident sent letter to insurance company demanding policy limits within 10 days due to approaching statute of limitations to file suit against the driver. The letter was carelessly mailed by the insurance company to three different offices and the 10 days passed. The passenger filed a lawsuit and the insurance company offered to pay the policy limits before service of process had been made. The passenger refused the offer and obtained a $1 million judgment, then brought a bad faith claim against the insurance company. The factors in Kansas for finding bad faith include: strength of the liability claim, attempts by insurer to induce insured to contribute to settlement, insurer s failure to properly investigate, insurer rejection of legal advice, failure to inform insured of offer, amount of exposure, fault of insured in inducing insurer to reject offer, etc. Insurer has no duty to negotiate settlement until it receives notice of the liability claim. In this case, the court found that there was no causal link between the insurer s conduct and excess liability to insured. To find otherwise would encourage plaintiff s to rack up damages and excess liability in order to recover more than the policy limits. Tilley v. Allied Prop. & Cas. Ins. Co., 33 Kan. App. 2d 923 (2005)(UIM coverage). Injured party in automobile accident sought to collect UIM limits under his own policy by attempting to claim that the tortfeasor s policy had lower limits. The tortfeasor s policy had a total policy limit of $500,000, but contained provisions stating that under Kansas law, the policy provided bodily injury limits of $25,000/person and $50,000/accident. The court determined that the specific provision was merely to demonstrate compliance with Kansas law, and did not alter the total policy limit of $500,000. Because the tortfeasor s $500,000 limit was not less than the injured party s UIM coverage, the injured party could not collect under his own policy. Stemple v. Maryland Casualty Co., 282 Kan. 405 (2006)(UIM and work comp). An employee was injured in an automobile accident in the course and scope of his employment. He received workers compensation benefits from his employer s workers compensation carrier. He also received a settlement from the tortfeasor and reimbursed the workers compensation carrier s subrogation interest. 16

The Kansas Supreme Court certified the question of whether the workers compensation exclusivity provision precludes an injured employee from seeking UIM coverage from his employer s insurer. The court determined that an injured employee may collect the workers compensation and also seek UM/UIM coverage from the employer s insurance company. The exclusive remedy for workers compensation only protects the employer and other employees, not the employer s insurer. Fiorella v. Travelers Property Casualty Ins. Co., 36 Kan. App. 2d 597 (2006)(umbrella policy coverage and UM/UIM). The plaintiff sustained injuries in a car accident due to the fault of a high school student, who was insured under an auto insurance policy with a liability limit of $100,000. The plaintiff had UIM limits of $400,000. His damages exceeded $500,000 and he sought to get benefits from his umbrella insurance policy which was silent as to UM/UIM benefits. The plaintiff argued that K.S.A. 40-284 requires UIM coverage in an umbrella policy. The Court held that the statute excluded both mandatory UM and UIM coverage in umbrella policies. There mere fact that liability coverage dovetailed with the plaintiff s auto policy so as not to create a doughnut hole in the continuum of his liability coverage was insufficient to support that the umbrella policy provided ongoing UIM coverage once his auto policy limits had been exhausted. Howard v. Farmers Insurance Co., 5 Kan. App. 2d 499 (1980)(subrogation). The decedent died in a car accident and his wife received payment from the insurer for funeral and survivor benefits. The wife settled with the tortfeasor and the insurer sought reimbursement. The policy provided no recovery to the insurer for survivor and funeral benefits, which was in accord with Kansas law when the policy was issued. The policy also stated that any provision inconsistent with Kansas law should be read to conform with Kansas law. The legislature changed the law to allow insurer s to receive reimbursement for survivor and funeral benefits. The court stated that generally insurance policies cannot limit rights of the insured created by statute, but may limit the rights of the insurer to provide more coverage. The court held that the two provisions created an ambiguity which should be resolved in favor of the insured. Farm Bureau Mutual Ins. Co. v. Progressive Direct Ins. Co., 40 Kan. App. 2d 123 (2008). Following a car accident, the injured party negotiated a settlement with the tortfeasor s insurer for the policy limits. Pursuant to K.S.A. 40-284, the injured party notified his own insurer, Farm Bureau. Farm Bureau elected to substitute its payment in place of the tortfeasor s insurer in order to become subrogated to the injured party s right of recovery against the tortfeasor. Over two years later, Farm Bureau claimed reimbursement from the tortfeasor s insurer and was denied because the statute of limitations on the underlying claim had expired. 17

Farm Bureau claimed that its right was based on statute, contract, or equity, each of which has a longer limitations period than tort claims. In subrogation, the insurer only subrogates to the rights of the insured. Therefore, because the insured s claim was in tort, the insurer s subrogation right is subject to the tort limitations period. Additionally, the statute does not give an insurer any contractual right to enforce the underlying settlement offer. There was also no underlying contract because the injured party never accepted the settlement offer from the tortfeasor s insured, as he instead took payment from Farm Bureau. Finally, the court determined there was no equitable right to subrogation because the doctrine of equitable subrogation cannot be used to relieve the insurer who failed to exercise ordinary care to protect its own interests. Based on the foregoing, Farm Bureau s claim was barred by the statute of limitations. Russell v. Farmers Ins. Co., Inc., 163 P.3d 1266 (Kan. App. Ct. 2007). Plaintiff was injured when he fell outside a store allegedly trying to avoid an unidentified vehicle. The policy provided UM coverage for hit-and-runs with or without physical contact. The policy further provided that if there was no physical contact, the accident must be verified by another person not involved in the accident. Farmers denied plaintiff s claim without waiving any defenses. Plaintiff responded in an interrogatory that he did not know of any disinterested witness at that time. Farmers responded in discovery that it had a defense because its investigation failed to uncover any independent witness. Farmers moved for dismissal, but was denied because the trial court determined it had waived its defense for failing to notify plaintiff of the policy defense. The issue was whether the disinterested witness provision was a contractual condition of payment or an exclusion to coverage. Generally, an insured s failure to comply with a policy condition may be waived, but generally waiver and estoppel will not expand a policy s coverage. The distinction is made because when a policy exclusion is involved, there is no forfeiture of coverage because there was never any protection in the first place. K.S.A. 40-284(e) permits an insurance policy to limit or exclude UM coverage when there is no disinterested witness present at a hit-and-run without physical contact. The Court found that the disinterested witness provision was an exclusion, rather than a condition for payment. As such, Farmer s did not waive its right to this defense for failure to notify the plaintiff. Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 18

