RENDERED: MAY 7, 2021; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2019-CA-1449-MR
ERIE INSURANCE EXCHANGE APPELLANT
APPEAL FROM FLOYD CIRCUIT COURT
v. HONORABLE JOHNNY RAY HARRIS, JUDGE
ACTION NO. 19-CI-00059
MEGAN JOHNSON AND TERRI
REED APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: ACREE, DIXON, AND MCNEILL, JUDGES.
DIXON, JUDGE: Erie Insurance Exchange (“Erie”) appeals from the following
orders entered by the Floyd Circuit Court: order denying Erie’s motion for
summary judgment; order altering and amending the previous order; order
concerning attorney’s fees, all entered August 22, 2019; and finally, from a
September 20, 2019, order awarding attorney’s fees. Following a careful review of
the record, briefs, and law, we affirm.
FACTS AND PROCEDURAL BACKGROUND
On October 14, 2018, Megan Johnson and Terri Reed (collectively
Appellees) were involved in an automobile accident. At the time of the accident,
Johnson was driving, and Reed was a passenger in Johnson’s vehicle, which was
insured by Erie. The insurance policy covering the vehicle included personal
injury protection (PIP) coverage. Appellees sought treatment from multiple
medical care providers for injuries sustained during the accident. On October 23,
2018, counsel for Appellees sent a letter to Erie requesting PIP benefits be reserved
until further directed. On January 16, 2019, counsel requested Erie use PIP funds
to pay one of the medical care providers for treatment of Appellees. Erie refused,
claiming it was required to pay medical bills in the order received and it had
received medical bills from other providers predating treatment with the provider
for whom Appellees requested payment. Erie’s position is documented in a letter
from its counsel dated January 18, 2019. Counsel for Appellees responded to
Erie’s letter on the same day, explicitly directing Erie to pay medical bills for the
chosen provider only—Hackney and Hensley Chiropractic—and threatening suit if
this was not accomplished within ten days.
On January 25, 2019, Erie filed a complaint for declaratory relief and
notice of intent to file interpleader. Erie requested the trial court settle the dispute
between it and counsel for Appellees concerning the interpretation of Kentucky
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law governing how PIP benefits are to be paid, as well as clarify whether it is
responsible for the attorney’s fees of Appellees. On February 15, 2019, Appellees
filed their answer and counterclaim, the first count of which alleged they are
entitled to increased interest and attorney’s fees since Erie was without reasonable
foundation for refusing to pay their medical provider as directed. The second
count appears to attempt to aver claims of fraud and breach of fiduciary duty.
On April 11, 2019, Erie moved the trial court for interpleader and for
leave to deposit money in the court, as well as for summary judgment. On May 7,
2019, Appellees also moved the trial court for summary judgment. On June 4,
2019, the trial court denied Erie’s motion for summary judgment and found Erie
responsible for all of Appellees’ medical bills “immediately” upon entry of its
order. Erie timely moved the trial court to reconsider or, in the alternative, alter,
amend, or vacate its order. While that motion was pending, Appellees renewed
their motion for summary judgment, and a stipulation of partial voluntary
dismissal—concerning count two of their counterclaim—was entered. On August
22, 2019, the trial court entered an order altering and amending its order of June 4,
2019, striking the language regarding immediate payment. On the same date, the
trial court also entered an order stating it would award attorney’s fees. Appellees
moved the trial court for approval of their attorney’s fees, and on September 20,
2019, the trial court awarded attorney’s fees of $14,383. This appeal followed.
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STANDARD OF REVIEW
Summary judgment is appropriate “if the pleadings, depositions,
answers to interrogatories, stipulations, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.” CR1 56.03. An
appellate court’s role in reviewing a summary judgment is to determine whether
the trial court erred in finding no genuine issue of material fact exists and the
moving party was entitled to judgment as a matter of law. Scifres v. Kraft, 916
S.W.2d 779, 781 (Ky. App. 1996). A grant of summary judgment is reviewed de
novo because factual findings are not at issue. Pinkston v. Audubon Area Cmty.
Serv’s, Inc., 210 S.W.3d 188, 189 (Ky. App. 2006) (citing Blevins v. Moran, 12
S.W.3d 698 (Ky. App. 2000)).
