GLEN FALLS INSURANCE COMPANY V. JUDY CARNES and MELISSA EARLS
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RENDERED:
September 18, 1998; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1997-CA-001002-MR
GLEN FALLS INSURANCE COMPANY
APPELLANT
APPEAL FROM WHITLEY CIRCUIT COURT
HONORABLE JERRY D. WINCHESTER,JUDGE
ACTION NO. 92-CI-0417
V.
JUDY CARNES and MELISSA EARLS
APPELLEES
OPINION
AFFIRMING IN PART AND
REVERSING AND REMANDING IN PART
** ** ** ** **
BEFORE:
COMBS, KNOPF, and KNOX, Judges.
COMBS, JUDGE:
The appellant Glen Falls Insurance Company (Glen
Falls) appeals from the judgment of the Whitley Circuit Court
following a jury verdict awarding damages to the appellee, Judy
Carnes (Carnes).
Among the several issues raised on appeal, Glen
Falls primarily argues that the court improperly denied it the
opportunity to substitute payment.
Having examined the record,
we agree with Glen Falls that its subrogation rights were
improperly abrogated.
This action arises from an automobile accident
involving Judy Carnes and Melissa Earls (Earls) which occurred on
August 9, 1991, in Whitley County, Kentucky.
In July 1992,
Carnes filed a complaint against Earls to recover damages for
bodily injuries, lost wages or income, and mental pain and
suffering which she had sustained as a result of the accident.
Subsequently, in September 1993, Carnes amended her complaint to
join as a defendant her own automobile insurance carrier,
Commercial Insurance Company (Commercial), asserting a claim for
underinsured motorist protection (UIM) as provided in her policy
with Commercial.
Shortly after Carnes amended her complaint,
Glen Falls Insurance Company filed a motion to intervene as a
plaintiff based upon the grounds that it had provided Carnes with
insurance at the time of the accident.
The court granted the
motion, and Glen Falls filed an intervening complaint seeking to
recover benefits from Earls that it had already paid to Carnes
and any amount that it might be obligated to pay to Carnes in the
future.
In November 1993, the court entered an agreed order
substituting Glen Falls as defendant in place of Commercial and
deemed all references to Commercial to refer to Glen Falls, the
substituted defendant.1
1
The reason for the substitution and the relationship
between Glen Falls and Commercial is not explained in either the
court’s order or the parties’ briefs and motions. Thus, Glen
Falls was both a defendant and an intervening plaintiff in the
underlying action.
-2-
As the case developed, the parties engaged in pre-trial
discovery and began negotiations.
In November 1996, the court
entered an order setting the trial for February 4, 1997.
In a
letter dated January 24, 1997, Carnes offered to settle the case
with both Glen Falls and Earls for $100,000 to be divided between
them in any way they agreed.
From this point forward, the
parties presented differing versions as to the events that
transpired with regard to the settlement offer.
Carnes alleges that on January 28, 1997, she was
contacted by Earls, who, concerned about her exposure to a
judgment in excess of her policy limits, disclosed to Carnes that
Glen Falls was unwilling to contribute any amount toward a
settlement.
Carnes told Earls that she would accept $100,000
(Earls's policy limits) and that she would proceed against Glen
Falls at trial.
The following day, Carnes called Earls to
inquire as to whether Earls's insurer was willing to settle for
her policy limits.
During the parties' conversation, Earls made
two counter-offers for amounts lower than her policy limits;
Carnes rejected these offers, and Earls finally offered her
policy limits.
Carnes accepted the offer and requested a letter
from Earls confirming the settlement.
On January 29, 1997, Carnes received Earls's
confirmation letter, and she immediately faxed a copy of the
confirmation letter to Glen Falls to notify it of the settlement
and to allow it the opportunity to substitute payment.
She also
demanded an additional $100,000 in settlement from Glen Falls.
-3-
In response to the faxed letter, Glen Falls called Carnes that
evening.
In a three-way call involving all the parties, Carnes
informed Glen Falls that Earls had made several counter-offers in
response to her settlement offer of January 24, 1997; Carnes
maintained that her previous offer for $100,000 (to be divided
between Carnes and Glen Falls) had been withdrawn by the letter
that she had faxed that day to Glen Falls demanding an additional
$100,000.
After the conference call, Carnes received a letter
from Glen Falls attempting to accept the offer of January 24,
1997.
Carnes stated that she had no further communication with
Glen Falls until the day of the trial.
Earls adopted Carnes's
statement of facts as her own, stating that it was "essentially
accurate."