MISSOURI AUTOMOBILE LITIGATION PROCEDURES AND CASE UPDATES A. Underinsured/Uninsured Defined Underinsured motorist coverage issues arise when the tortfeasor s policy limits are insufficient to cover the damages that result from the accident and is commonly referred to as UIM. Uninsured motorist issues arise when the tortfeasor lacks any insurance coverage and is commonly referred to as UM. The Missouri Legislature mandates that motorists in Missouri are required to maintain minimum liability limits for bodily injury of $25,000 per person and $50,000 per accident. Mo. Rev. Stat. 303.190 (2010).The statute also requires minimum limits of $10,000 for property damage. Id. Despite mandated minimum liability coverage, many motorists remain uninsured. The state of Missouri has addressed this issue by requiring all automobile insurance policies to include uninsured motorist (UM) coverage equal to the established minimum liability limits of $25,000 per person and $50,000 per accident, or more if they so choose. Mo. Rev. Stat. 379.203 (2010). The underlying purpose of this statute is to establish minimum levels of protection equivalent to the liability coverage an insured would have collected had the insured s accident been with an insured tortfeasor. Rice v. Shelter Mut. Ins. Co., 301 S.W.3d 43, 46 (Mo. 2009). Alternatively, and unlike many states (such as Kansas), the Missouri Legislature does not mandate underinsured motorist (UIM) coverage. Ritchie v. Allied Prop. & Cas. Ins. Co., 307 S.W.3d 132 (Mo. 2009). While UIM coverage is not required in Missouri, the insured and insurer are certainly free to contract for such coverage in their policy. Id. In the event an individual insured under the policy is injured in an accident with an uninsured motorist, the insured would be entitled to UM coverage up to the statutory minimum amount or greater if so contracted in the policy. Jones v. Mid-Century Ins. Co., 287 S.W.3d 687, 692 (Mo. 2009). If UIM coverage is in place and the at-fault driver s coverage is insufficient for full compensation, the insured can collect damages suffered in excess of the at-fault driver s liability under the UIM coverage. Id. Any amount obtained from the underinsured at-fault tortfeasor will be deducted from the available limits of UIM coverage or the insured s damages, whichever amount is less. Id. It is important to remember that in some states, such as Missouri, mandatory UM benefits only apply to bodily injury, not property damages. Mo. Rev. Stat. 379.203. Parties may, however, also contract their policies to include property damages as they so choose. B. Stacking Stacking issues occur when the owner of a vehicle has multiple policies and attempts to combine the limits and applicability of multiple policies to increase the total limit for one 19

accident. Many states have cases that detail whether or not stacking is applicable under certain policies. For example, Kansas disallows the stacking of policies. In Missouri, stacking of policies is clearly allowed for UM coverage. Blake v. Farmers Ins. Co., 2010 U.S. Dist. LEXIS 29701, at *11 (E.D. Mo. 2010). Insurers are prohibited from precluding stacking of UM coverages in the language of the policy. Ritchie v. Allied Prop. & Cas. Ins. Co., 307, S.W.3d 132 (Mo. 2009). In fact, under Mo. Rev. Stat. 379.203, policy provisions purporting to prohibit UM stacking violates public policy. Bauer v. Farmers Ins. Co., 270 S.W.3d 491, 494 (Mo. Ct. App. 2008). Further, where an insurance policy treats UIM and UM coverage the same, Missouri also allows for the stacking of UIM coverage. Id. C. Subrogation An insurer paying benefits to an insured under UM coverage is, to the extent of such payment, entitled to the proceeds of any settlements or judgment resulting from the exercise of any rights of recovery of such person against any person or organization legally responsible for the bodily injury for which such payment is made Mo. Rev. Stat. 379.203.4 (2010). D. Med Pay and PIP Coverage and Subrogation Medical Payments (Med Pay) coverage under an automobile insurance policy pays for the medical expenses of an insured and his/her passengers after an accident. Med Pay will pay no matter who is at fault but may include a right of subrogation for the insurer if someone else is at fault. Personal Injury Protection (PIP) coverage pays benefits for medical expenses and lost wages incurred by the insured and his/her passengers injured in an accident. Missouri operates under a traditional tort liability system with no limitations n the right to sue negligent third parties. Neither PIP nor Med Pay is required in Missouri, but both are available. The insurer which pays its insured Med Pay benefits does not have right of reimbursement and/or subrogation because a personal injury cause of action is not assignable in Missouri. Forsthove v. Hardware Dealers Mut. Fire Ins. Co., 416 S.W.2d 208 (Mo. Ct. App. 1966). E. Contract Interpretation A majority of litigation surrounding UM and UIM issues involves interpretation of the policy language. When construing insurance policy terms, Missouri looks to the meaning an ordinary person would attach. Jones v. Mid-Century Ins. Co., 287 S.W.3d 687 (Mo. 2009). Absent ambiguity, insurance policies should be enforced pursuant to their terms. Id. Language that is reasonably subject to different constructions is ambiguous. Id. An 20

ambiguity is also present when a contract both promises something and takes it away at different places. Id. Ambiguities in policy language must be construed against the insurer and resolved in the insured s favor. Id. Conflicting policy clauses are to be reconciled as far as reasonably permitted by their language, but when reconciliation fails, inconsistent provisions will similarly be construed in the favor of the insured. Id. F. Additional Issues The decision of whether or not to intervene in the insured s action against the tortfeasor is critical. When a policyholder has allegedly been injured by the negligence of an uninsured motorist, the UM insurer reserves an absolute right to intervene in such action. Nervig v. Workman, 285 S.W.3d 335 (Mo. Ct. App. 2009). Missouri law is wellsettled that a UM insurer is estopped from relitigating liability and damage issues once resolved in the underlying lawsuit if they were given adequate notice of the claim and an opportunity to intervene in the action. Id. G. Case Law Update Bauer v. Farmers Ins. Co., 270 S.W.3d 491 (MO. Ct. App. 2008) Conflict of Laws Regarding Stacking. Plaintiff insured, a Kansas resident, was involved in an auto accident in Missouri. The insurer, applying Kansas law which expressly prohibits UM and UIM coverage stacking, initially denied payment. Finding for insureds, the court reasoned that where the insured s home state (Kansas) does not have a fundamental policy against UM and UIM coverage stacking that is required to be followed under conflict of laws principles, it is reasonable for parties to contract the policy such that a stacking issue would be governed by the state of occurrence. The insureds were ultimately allowed to stack their UIM coverages upon receiving the benefit of determination that Missouri law applied. Johnson v. Allstate Ins. Co., 262 S.W.3d 655 (Mo. Ct. App. 2008) Bad Faith. Plaintiffs were severely injured in an automobile accident and sent a demand letter to the tortfeasor s insurance company, requesting policy limits within 60 days. No response was received within the timeframe provided for in the demand letter. Upon entering into an assignment and settlement agreement for the underlying action, the original plaintiffs and tortfeasor filed suit against Defendant insurance company for bad faith refusal to settle. The factors for finding bad faith in Missouri include the insurer s: 1) failure to fully investigate and evaluate third-party claimant s injuries; 2) failure to recognize severity of third-party claimant s injuries and probability of a verdict exceeding policy limits; 3) failure to properly respond to demand letter; 4) refusal to consider settlement offer; and 5) failure to properly advise the insured, specifically of possible excess judgment or available settlement offers. 21