Unless otherwise directed by statute, the amount of an award of
attorney’s fees is within the trial court’s discretion. King v. Grecco, 111 S.W.3d
877, 883 (Ky. App. 2002), superseded by statute on other grounds as stated in
Meece v. Feldman Lumber Co., 290 S.W.3d 631 (Ky. 2009). “The test for abuse
of discretion is whether the trial judge’s decision was arbitrary, unreasonable,
unfair, or unsupported by sound legal principles.” Goodyear Tire and Rubber Co.
v. Thompson, 11 S.W.3d 575, 581 (Ky. 2000) (citation omitted). “When a trial
1
Kentucky Rules of Civil Procedure.
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court is considering whether to award attorney fees and costs and/or how much to
award, the trial court’s decision should be guided by the purpose and the intent of
providing an award of attorney fees and costs[.]” Alexander v. S & M Motors, Inc.,
28 S.W.3d 303, 305 (Ky. 2000).
ANALYSIS
In Kentucky, automobile accidents are governed by the Motor Vehicle
Reparations Act (MVRA).2 On appeal, Erie argues the MVRA requires PIP
carriers to pay PIP losses as they accrue on a first-in/first-out basis. Unfortunately,
there is no published case law on this exact issue. Nevertheless, we need not look
beyond the MVRA itself to resolve this dispute. We first note:
When engaging in statutory interpretation, it is
imperative that we give the words of the statute their
literal meaning and effectuate the intent of the legislature.
We have repeatedly stated that we “must not be guided
by a single sentence of a statute but must look to the
provisions of the whole statute and its object and policy.”
And the intent of the General Assembly “shall be
effectuated, even at the expense of the letter of the law.”
Samons v. Kentucky Farm Bureau Mut. Ins. Co., 399 S.W.3d 425, 429 (Ky. 2013)
(footnotes omitted).
2
Kentucky Revised Statutes (KRS) 304.39-010, et seq.
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Insurance carriers are required to pay basic reparation benefits,
including PIP benefits, as losses accrue. Concerning this duty, KRS 304.39-210(1)
provides:
Basic and added reparation benefits are payable monthly
as loss accrues. Loss accrues not when injury occurs, but
as work loss, replacement services loss, or medical
expense is incurred. Benefits are overdue if not paid
within thirty (30) days after the reparation obligor
receives reasonable proof of the fact and amount of loss
realized, unless the reparation obligor elects to
accumulate claims for periods not exceeding thirty-one
(31) days after the reparation obligor receives reasonable
proof of the fact and amount of loss realized, and pays
them within fifteen (15) days after the period of
accumulation. Notwithstanding any provision of this
chapter to the contrary, benefits are not overdue if a
reparation obligor has not made payment to a provider
of services due to the request of a secured person when
the secured person is directing the payment of benefits
among the different elements of loss. If reasonable
proof is supplied as to only part of a claim, and the part
totals one hundred dollars ($100) or more, the part is
overdue if not paid within the time provided by this
section. Medical expense benefits may be paid by the
reparation obligor directly to persons supplying products,
services, or accommodations to the claimant, if the
claimant so designates.
(Emphasis added.) The MVRA defines a “loss” as an “accrued economic loss
consisting only of medical expense, work loss, replacement services loss, and, if
injury causes death, survivor’s economic loss and survivor’s replacement services
loss.” KRS 304.39-020(5). In the case herein, the only type—or “element”—of
loss Appellees have experienced or claimed is that of medical expenses.
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Erie argues KRS 304.39-210 requires that it pay the medical care
providers as the loss accrued and medical expenses were incurred. However, Erie
was notified in writing that Appellees reserved the right to direct payment of their
PIP benefits, which effectively suspends and trumps how benefits would otherwise
be payable and prevents them from being overdue until after such direction is
made. Id.
This is not the only time the MVRA discusses an insured’s right to
direct payment of benefits. KRS 304.39-241 states:
An insured may direct the payment of benefits among the
different elements of loss, if the direction is provided in
writing to the reparation obligor. A reparation obligor
shall honor the written direction of benefits provided by
an insured on a prospective basis. The insured may also
explicitly direct the payment of benefits for related
medical expenses already paid arising from a covered
loss to reimburse:
(1) A health benefit plan as defined by KRS
304.17A-005(22);
(2) A limited health service benefit plan as defined
by KRS 304.17C-010;
(3) Medicaid;
(4) Medicare; or
(5) A Medicare supplement provider.
(Emphasis added.)