Conversely, Glen Falls maintains that, in conjunction
with Earls, it had accepted the offer extended by Carnes on
January 24, 1997, agreeing to contribute $2,000 with Earls to
contribute $98,000 toward the settlement amount of $100,000.
Upon notifying Carnes that it had accepted her offer of January
24, 1997, Glen Falls claims that she rejected the acceptance and
claimed that she had negotiated a separate agreement with Earls.
On the day of trial, Glen Falls sought to enforce the alleged
settlement agreement.
The court found that there was not a
binding agreement between the parties, and Glen Falls at that
point attempted to substitute payment to protect its right of
subrogation.
The court overruled its motion to substitute
payment; Glen Falls then filed a motion to amend its complaint to
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assert a claim against Earls, a motion which the court overruled
as well.
Significantly, Earls was not present the day of the
trial.
The case proceeded to trial solely against Glen Falls;
the jury returned a verdict in favor of Carnes, awarding her
$300,000 in damages.
The court reduced the judgment of $300,000
by $100,000 -- the amount for which Carnes had settled with Earls
-- and entered a judgment of $200,000 on February 12, 1997.
On February 21, 1997, Glen Falls filed a motion for a
judgment notwithstanding the verdict, for a new trial, and to
alter, amend, or vacate the judgment.
On March 14, 1997, the
court entered an agreed order dismissing all of the claims
against Earls with prejudice as settled.
It appears from the
briefs of both Carnes and Glen Falls that, while the post-trial
motions were pending, they had discussed the possibility of Glen
Falls's substituting payment.
The record shows that on March 24,
1997, Glen Falls filed a notice of substitution and a motion to
set aside the agreed order dismissing Earls from the action.
It
appears from the motion to set aside the agreed order that Glen
Falls and Carnes had discussed substituting payment after the
trial.
However, Glen Falls did not notify Carnes of its decision
to substitute payment by the deadline that she had imposed -that of March 7, 1997.
On April 9, 1997, the court entered an
order denying all post-trial motions of Glen Falls.
followed.
-5-
This appeal
Glen Falls first argues on appeal that the court erred
in failing to enforce the settlement agreement which it alleges
existed between the parties.
It contends that Carnes had not
withdrawn her offer nor had the parties rejected the offer or
proposed any counter-offers prior to Glen Falls's acceptance of
the offer of January 24, 1997.
Thus, Glen Falls asserts that the
agreement became binding when it communicated its acceptance of
the offer to Carnes and that she breached the settlement by
improperly refusing to accept the $100,000.
Pursuant to CR 52, appellate review is limited to an
examination of whether the trial court's determinations are
clearly erroneous due to an absence of substantial supporting
evidence.
Schott v. Citizens Fidelity Bank & Trust, Ky. App.,
692 S.W.2d 810 (1985).
The court found that Glen Falls, Carnes,
and Earls had not entered into a settlement.
The parties did not
agree as to the sequence of events following Carnes's offer of
settlement on January 24, 1997, and continuing on up to the day
of the trial.
Both Glen Falls and Carnes offer conflicting
evidence in support of their respective versions of the events.
It is within the exclusive province of the trier of fact to
determine the credibility and weight of the evidence presented.
"Due regard shall be given to the opportunity of the trial court
to judge the credibility of the witnesses."
Ironton Fire Brick
Company v. Burchett, Ky., 288 S.W.2d 47 (1956).
After examining
the record, we find that substantial evidence existed to support
the trial court's determination that there was not an enforceable
-6-
settlement agreement between Glen Falls, Carnes, and Earls.
The
court did not abuse its discretion in denying the motion of Glen
Falls to enforce the alleged settlement.
Glen Falls next challenges the court's refusal to allow
it to substitute payment for the $100,000 settlement that had
been reached between Carnes and Earls.
It contends that it had
the legal right to substitute payment in order to protect its
subrogation rights against Earls.
Both Carnes and Earls argue that the court properly
denied Glen Falls's motions to substitute payment for its failure
to act to protect its subrogation rights within a reasonable time
period.
Glen Falls was notified of tentative settlement between
Earls and Carnes on January 31, 1997, and the parties gave Glen
Falls until February 2, 1997, (two days before the trial) to
elect to substitute payment.
However, Glen Falls did not elect
to substitute payment until the court had determined that there
was not a binding settlement as to all the parties.
We hold that
it was error for the court to refuse to allow Glen Falls to
substitute payment.
Pursuant to KRS 304.39-029, UIM coverage is defined as:
[C]overage that the insurance company agrees to pay its
own insured for such uncompensated damages as he may
recover on account of injury due to a motor vehicle
accident because the judgment recovered against the
owner of the other vehicle exceeds the policy limits
thereon, to the extent of the underinsurance policy
limits on the vehicle of the party recovering.