The circuit court ultimately entered a $5.8 million compensatory damages and $10.5 million punitive damages judgment against the insurer, finding that the insurer acted in bad faith. Accurso v. AMCO Ins. Co., 295 S.W.3d 548 (Mo. Ct. App. 2009). Conflict of Laws. Plaintiff insured sustained serious injuries following an accident with an underinsured motorist in Missouri. Plaintiff, separated from her husband, was residing in Kansas. Plaintiff s husband was residing in Missouri and changed the address on the policies from Kansas to Missouri. When the parties have not agreed on a choice of law, the following contacts should be taken into account to determine which state has the most significant relationship : (1) the place of the contracting, (2) the place of negotiation of the contract, (3) the place of performance, (4) the location of the subject matter of the contract, and (5) the domicile, residence, nationality, place of incorporation and place of business of the parties. These contacts should be considered in conjunction with the choice of law principles found at 188 of the Restatement (Second) Conflict of Laws. The court determined that Missouri law applied because a Missouri address was listed as the principal location for the covered vehicles. Above any other contact, the location of the insured risk was given the greatest weight. The location of the insured risk is considered the state where the vehicle will be garaged during the major portion of the insurance period. Regardless of an alternate garaging location in Kansas in the case at bar, Missouri was contemplated by the parties as the principal location for the insured risk and the laws of that state governed. Rice v. Shelter Mut. Ins. Co., 301 S.W.3d 43 (Mo. 2009) Ambiguity of Insurance Policy. The insured was involved in an auto accident when an uninsured tortfeasor collided with insured s truck. The insured was on the job at time of the accident and received workers compensation benefits for his injuries. Three insurance policies, purchased by the insured s parents, were in effect at the time of the accident and the insured was covered by the UM coverage of all three. The insurer refused to pay the full UM coverage based on the insured s receipt of work comp benefits and the exclusionary language found in the policies. Instead, the insurer paid $25,000 per policy based on the language of Mo. Rev. Stat. 379.203, which purported to reduce UM coverage to the statutorily mandated minimum. The court held that the policies were ambiguous, thus entitling the insured to full coverage. Specifically, the policy granted full coverage to all provisions exceeding the statutory minimum in one provision and placed an express limitation on coverage to the statutory minimum in another provision. Granting and limiting coverage in different 22

provisions of an insurance policy, making such provisions inconsistent and irreconcilable, creates an ambiguity that should be resolved in favor of the insured. Adams v. King d/b/a T.K. Stucco, 275 S.W.3d 324 (Mo. Ct. App. 2008) Out-of-State Motorist and UM. Insured s wife and two children were involved in an auto accident with tortfeasor; insured s wife died as a result and the children were injured. At the time of the accident, insureds had three policies issued by insurer, all of which contained UIM coverage with combined limits of $100,000/person and $200,000/accident. The tortfeasor was a resident of Louisiana, his vehicle was principally garaged in Louisiana and the policy covering the auto had been issued and delivered in Louisiana. Tortfeasor s policy purported to provide bodily injury liability coverage of $10,000/person and $20,000/occurrence. Said policy had an additional provision that stated it would provide the minimum amount and type of coverage required by law for accidents in any other state, should the accident occur in any state other than where the covered auto is principally garaged (in this case, Louisiana). Insureds sued their own insurer under the UM provision of the policies, arguing the tortfeasor did not have the financial responsibility minimum insurance required by Missouri law and thus he was an uninsured motorist. Alternatively, the insurer argued the tortfeasor s should not be considered uninsured, thus entitling the insureds to UM benefits, because the tortfeasor insurance company offered to provide benefits equivalent to that required by Missouri s financial responsibility law. The court held that based on the plain language of the relevant Missouri statutes, the tortfeasor was not required to have, nor the insurer required to pay, the financial responsibility minimums of Missouri and the fact that the insurer offered to pay such minimums does not override the policy language. Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 23

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NEBRASKA AUTOMOBILE LITIGATION PROCEDURES AND CASE UPDATES A. Underinsured/Uninsured Defined Uninsured motorist issues, commonly referred to as UM, arise when the tortfeasor lacks any insurance coverage. UM coverage arises when the tortfeasor is unknown, the tortfeasor lacks insurance coverage, the tortfeasor s insurer denies coverage, or the liable insurer becomes insolvent within four years. Neb. Rev. Stat 44-6405. Underinsured motorist issues, commonly referred to as UIM, arise when the tortfeasor s policy limits insufficiently cover damages resulting from the accident. Neb. Rev. Stat. 44-6406. To operate a vehicle in Nebraska, the driver must carry a minimum automobile insurance policy. The minimum automobile insurance policy covers $25,000 in bodily injury for one person, $50,000 for two or more people, and $25,000 worth of property damage. Neb. Rev. Stat. 60-310. Under, Neb. Rev. Stat. 44-6408, automobile liability insurers must also provide UM coverage for vehicles principally garaged in Nebraska. UM benefits apply to bodily injury, sickness, disease, or death, but not property damage. Section 6408(1) provides that a physical injury policy must, at a minimum, provide $25,000 in UM coverage for one injured person, and $50,000 in coverage for two or more persons. The insurer must also provide UIM coverage at the same minimum coverage level. The UM/UIM insured, however, may request greater UM/UIM coverage, up to a maximum of $100,000 per person, and $300,000 per accident. 44-6408(2). Nebraska law does not allow the insured to reject UM or UIM coverage. Under the UM/UIM policy, the insurer pays the insured for the damages sustained by the UM/UIM insured for bodily injury, sickness, disease, or death minus the amount in damages paid on behalf of the tortfeasor. Neb. Rev. Stat. 44-6409. If that amount exceeds the UM/UIM policy limit, however, the UM/UIM insurer need only pay the policy limit. In Nebraska, payments made by the tortfeasor do not reduce the agreed upon liability limit. Id. Regardless of liability payments by the tortfeasor, the UM/UIM insurer remains liable up to the UM/UIM policy limit. Nebraska law, however, excludes UM coverage under certain circumstances. A vehicle is not covered by a UM/UIM policy if: 1. The vehicle is self-insured, 2. The vehicle is owned by any government, political subdivision, or agency thereof, or 3. The vehicle is used as a residence or premises rather than as a vehicle. Neb. Rev. Stat. 44-607. 25

An injury is not covered by a UM/UIM policy if: 1. The insured settled or received judgment in the case without the consent of the UM/UIM insurer, unless the insured notifies the insurer it has settled for the tortfeasor s policy limit; 2. The insured was driving a vehicle not insured by himself, his spouse, or a relative living in the insured s house; 3. The insured is injured while occupying a vehicle to transport people and/or goods for hire; 4. The insured is injured after being struck by a vehicle that either he, his spouse, or a relative living in the insured s house owns; 5. The insured has allowed the statute of limitations to run on his cause of action against the tortfeasor. Neb. Rev. Stat. 44-6413 Nebraska also notes, under section 44-6413, that the definition of insured for the purpose of UM/UIM coverage includes any person occupying the insured motor vehicle with the express or implied permission of an insured. B. Stacking Stacking issues occur when the owner of a vehicle holds multiple policies and attempts to combine the limits and applicability of multiple policies to increase the total limit for one accident. Many states have cases that detail whether or not the stacking of multiple policies is allowed. For example, Missouri commonly allows stacking of UM policies as a matter of public policy. Regardless of the number of vehicles involved, persons covered, claims made, vehicles or premiums shown on the policy, or premiums paid, Nebraska does not allow stacking. Neb. Rev. Stat. 44-6410. Where multiple UM/UIM policies apply, the maximum amount an insured may recover shall not exceed the highest limit of any one such policy. Id. Neb. Rev. Stat. 44-6411 provides the order in which payment is to be made when multiple UM/UIM policies apply. C. Subrogation of UM/UIM To the extent of UM/UIM benefits paid to its insured, the UM/UIM insurer is entitled to proceed against the tortfeasor on behalf of its insured and collect the proceeds of a judgment or settlement. 44-612(1). The insured may not take steps adversely affecting the subrogation rights of the UM carrier. If an insured destroys the insurer s subrogation rights by accepting an adverse settlement or judgment, the insured may not collect UM benefits. 44-613(1)(a). If the insured elects to settle with the tortfeasor for the liability limit of the tortfeasor s insurance policy, the insured must provide his UM insurer with written notice. Within 30 days of this notice, the UM insurer may ensure that such a settlement does not interfere with its subrogation rights by advancing to the insured an amount equal to this proposed 26