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Erie focuses on the phrases “directing the payment of benefits among
the different elements of loss” and “direct the payment of benefits among the
different elements of loss” and homes in on the word “among,” contending an
insured may not direct payments within an element of loss. KRS 304.39-210, KRS
304.39-241. In support of this argument, Erie cites to an opinion by the Supreme
Court of Kentucky, which held:
The new statutory provision, KRS 304.39-241, allows the
insured to direct the payment of his or her benefits
among the different elements of loss if the direction is
provided, in writing, to the reparation obligor. With this
change in the law, the legislature recognized that it is a
more efficient, economical, and equitable system to keep
the provider out of the reparations process and afford the
insured the control of how his or her benefits are paid
because there is only a certain amount of money
available for payment. If each and every medical
provider obtained an assignment—as a matter of
course—of any right to benefits under the MVRA, the
insured’s benefits could be exhausted after an accident,
leaving the insured no ability to decide at a later date that
he or she would be better served by directing reparation
benefits to cover some other element of loss, such as
economic loss.
Neurodiagnostics, Inc. v. Kentucky Farm Bureau Mut. Ins. Co., 250 S.W.3d 321,
327 (Ky. 2008). While that court did not discuss an insured’s ability to direct
payments within an element of loss, we disagree with Erie’s position that this case
supports its view that an insured may only direct payment of benefits among
elements of loss and not within one or more of those elements. However, contrary
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to Erie’s contention, we interpret the court’s observation that it was the
legislature’s intent to “afford the insured the control of how his or her benefits are
paid because there is only a certain amount of money available for payment” to
support Appellees’ interpretation of the MVRA that an insured may direct payment
of benefits not only among but also within each element of loss. We believe this
conclusion is supported by Neurodiagnostics’ reference to the purposes behind the
MVRA, which are:
(1) providing prompt payment to victims of motor
vehicle accidents; (2) encouraging “prompt medical
treatment and rehabilitation of the motor vehicle accident
victim by providing for prompt payment of needed
medical care and rehabilitation”; (3) reducing “the need
to resort to bargaining and litigation through a system
which can pay victims of motor vehicle accidents without
the delay, expense, aggravation, inconvenience,
inequities[,] and uncertainties of the liability system”;
and (4) helping “guarantee the continued availability of
motor vehicle insurance at reasonable prices by a more
efficient, economical[,] and equitable system of motor
vehicle accident reparations[.]”
Id. at 325-26 (footnotes omitted). We agree with the trial court that Appellees’
interpretation of the MVRA comports with these purposes while Erie’s
interpretation simply does not.
Erie further contends Medlin v. Progressive Direct Ins. Co., 419
S.W.3d 60 (Ky. App. 2013), supports its position herein. However, that case
concerned whether the MVRA requires insurers to pay PIP benefits directly to the
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insured. In Medlin, another panel of our court held the only requirements set forth
in the MVRA are for an insurer to either reimburse the insured for money spent out
of pocket or to pay the medical care providers directly. In the case herein, the
insureds requested the insurer pay their provider directly, as required by the
MVRA and discussed in Medlin.
The Medlin court did not address the issue of whether insurers are
required to pay medical care providers on a first-come/first-serve basis in cases,
such as these, where medical expenses comprise the only element of loss. To the
extent Erie insinuates the converse is true, it has taken the Medlin opinion out of
context and stretched the MVRA well beyond the legislature’s intent. For
example, it is clear the MVRA and Medlin would allow an insured to pay a claim-
related medical bill and then receive reimbursement from the insurer. Had
Appellees paid Hackney and Hensley Chiropractic out of pocket—and no other
provider—and then submitted a request for reimbursement to Erie, it would be
obligated to reimburse that payment even though Appellees had incurred, but not
yet paid, other medical bills for services received prior to their treatment with
Hackney and Hensley Chiropractic. This thwarts Erie’s arguments and effectively
allows insureds to direct payments within the element of loss.
After Erie’s motion for summary judgment was denied and the trial
court found it responsible for Appellees’ medical bills, they sought and were
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awarded increased interest and attorney’s fees pursuant to KRS 304.39-210 and
KRS 304.39-220. KRS 304.39-210(2) states: “Overdue payments bear interest at
the rate of twelve percent (12%) per annum, except that if delay was without
reasonable foundation the rate of interest shall be eighteen percent (18%) per
annum.” KRS 304.39-220 provides:
(1) If overdue benefits are recovered in an action against
the reparation obligor or paid by the reparation obligor
after receipt of notice of the attorney’s representation, a
reasonable attorney’s fee for advising and representing a
claimant on a claim or in an action for basic or added
reparation benefits may be awarded by the court if the
denial or delay was without reasonable foundation. No
part of the fee for representing the claimant in connection
with these benefits is a charge against benefits otherwise
due the claimant.