To seek benefits under his or her UIM policy, the insured is not
required first to obtain a judgment against the tortfeasor before
-7-
making a claim for benefits.
Coots v. Allstate Insurance
Company, Ky., 853 S.W.2d 895 (1993).
The UIM carrier retains a
contractual and common law subrogation claim for indemnity
against the tortfeasor upon whose negligence the damages were
based.
However, the UIM carrier's subrogation right is to be
disregarded to the extent that it conflicts with the insured's
superior right to accept a settlement with the tortfeasor for the
policy limits.
If the insured chooses to settle with the
tortfeasor and his carrier for the policy limits of liability,
the insured must notify the UIM carrier of his intent to do so in
order to provide the carrier an opportunity to protect its right
of subrogation.
Id. at 900.
Upon notification of a tentative
settlement between the UIM insured and the tortfeasor, the UIM
carrier may elect to substitute its payment to the insured in an
amount equal to the tentative settlement, thus protecting its
subrogation rights to the extent of the payment.
Id. at 902.
By
substituting payment, the UIM carrier has the option to keep the
tortfeasor in the case by naming him as a third-party defendant
whom it may pursue for any further sums which it becomes legally
obligated to pay to its insured under the UIM policy.
Id. at
903.
In this case, the record indicates that all the parties
engaged in negotiations to attempt to settle the action before
the trial.
Glen Falls maintains that it believed that the
parties had a binding agreement to settle the case for $100,000,
which was to be divided between the defendants.
-8-
When it sought
to enforce this settlement on the day of trial, the court found
that an agreement did not exist.
Upon the refusal of the court
to enforce the putative settlement agreement, Glen Falls moved to
protect its subrogation rights by substituting payment.
We hold
that Glen Falls was entitled to an opportunity to substitute
payment which was not given after the court ruled that no
settlement agreement existed between Glen Falls and Carnes.
The
absence of Earls could have been remedied by continuing the
trial; it was clear error for the court to dismiss Earls in
derogation of the subrogation right of Glen Falls.
Therefore, we
vacate and remand the judgment of the court and order that Glen
Fall be allowed to substitute payment.
Glen Falls next contends that Carnes forfeited her
right to underinsured motorist benefits by failing to comply with
the conditions of her policy.
It alleges that Carnes's UIM
policy prohibited her from settling her claims without its
written consent.
Glen Falls also contends that Carnes acted in a
manner which interfered with its subrogation rights in
contravention of her policy.
Specifically, Carnes objected to
Glen Fall's substitution of payment and to its motion to amend
its pleadings in order to assert a claim against Earls.
Carnes
maintains that she did not violate the conditions of her policy
and that she did not interfere with Glen Fall's subrogation
rights.
As we are vacating and remanding the judgment of the
court to allow Glen Falls the opportunity to protect its
-9-
subrogation rights, we refrain from addressing these last two
issues for mootness.
Upon remand, Glen Falls will have the
opportunity to pursue its contractual right of subrogation.
With
regard to the issue that Carnes forfeited her right to UIM
coverage by failing to comply with the requirements of her policy
(by not obtaining Glen Falls's signature prior to settlement), we
disagree and note that Coots clearly held that a UIM carrier's
subrogation rights should be "disregarded only to the extent it
is in conflict with the UIM insured's superior right to accept
the tortfeasor's policy limits when offered, when to do so
requires a release and indemnity agreement."
Coots, supra at
902.
As to Glen Falls's contention that the trial court
should have reduced the judgment by the amounts it had already
paid in benefits to Carnes, we leave resolution of this issue to
the province of the trial court upon remand as part and parcel of
the new trial.
In summary, we find that the court's determination that
a settlement did not exist as to all the parties was not clearly
erroneous.
However, the court did err in failing to allow Glen
Falls to substitute payment to protect its right of subrogation.
We therefore vacate and remand a new trial with Earls as a
defendant in order for Glen Falls to litigate its legitimate
subrogation claim.
ALL CONCUR.
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BRIEFS AND ORAL ARGUMENT FOR
APPELLANT:
BRIEF AND ORAL ARGUMENT FOR
APPELLEE JUDY CARNES:
Robert S. Walker III
Lexington, KY
Brien G. Freeman
Corbin, KY
BRIEF AND ORAL ARGUMENT FOR
APPELLEE MELISSA EARLS:
John T. Pruitt, Jr.
Somerset, KY
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