settlement. Such a payment is made to the insured in place of the proposed settlement, and protects the UM insurer s subrogation rights as to the tortfeasor. 44-612(2). D. Med Pay and PIP Coverage and Subrogation Personal Injury Protection (PIP) coverage pays benefits for medical expenses, lost wages, and sometimes funeral expenses incurred by the insured and his/her passengers injured in an accident. PIP coverage is typically associated with no fault systems. Nebraska is an at-fault state, and therefore operates under a traditional tort system with no limitations on the right to sue negligent third parties. PIP coverage is therefore not usually provided in Nebraska. Medical Payments coverage under an automobile insurance policy pays for the medical expenses of an insured and his/her passengers after an accident. Medical payment coverage is available in Nebraska. Medical Payment coverage will pay up to the policy limits no matter who is at fault, but may include a right of subrogation for the insurer if someone else is at fault. The insurer which pays medical payment benefits has a right of subrogation if it is provided for in the policy language. Neb. Rev. Stat. 44-3,128.01; Milbank Ins. Co. v. Henry, 232 Neb. 418, 420 (1989). If the insured recovers from the tortfeasor an amount less than his full economic loss, subrogation of medical payments shall only be allowed for medical payments in the same proportion that medical expenses bear to the total economic loss. 44-3,128.01. This provision, however, does not apply if the insured accepts a settlement from the tortfeasor for less than the tortfeasor s policy limit. Id. Such a settlement is considered complete recovery for economic loss. Id. The right to reimbursement of medical payment benefits can be subject to reduction under the common fund doctrine. The common fund doctrine allows a party that creates a fund from which others seek benefit to seek reimbursement from those other parties. In automobile subrogation, the plaintiff s attorney creates the common fund from which the plaintiff is paid, and from which the plaintiff reimburses the insurer. Nebraska recognizes the common fund doctrine. Hauptman, O'Brien, Wolf & Lathrop, P.C. v. Milwaukee Guardian, 7 Neb. App. 60, 67-68 (1998). The common fund doctrine applies: 1. When an attorney expends time and effort in; 2. Creating a common fund in which others are interested, and; 3. The party with the subrogation interest has substantially benefited from the attorney's efforts in creating the fund. Id. If the common fund doctrine applies, the plaintiff s attorney is entitled to compensation from the monies recovered for the insurer. The insurer s recovery is thus offset by the costs and fees incurred by the plaintiff s attorney in creating the common fund. The amount of fees awarded, however, need not correspond with the amount contractually owed to the attorney. State ex rel. Counsel for Discipline v. Wright, 277 Neb. 709, 719 (2009). Instead, the amount of the fee depends on the nature of the services 27

rendered and the general considerations applicable to court awards of attorney fees. Id. E. Contract Interpretation The construction of a contract is a question of law. Thrower v. Anson, 276 Neb. 102, 107 (2008). An insurance policy is a contract, and its terms reveal the scope of the policy s coverage. Rickerl v. Farmers Ins. Exch., 277 Neb. 446, 450 (2008). A court will attempt to determine and give effect to the intention of the parties as expressed in the policy language. If the terms of an insurance contract are clear, then the court need not rely upon rules of construction. Thrower, 276 Neb. at 107. Instead, the court should apply the plain meaning of the words, as an ordinary person would interpret them. Id. Unambiguous policy language will be applied as written unless it violates public policy. Fokken v. Steichen, 274 Neb. 743, 751 (2008). Ambiguity only exists when more than one meaning can be reasonably interpreted from the policy. Rickerl, 277 Neb. at 450. A court will not strain to find ambiguity where none exists. Fokken, 274 Neb. at 751. If the policy terms are ambiguous, however, the insurer s liability is construed in favor of coverage. F. Additional Issues Failure to Intervene: The decision whether or not to intervene in the insured s action against the tortfeasor can be a critical decision for an insurer. Failure to intervene in an action against a third-party tortfeasor, however, does not constitute a waiver of the insurer s subrogation rights in any settlement or judgment attained. Motor Club Ins. Ass'n v. Bartunek, 3 Neb. App. 292, 297 (1995). Recovery of the Insured s Deductible: Insurers must include the insured s deductible in subrogation demands unless the insured requests that it not. Subrogation recovery of the deductible is shared on proportionate basis with the insured unless the insured otherwise recovers the deductible amount. The insurer may not deduct for administrative expenses unless the insurer retains an outside attorney to pursue such collection. 210 Neb. Admin. Code Ch. 60, 009. G. Case Law Update Steffen v. Progressive Northern Ins. Co., 276 Neb. 378, 754 N.W.2d 730 (2008). The insured was killed when he was rear-ended by an underinsured tortfeasor while driving his tractor. The estate of the insured sought to collect UIM benefits from the insurer. The insurer argued that the insured was excluded from benefits by section 44-6413(b) from coverage. Because the tractor was a device of any type designed to be operated on public roads, and was not a covered vehicle under the insurance policy, UIM benefits were excluded. 28