(2) In any action brought against the insured by the
reparation obligor, the court may award the insured’s
attorney a reasonable attorney’s fee for defending the
action.
Erie challenges the trial court’s awards of increased interest and attorney’s fees
under these provisions, claiming it had a reasonable foundation for not issuing
payment.
In both KRS 304.39-210 and KRS 304.39-220, the legislature clearly
contemplated awarding attorney’s fees where denial or delay of payment is without
reasonable foundation. Here, the trial court found, “it is beyond reason that the
legislature would permit the victim of a motor vehicle accident to direct the
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payment of his/her medical bills, yet not permit he/she to choose to whom payment
should be made.” (Emphasis added.) We agree. Even so, Erie contends the
parties’ opposing positions regarding an insured’s ability to direct payment within
an element of loss constitutes a justiciable controversy and further serves as its
reasonable foundation for refusing to pay PIP benefits to the provider as the
insureds directed. For the reasons discussed herein, we disagree.
Erie compares this case to Automobile Club Insurance Company v.
Lainhart, 609 S.W.2d 692 (Ky. App. 1980), in which the Court held, “It is our
opinion that the assertion of a legitimate and bona fide defense by the reparation
obligor constitutes reasonable foundation for delay under KRS 304.39-210 and
KRS 304.39-220, and this is not changed by the fact that the case is ultimately
decided against the obligor.” Id. at 695. However, Lainhart is distinguishable
from the case herein because in that case no proof of loss was presented to the
insurer until the matter was tried—giving the insurer reasonable foundation to deny
the claim—unlike this case where proof of loss was presented, and the insurer had
no reasonable foundation for refusing to make the directed PIP payments.
Erie also discusses Allstate Insurance Company v. McDowell, 2002-
CA-1949-MR, 2003 WL 22319462 (Ky. App. Oct. 10, 2003), in an attempt to
distinguish these cases. As an unpublished opinion, however, we will not address
its application herein.
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Nevertheless, Erie asserts Appellees admitted Erie filed this action in
good faith, seeking resolution of a justiciable controversy requiring interpretation
of the MVRA, which ultimately serves as its reasonable foundation. This
“admission” Erie relies upon is in numbered paragraph 12 of the answer. It states,
“That the answering Defendants admit the allegations in numerical paragraph 20 of
Plaintiff’s Complaint.” Numbered paragraph 20 of the complaint states:
Plaintiff Erie files this Declaratory Judgment Action in
good faith, seeking resolution of a justiciable controversy
requiring the interpretation of Kentucky law, and in
response to Defendants’ unwarranted threat of a
“necessary” suit to collect attorney fees and costs, in
addition to PIP benefits which they demand be made
solely in accordance with their directives, and in a
manner contrary to Plaintiff Erie’s obligations under the
Kentucky [MVRA]. Under these circumstance[s],
Plaintiff Erie further seeks judgment that Defendants are
not entitled to an award of attorney fees or costs incurred
in the defense of this action.
However, this “admission” is clearly refuted later in the same document within the
counterclaim. In Count I of the counterclaim, numbered paragraph 11 states, “The
failure of . . . Erie . . . to timely pay the . . . medical expenses as directed is without
a ‘reasonable foundation’ under the MVRA[.]”3 Judicial admissions are proper
“only where the statements are unequivocal and must be considered to be
3
The so-called admission was further disputed in Count II of the counterclaim; however, as
previously mentioned, Count II was voluntarily dismissed.
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deliberately true or false.” George M. Eady Co. v. Stevenson, 550 S.W.2d 473,
473-74 (Ky. 1977). Such is not the case here.
Erie further contends its motion for interpleader is evidence its denial
was made in good faith. However, acting misguidedly in good faith does not
absolve an insurer from responsibility for increased interest or attorney’s fees. All
that is required to award increased interest and attorney’s fees is “if delay was
without reasonable foundation” or “if the denial or delay was without reasonable
foundation.” KRS 304.39-210(2); KRS 304.39-220(1). Erie’s final argument is it
did not “deny” the PIP claims. As noted in the statutes, a denial is not required to
trigger these provisions, only delay without reasonable foundation. The trial court
properly found that Erie delayed payment without reasonable foundation and
awarded increased interest and attorney’s fees.
CONCLUSION
Therefore, and for the foregoing reasons, the orders of the Floyd
Circuit Court are AFFIRMED.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEES:
John M. Bush Shane Hall
Mark A. Osbourn Pikeville, Kentucky
Louisville, Kentucky
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