The Nebraska Supreme Court, however, found that the insurer's definition of a farm tractor as a motor vehicle was an attempt to make the exclusion in section 44-6413(b) overly broad. Because Neb. Rev. Stat. 60-501 declares that tractors are not classified as motor vehicles, the exclusion in section 44-6413(b) does not apply. The estate therefore proved that the deceased was an insured under the policy, that he sustained bodily injury in an accident which arose out of the use of an underinsured motor vehicle, and that no exclusions applied. The court therefore allowed the estate to recover UIM benefits. Reimers-Hild v. State, 274 Neb. 438, 741 N.W.2d 155 (2007). The insured was a passenger in a vehicle owned by a state university when she was injured by a collision. The trial court held that, because the insured failed to file suit against the tortfeasor within the four-year statute of limitations, the university s insurer properly denied her request for UIM benefits under 44-613(1)(e). The Nebraska Supreme Court, however, noted that the insured settled its claim with the tortfeasor for the tortfeasor s insurance policy limits prior to the expiration of four years. 44-613(1)(e) was enacted to preserve the insurer s interests when it must pay UM/UIM benefits. Because of the insured settled for the tortfeasor s policy limits after complying with 44-612(2), the insured properly protected the insurer s interests. The trial court therefore erred in holding that the statute of limitations barred the insured from seeking UIM benefits. Van Ert v. State Farm Mut. Auto. Ins. Co., 276 Neb. 908, 758 N.W.2d 36 (2008). The insured was killed by a drunk driver while driving his Nissan, insured by State Farm. The tortfeasor did not maintain a sufficient insurance to cover the insured s injuries. The insured had a $25,000 UIM policy on the Nissan, but also maintained UIM coverage on a Jeep of $100,000 through State Farm. The insured s estate sought to apply the $100,000 limit rather than the $25,000, claiming its right to do so under 44-6411(a). State Farm refused to pay the limit on the Jeep, claiming it only owed the policy limit of $25,000 for the Nissan. The Jeep insurance policy excluded its coverage from extending to other vehicles not included under the Jeep policy. The Nebraska Supreme Court found that this policy provision was not more restrictive than allowed under 44-6413(1)(b). 44-6413(1)(b) could be interpreted to allow an insurance policy to exclude coverage for vehicles owned by the insured, but not covered under "this policy." Such a restriction also does not violate public policy. Rasmussen v. State Farm Mut. Auto. Ins. Co., 278 Neb. 289, 770 N.W.2d 619 (2009). A rescued motorist (RM) veered off the interstate into a ditch. The Plaintiff stopped to assist RM. As the plaintiff assisted, another motorist veered off the road, striking the Plaintiff and causing severe injuries leading to amputation of his left foot. The tortfeasor s vehicle was not insured. The Plaintiff therefore recovered $100,000 in UM benefits from his insurer (State Farm), but also sought UM benefits under RM s UM policy (A State Farm policy in Michigan). Plaintiffs claim that he was an insured under 29

RM s policy, and thus was entitled to recover additional benefits from RM s policy. The plaintiff s wife also sought benefits for loss of consortium. The district court applied Michigan law and granted summary judgment against the plaintiff. The Nebraska Supreme Court concluded that the plaintiff was not entitled to recover under either Nebraska or Michigan law. Neither Nebraska nor Michigan allows insureds to stack UM coverages. The court also dismisses plaintiff s argument that both he and his wife were injured by accident, and were both entitled to $100,000 benefits. Because the wife s loss of consortium claim was a derivative action, only one injury occurred to one person that could be covered by UM benefits. Plaintiff and his wife, therefore, were only entitled to $100,000 total in benefits. Broad v. Randy Bauer Ins. Agency, Inc., 275 Neb. 788, 749 N.W.2d 478 (2008). A driver and passenger were killed in an automobile accident. The driver s estate sued an insurance agency for breach of an agreement to procure requested insurance coverage. As a result of being uninsured, driver had to pay a settlement of $165,000 to the estate of the passenger. The insurance agency claims it is insulated from liability because the driver failed to properly read the policy it procured. The Nebraska Supreme Court recognized a breach of contract action for failure to procure insurance coverage for claims against a broker acting on behalf of an insured. The court, however, did not recognize this cause of action against an agent acting solely on behalf of a disclosed insurer. The court could not determine whether the insurance agency was a broker or an agent, and therefore remanded the case. Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 30

OKLAHOMA AUTOMOBILE LITIGATION PROCEDURES AND CASE UPDATES A. Underinsured/Uninsured Defined Uninsured motorist issues, commonly referred to as UM, arise when the tortfeasor lacks any insurance coverage. Underinsured motorist issues, commonly referred to as UIM, arise when the tortfeasor s policy limits insufficiently cover damages resulting from the accident. In Oklahoma, the term uninsured motor vehicle, also includes underinsured motor vehicles. 36 Okl. St. 3636(c). UM coverage also applies when the insurer cannot make payments on behalf of its insured because of its insolvency. To operate a vehicle in Oklahoma, the driver must carry a minimum automobile insurance policy. The minimum automobile insurance policy covers $25,000 in bodily injury for one person, $50,000 for two or more people, and $25,000 in property damage. 47-7-103. Under section 3636, automobile liability insurers must offer UM coverage as a supplement to, or as part of motor vehicle injury policies. UM benefits apply to bodily injury, sickness or disease, including death, but not property damage. This UM coverage protects the insured, members of the insured s family living with the insured, and other individuals riding in the insured s vehicle as passengers from uninsured, underinsured, and hit-and-run tortfeasors. Oklahoma case law states that UM coverage applies where: 1) the injured person is an insured under the UM provisions of a policy; 2) the injury to the insured has been caused by an accident; 3) the injury to the insured has arisen out of the ownership, maintenance or use of a motor vehicle; and 4) the injured insured is legally entitled to recover damages from the owner or operator of the uninsured motor vehicle. Ply v. National Union Fire Ins. Co., 81 P.3d 643, 647 (Okla. 2003). Section 3636(K) imposes a coverage minimum and maximum for UM policies. The UM policy must at least provide $25,000 in coverage for one injured person, and $50,000 for two or more injured persons. The UM coverage may not exceed the limit for bodily injury or death coverage by the insurance policy itself. The policy may cover any amount between these minimum and maximum amounts. Any payments made by the tortfeasor, however, does not reduce this liability limit. 3636. The insured may collect up to the limit of his UM policy regardless of payment made by the tortfeasor. The insured, however, may reject UM coverage when the policy is issued. For this rejection to be effective, however, it must be in writing. If the insured rejects UM coverage, subsequent renewals of the policy need not offer UM coverage. Oklahoma law, however, excludes an insured from UM coverage when the insured, or a family member, operates a vehicle not covered under an insurance policy. 3636(d). It also excludes commercial automobile liability policies where the named insured has employees covered by workers' compensation. 36 Okl. St. 3637. When adding a new vehicle to an existing policy, however, section 3636 requires that the insurer to provide 31

UM coverage. Beauchamp v. Southwestern Nat'l Ins. Co., 746 P.2d 673, 676 (Okla. 1987). The insured, however, may recover UM/UIM benefits without first seeking judgment against the uninsured or underinsured tortfeasor. Roberts v. Mid-Continent Cas. Co., 790 P.2d 1121, 1124 (Okla. Ct. App. 1989). B. Stacking Stacking issues occur when the owner of a vehicle holds multiple insurance policies and attempts to combine the limits and applicability of those policies to increase the total limit for one accident. Many states have cases that detail whether or not stacking is applicable under certain policies. For example, Missouri commonly allows stacking of UM policies as a matter of public policy. Nothing in section 3636 requires that the insurer offer stackable UM coverage. Withrow v. Pickard, 905 P.2d 800 (Okla. 1995). Oklahoma courts, however, allow an insured to stack UM coverage if he has paid multiple UM premiums. Kinder v. Oklahoma Farmers Union Mut. Ins. Co., 813 P.2d 546, 548 (Okla. Ct. App. 1991). It is against public policy for insurers to disallow stacking where multiple UM premiums are paid. Lake v. Wright, 657 P.2d 643 (Okla. 1982). An insured may not stack UM policies when one UM policy covers multiple vehicles. Contractual expectation for a single UM premium is that only one UM coverage applies. Spears v. Glens Falls Ins. Co., 114 P.3d 448, 452 (Okla. 2005); But See Willhite v. Allstate Ins. Co., 910 F. Supp. 549, 551 (W.D. Okla. 1994) (in which the court allowed stacking when the rate charged for one policy was nearly double of the UM premium charged for a single vehicle.). To avoid multiple UM coverages, the insurer need not inform the insured pre-policy that he may not stack UM/UIM policies. Spears, 114 P.3d at 453. C. Subrogation of UM/UIM Upon paying UM benefits to an insured, the UM insurer may proceed against the tortfeasor on behalf of its insured and collect the proceeds of a judgment or settlement to the extent of its UM payments. 3636(f). The insured, however, may not take active steps which would destroy the subrogation rights of the UM carrier. If an insured destroys subrogation rights by signing a covenant not to sue a tortfeasor, the insured may not collect UM benefits. Frey v. Independence Fire & Cas. Co., 698 P.2d 17 (Okla. 1985). If the insured elects to settle with the tortfeasor for the liability limit of the tortfeasor s insurance policy, the insured must provide his UM insurer with written notice. Within 60 days of this notice, the UM insurer may ensure that such a settlement does not interfere with its subrogation rights by advancing to the insured an amount equal to this proposed 32

settlement. Such a payment is made in place of the payment under the proposed settlement, and protects the UM insurer s subrogation rights as to the tortfeasor. 3636(f). D. Med Pay and PIP Coverage and Subrogation Personal Injury Protection (PIP) coverage pays benefits for medical expenses, lost wages, and sometimes funeral expenses incurred by the insured and his/her passengers injured in an accident. PIP coverage is typically associated with no fault systems. Oklahoma is an at-fault state, and therefore operates under a traditional tort system with no limitations on the right to sue negligent third parties. PIP coverage is therefore not usually provided in Oklahoma. Medical Payment coverage under an automobile insurance policy pays for the medical expenses of an insured and his/her passengers after an accident. Medical Payment coverage will pay up to the policy limits no matter who is at fault. Medical payment coverage is available in Oklahoma. In a medical payment policy, the insurer may reserve a right of subrogation as to any person not a named insured under the policy, or a relative of the named insured. 6092. A provision is not valid if it grants the insurer subrogation rights for medical payment benefits as to a named insured or any relative of the named insured. Id. E. Contract Interpretation The construction of a contract is a question of law. BP Am., Inc. v. State Auto Prop. & Cas. Ins. Co., 148 P.3d 832, 835 (Okla. 2005). An insurance policy is a contract, and is subject to the same rules of construction as other contracts. If the terms of an insurance contract are clear, then the court need not apply the rules of construction, and will instead apply the plain meaning of the words, as an ordinary person would interpret them. BP, 148 P.3d at 835. Coverage exclusions will therefore be applied where the policy language is clear as written, unless the exclusion violates public policy. Id. at 837. Ambiguity only exists when more than one meaning can be reasonably interpreted from the policy. A court will not strain to extend coverage where none is intended. Id. The court may not rewrite an insurance contract to benefit either party. Id. at 835. Therefore, if the policy terms are ambiguous the insurer s liability is construed in favor of coverage. The insurer maintains responsibility for drafting clear and unambiguous exclusion provisions. Id. F. Additional Issues Recovery of the Insured s Deductible: Upon the insured s request, the insurer shall demand recovery for the insured s deductible in its subrogation demands. This subrogation recovery shall be shared with the insured on proportionate basis, unless the deductible amount has been otherwise recovered. Administrative expenses cannot be 33

deducted from the recovery of the deductible, though fees for an outside attorney may be deducted. Such a deduction may only be for a pro rata share of allocated loss adjustment expense. Okla. Admin. Code 365:15-3-8. G. Case Law Update Bernal v. Charter County Mut. Ins. Co., 209 P.3d 309 (Okla. 2009). While in Oklahoma, an Oklahoma resident suffered fatal injuries in an accident as a passenger in the driver s, grandmother s truck. The deceased s estate received UM coverage from his own insurer. The grandmother s truck was covered by an insurance policy issued in Texas. This Texas insurance policy paid its policy limit of $20,010 to the deceased insured, but it refused to pay UM benefits. The deceased s estate sought to apply Oklahoma law to the Texas policy and as a result receive UM benefits. Under section 3636(A), however, Oklahoma UM law only applies to UM policies issued in Oklahoma for vehicles principally garaged in Oklahoma. Since the policy here was issued in Texas and for a Texas vehicle, the court applied Texas law. Child A & Child B v. Allstate Ins. Co., 323 Fed. Appx. 635 (2009). An individual sustained injuries as a man attacked her and her children while stealing her vehicle. Oklahoma law, under section 3636, requires UM coverage when injuries were caused by an accident and arose out of ownership, maintenance, or use of a motor vehicle. In determining whether the accident and the automobile were causally connected, the court looked at (1) whether the use of an uninsured motor vehicle is related to its transportation nature, and (2) whether the injuries alleged are connected to that use." The court distinguishes its opinion from similar cases, noting that in those cases that the vehicles were at least running and in gear. In this case, the car was not running, and no other indication existed that the car was utilized for transportation while the injuries occurred. The court therefore determined that UM coverage did not cover injuries related to the assault. Porter v. State Farm Mut. Auto. Ins. Co., 2010 OK CIV APP 8 (2010). State Farm was both the insurance carrier for both the plaintiff and the tortfeasor. The plaintiff was injured as a passenger in the tortfeasor s vehicle when the tortfeasor s negligence caused an accident. Plaintiff agreed to settle her claim for $85,000, which is less than the tortfeasor's liability limit of $100,000. Although State Farm advised the plaintiff that accepting this settlement offer would foreclose her ability to receive UM benefits under her own policy with State Farm, she accepted the offer. Plaintiff, however, continued to pursue UIM benefits. The court found that the plaintiff was no longer eligible for UIM coverage. After settling below the limit of the tortfeasor s policy, the plaintiff could no longer prove that the tortfeasor was underinsured. The liability of the tortfeasor was now $85,000 per the settlement, which no longer exceeded 34

the tortfeasor s policy limits. She also forfeited the legal right to further recover against the insured, and thus prejudiced the subrogation rights of the UM insurer as to the tortfeasor. As a result, the insured could not recover UIM benefits. Garnett v. Gov't Emples. Ins. Co., 186 P.3d 935 (2008). The passenger in a rear-end collision sought to collect UIM benefits from the driver s UIM policy. The driver and the tortfeasor both maintained insurance policies with the same insurer. The passenger claimed injuries between $13,000 and $15,000, whereas the insurer valued the same injuries between $1,000 and $3,000. The insurer, therefore, did not pay UIM benefits until the jury returned a verdict of $5,000. The passenger, however, later alleged that the insurer s refusal to pay $3,000 in UIM benefits prior to trial constituted bad faith. Examples of insurer bad faith include: The lower court, however, granted summary judgment, dismissing the passenger s bad faith claim. The Oklahoma Supreme Court affirmed, noting that the jury award was evidence of a legitimate dispute between the parties as to the value of the UIM claim. The court dismissed the passenger s argument that the insurer engaged in bad faith through dual representation. The passenger argued that the insurer's employees, one working the UIM claim and the other the liability claim conferred and colluded, thus preventing either from reaching a fair estimate of the value of the passenger's claims. The court stated that this dual representation by the insurer was a potential, but not proven conflict of interest. The insurer used separate examiners and claim numbers for the liability and UIM claims. No evidence existed to show that the insurer s employees unreasonably delayed settlement, sought to leverage one claim against the other, made any misrepresentations to the passenger, or otherwise engaged in any actions that could be reasonably perceived as tortious. Equity Ins. Co. v. St. Clair, 196 P.3d 981 (2008). Insured had a six month automobile insurance policy with monthly premiums payable. Insured failed to make a payment for the month of September. The insurer cancelled the policy on September 27. After the insured was involved in an accident in December, he claimed that the policy was still in effect because the insurer failed to provide adequate notice of cancellation. The Oklahoma Supreme Court previously stated that (1) notice of a policy's cancellation cannot be given before the occurrence of the event that triggers the insurer's option to cancel and (2) notice of the policy's cancellation must be clear and unequivocal. By merely informing the insured on an invoice that it may cancel the policy if the insured fails to pay, the insurer failed to give proper notice of cancellation. The insurer must instead provide the insured with ten days notice of its intention to cancel the policy for failure to make payment before the policy is actually cancelled. 35

Pain v. Sims, 2012 Ok. Civ. App. 76 (2012) Non-settling defendant denied credit for plaintiff s settlement with settling defendant pursuant to Ok. Stat. tit. 12, 832(H) because non-settling defendant failed to object to verdict form that did not allow jury to assess settling defendant s fault Mulford v. Neal, 264 P.3d 1173 (2011) While insurance companies can utilize a named driver exclusion based upon that individual s poor driving record, an exclusion based solely upon a named driver s age when that named driver is under 18-years-old violates public policy Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 36

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ADVANCED PREMISES LIABILITY NEGLIGENCE PER SE, MODE OF OPERATION, SAMPLE JURY INSTRUCTIONS, & CASE UPDATES Premises liability may arise when a person on your premises is injured as a result of: A condition of the property; An activity taking place thereon; or A third-party actor (in certain circumstances). Some of the most common and often litigated examples of premises liability involve slips or trips and falls, such as in parking lots or on sidewalks. However, injury of any kind can give rise to premises liability if the requisite elements are met. Other types of claims include, but are not limited to, injury by criminal attack, dog or animal bite, drowning, and injury caused by machine or appliance. I. Negligence Per Se Negligence per se is a doctrine that substitutes common law reasonable care standards with statutory standards. Howard v. Zimmer, 299 P.3d 463 (Okla. 2013). A. Why do we care about negligence per se? 1. The doctrine of negligence per se allows plaintiffs to more easily establish liability because the violation of a statute establishes a breach of duty, leaving only causation and damages left to be proven. See, Howard, 299 P.3d at 467. 2. Given the vast coverage of building codes, it is likely that many buildings violate a statute that could expose the owner to liability based on negligence per se. B. What happens if a building violates a portion of a building code? 1. A mere violation of a building code is not, by itself, sufficient to establish negligence per se. 2. Instead, a plaintiff must prove certain elements in order to sustain a negligence per se claim. a. Elements of negligence per se i. Although jurisdictions vary slightly, negligence per se claims typically must satisfy the following elements: (a.)there is a violation of a statute, (b.)the plaintiff must be within the class intended to be protected under the statute, (c.) The type of injury was the type the statute intended to prevent, and 1

(d.)the violation of the statute was the proximate cause of the injury. ii. See McKinney v. H.M.K.G. & C., Inc., 123 S.W.3d 274, 278 (Mo. App. W.D. 2003). b. Class intended to be protected element i. Statutes intended to protect the public in general cannot be used to establish a duty to a particular plaintiff, and thus cannot be used as the basis for liability for negligence per se. See Schlobohm v. United Parcel Service, Inc., 804 P.2d 978, 981 (Kan 1991). ii. However, courts have held that, despite broad language, building codes can be intended to protect particular individuals. Example: Schlobohm v. United Parcel Service, Inc., 804 P.2d 978 (Kan 1991) Plaintiff was injured when she fell in the entryway of a UPS building. The entryway was 2 7/8 inches above the sidewalk; however, the city building code prohibited a difference of more than 1 inch. The Court held that although the code was enacted to protect life or limb, health, property, and public welfare, the statute was intended to protect the class of people who enter and exit doorways from tripping over the entryways. Therefore, the building code could from the basis of the negligence per se claim. C. State v. Municipal Statutes 1. Municipal statutes may receive different treatment from state statutes in determining whether the landowner can be held liable for negligence per se. 2. In Missouri, municipalities do not have the power to enact ordinances that are in conflict with the Constitution or state law. Thomas v. Barnes, 634 S.W.2d 554 (Mo. App. E.D. 1982). 3. As a result, a violation of a city ordinance will not establish negligence per se if the ordinance requires action not required at common law Example: Thomas v. Barnes, 634 S.W.2d 554 (Mo. App. E.D. 1982) Plaintiff, an eight-year old girl, was shopping at a market when a florescent light fell and cut her face. She sued the property owner who had leased the property to the market. The light fixture was missing a socket in violation of the City of St. Louis Building Code. At common law, the owner of leased property could not be held liable for injuries sustained on the leased premises... Therefore, the St. Louis Building Code could not form the basis for liability because the property owner could not be held liable at common law. 2

Example: Derboven v. Stockton, 490 S.W.2d 301 (Mo. App. 1972) Plaintiff s decedent was killed in a tavern fire when she could not escape because the doors opened inward. Plaintiff sued the owners and lessors of the tavern for wrongful death. A Missouri statute requires all doors of ingress and egress open outward. Although the property owner would not have been liable at common law, the statute established a standard of care to sustain an action for negligence per se. D. Statutory violation can be evidence of ordinary negligence 1. Even if a court holds that the violation of a particular statute does not constitute negligence per se, the violation can still be used as evidence of ordinary negligence. See Sherman v. Bobrecker, 322 S.W.2d 898, 902 (Mo. 1959). Example: Sherman v. Bobrecker, 322 S.W.2d 898, 902 (Mo. 1959) Plaintiff was injured when he tripped over a tricycle in the lobby of his apartment building. At trial, the plaintiff focused on the defendant s assumed duty to provide adequate lighting and abandoned his negligence per se claim based on violations of the Kansas City Building Code regarding adequate lighting. However, the ordinances were still introduced into evidence. The Missouri Supreme Court noted that the ordinances were not wholly incompetent and entirely irrelevant to the issues of negligence as submitted. Accordingly, the trial court did not err in admitting the ordinances. II. Mode of Operation Generally, in order for a business to be liable for an injury suffered on its premises as a result of the actions of a third party, the business would need actual or constructive notice of the danger. However, in Kansas, the mode of operation rule allows plaintiffs to recover without showing the business had notice of the danger. A. General Rule 1. The mode of operations rule applies only when a business owner could reasonably foresee that the dangerous condition would regularly occur. 2. However, the rule is limited and is not intended to swallow the general rule that notice is required for conditions not traceable to the business owner. Krom v. Nat'l Heritage, Inc., 1995 Kan. App. Unpub. LEXIS 951, at *4 (Kan Ct. App. 1995) 3. As a result, the plaintiff will not have to prove the business had either actual or constructive notice of the danger if the mode of operation created a reasonably 3

foreseeable risk of injury. Horton v. Wal-Mart, 1997 U.S. Dist. LEXIS 11340, at *4 (D. Kan. 1997). Example: Jackson v. K-Mart Corp., 251 Kan. 700, 840 P.2d 463 (1992). Plaintiff, a customer at Defendant s store, slipped and fell near a clothing rack on what appeared to be a puddle of avocado juice. After the fall, an employee found a partially full can of avocado juice near the spill. The Defendant sold small cans of avocado juice in its in-store cafeteria and allowed customers to carry beverages from the cafeteria to other parts of the store. The court remanded the case for the trail court to determine if by allowing customers to take food and drink into the retail area, the Defendant was operating its business in a manner that would lead to a foreseeable risk that liquid would be spilled on the floor. Furthermore, if it was foreseeable that customers would spill beverage, the trial court then had to determine if the Defendant acted reasonably. 4. The focus of the mode of operations rule is assessing the business method of conducting business, and not the particular circumstances of the accident. Kelly v. Simon Prop. Group, L.P., 2004 Kan. App. Unpub. LEXIS 720, at *7 (Kan. Ct. App. 2004) 5. As a result, plaintiffs do not have to discover the acts of third parties nor establish actual or constructive notice by the Defendant. Hembre v. Wal-Mart, 35 P.3d 925, 927 (Kan. Ct. App. 2001). B. Self-Service Business 1. The mode of operation rule typically applies to self service businesses. Kimes v. Unified Sch. Dist. No. 480, 934 F.Supp. 1275, 1280 (D. Kan. 1996). 2. Self service creates unique problems such as likelihood that items can be spilled and not immediately discovered, customers may not be as careful in handling merchandise as employees would be, customers can carelessly drop merchandise and be unaware of the spill. Jackson v. K-Mart Corp., 840 P.2d 463, 468 (Kan. 1992). a. The store invites patrons to take an active role in purchasing, and the store, consequently, undertakes a heightened duty in ensuring the safety of customers. Krom v. Nat'l Heritage, Inc., 1995 Kan. App. Unpub. LEXIS 951, at * 6. 3. However, operating a self-service store is not sufficient in and of itself to trigger application of the mode of operations rule. The plaintiff must show that the business can reasonable foresee the dangerous conditions. Horton, at *12-13. 4

Example: Horton v. Wal-Mart Stores, Inc., 1997 U.S. Dist. LEXIS 11340 (D. Kan. 1997) Plaintiff slipped and fell in Defendant s store on a liquid. The court refused to grant summary judgment because the mere presence of a snack bar was insufficient to apply the mode of operations rule. The court listed questions that would be relevant to the determination of whether the Defendant could reasonably foresee the dangerous condition. Did the store permit customers to take items from the snack area to the retail area? Was there evidence of other regular spillage where the plaintiff was injured? III. Jury Instructions Jury instructions are useful because they ultimately outline what a plaintiff has to prove in order to be entitled to recover damages. The Jury Instructions for Missouri, Kansas, Oklahoma, Illinois, and Nebraska demonstrate key differences between the jurisdictions. A. Type of plaintiff 1. Common Law a. At common law, a landowner s duty to an injured party depended on whether the party was classified as an invitee, licensee, or trespasser. Missouri and Oklahoma still recognize these classifications and require landowners to exercise greater care with respect to invitees. Example: For example, in Oklahoma, a landowner has a duty to warn an invitee of any hidden danger the landowner knew of, or could discover through the exercise of reasonable care. O.S. 11.10 A landowner has a duty not to injure a licensee by needlessly exposing the licensee to a danger by failing to warn of a danger the landowner knew about. The landowner has no duty to inspect the premises for hidden dangers with respect to a licensee. O.S. 11.13 b. Invitee v. Licensee An invitee is a party who is expressly or impliedly invited to use the premises for the benefit of the landowner. See Claridge v. Watson Terrace Christian Church, 457 S.W.2d 785, 787-88 (Mo. banc 1970); O.S. 11.3. Example: A customer at a retail store. 5

A licensee is a person who is on the property with express or implied permission of the landowner, and the landowner has no business or commercial interest in his presence. O.S. 11.8. 2. Modern Law Example: A social guest. a. Courts are moving away from the distinction between licensees and invitees. The current trend is to classify an injured party as either being lawfully on the premises or being a trespasser. b. Kansas, Illinois, and Nebraska define a landowner s duty under a modern rule based solely on whether the injured party was lawfully on the premises or was a trespasser. i. A landowner typically owes a duty of ordinary care to ensure his property is reasonably safe for the use of those lawfully on the property. See IPI 120.02; PIK 126.02; NJI2d Civ. 8.26 ii. A landowner typically must refrain from willful and wanton conduct that injures a trespasser. See IPI 120.03; PIK 126.21; NJI2d Civ. 8.02 (a) In Kansas, a landowner also has a duty to refrain from injuring a trespasser by reckless conduct. PIK 126.21 (b) In Illinois, if a landowner knows or his reason to know a trespasser is present and a condition on the property exists that is unknown to the trespasser and presents a risk of death or seriously bodily injury, then the landowner has a duty to use ordinary care in warning of the danger. IPI 120.03. B. Duty to lookout 1. Usually, injured parties have a duty to act in a reasonable manner to protect themselves from injuries. Some jurisdictions overtly require plaintiffs to protect themselves while other jurisdictions incorporate that duty into the analysis of the landowner s duty a. Explicit duty to protect oneself i. In Kansas, a person is required to keep a proper lookout for [his] own safety and to use that degree of care which a reasonably careful person would exercise measured by all the circumstances then existing. PIK 126.70 ii. In Oklahoma, a landowner has no duty to protect [invitees/licensees] from or warn them of any dangerous condition that is open and obvious, as such a danger is ordinarily readily observable by [them]. O.S. 11.12 6

b. Implicit duty to protect oneself i. In Nebraska and Illinois, a landowner only has a duty to protect a lawfully present party from a danger if he would not discover it or if he would not protect himself from the danger. See NJI2d Civ. 8.26; IPI 120.08. ii. In Missouri, a landowner is liable to a licensee if the licensee would not discover [the dangerous] condition or realize the risk of harm. MAI 22.07. C. Attractive Nuisances and injured children 1. The attractive nuisance doctrine typically applies to children trespassers when the landowner maintains a condition that he knows or should know would attract children and the condition presents a risk that the children would not recognize. 2. In Kansas, Missouri and Nebraska, juries can assess whether the utility of the condition and the expense in eliminating the dangerous condition are slight compared to the risk of harm to children. PIK 126.40; NJI2d Civ. 8.51; see MAI 22.01. In Illinois, a jury can only assess the expense or inconvenience in remedying the dangerous condition. IPI 120.05 3. Nebraska s attractive nuisance doctrine applies regardless of whether a child is a trespasser or lawful entrant. NJI2d Civ. 8.51 4. In Illinois, a landowner also has a duty to exercise ordinary care to see that the property was reasonably safe for the use of children who are lawfully on the property. IPI 120.04. Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 7

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