State Farm Mutual Automobile Insurance Co. v. Riggs

OPINION OF THE COURT BY CHIEF JUSTICE MINTON

Following an automobile accident, Lonnie Dale Riggs sued the adverse driver for negligence, but settled the claim for the adverse driver’s automobile-liability-insurance policy limits. Before dismissing the suit, Riggs asserted a claim against his own automobile liability insurer, State Farm Mutual Automobile Insurance Company, for underinsured motorist benefits (UIM). Riggs filed his UIM claim three years to the day after the date of the automobile accident. State Farm denied UIM liability because Riggs’s insurance policy contained a limitation provision that gave Riggs two years from the date of the accident or date of the last basic reparation benefit (BRB) payment, whichever occurred later, within which to make a UIM claim. ,

The trial court granted summary judgment for State Farm, but the Court of Appeals reversed the trial court’s judgment, holding that the State Farm policy provision limiting the time for making the UIM claim was void because it was unrea-soriable.

We granted discretionary review to examine the reasonableness of State Farm’s limitation provision — a standard provision that tracks nearly verbatim the'two-year statute of limitations for tort claims found in Kentucky’s Motor Vehicle Reparations Act (KMVRA). The State Farm policy provision) in our view, is not unreasonable — two years is not an unreasonable period of time for an insured to discover whether a tortfeasor is underinsured or uninsured.- The decision of the Court of Appeals, therefore, is reversed and judgment of the trial court reinstated.

I. FACTUAL AND PROCEDURAL BACKGROUND.

Riggs, a city police officer, was involved in an automobile accident while in the line *726of duty. As a result of the accident, Riggs suffered severe and permanent bodily injuries, pain and suffering, and lost wages. Riggs received workers’ compensation benefits for these injuries. Because of this, Riggs did not, at any point, receive BRBs for his injuries.

Nearly two years after the accident, Riggs filed a personal injury suit against the driver allegedly responsible for the accident. During discovery, Riggs settled with the allegedly negligent driver for his automobile-liability-insuranee policy limits.

A few months before the settlement, the trial court permitted Riggs to amend his complaint to add a UIM claim against State Farm, his own insurance carrier. State Farm filed a motion for summary judgment asserting that the explicit terms of Riggs’s policy rendered his UIM claim untimely. The provision read:

2. Suits Against Us
There is no right of action against us:
[[Image here]]
d. under uninsured motor vehicle coverage and underinsured motor vehicle coverage unless such action is commenced no later than two (2) years after the injury, or death, or the last basic or added reparation payment made by any reparation obligor, whichever later occurs.

The trial court agreed with State Farm and granted summary judgment in its favor. In doing so, the trial court relied on Pike v. Governmental Employees Ins. Co.,1 a Sixth Circuit decision with an analogous policy provision. In that case, the Sixth Circuit found such a provision reasonable and enforceable under our law.

On appeal, the Court of Appeals disagreed with the trial court. The Court of Appeals did not find Pike persuasive. In fact, the court held it ran contrary to our law. State Farm’s time limitation on UIM claims was unreasonable according to the Court of Appeals because it may require an insured to sue the UIM carrier before ever knowing whether the tortfeasor is indeed underinsured. Accordingly, the Court of Appeals found State Farm’s UIM limitation was void and the statutory fifteen-year statute of limitations for general contract actions applied.2

II. ANALYSIS.

Summary judgment is an extraordinary remedy that should be “cautiously applied and should not be used as a substitute for trial.”3 ■ Instead, summary judgment is only appropriate “to terminate litigation when, as a matter of law, it appears that it would be impossible for the respondent to produce evidence at the trial warranting a judgment in his favor and against the movant.”4 A motion for summary judgment is to be reviewed in a light most favorable to the opposing party, but the opposing party cannot defeat the motion “without presenting at least some affirmative evidence showing that there is a genuine issue of material fact for trial.”5 After all, a trial court’s role is “not to resolve any issue of fact, but to discover whether a real fact issue exists.”6

*727Our review of a lower court’s resolution of a summary-judgment motion involves only legal questions and, like those lower courts, the determination of whether an issue of fact exists. We do not resolve issues of fact. Because of this, wé operate under a de novo standard of review.

We have recognized from its inception that UIM coverage is first-party coverage.7 This means that the insurer has a “contractual obligation directly ¡ to the insured which must be honored even if the tortfeasor cannot be identified.”8 As a result of this contractual obligation, an insured’s action against the UIM carrier is appropriately labeled a breach-of-contract action. The tortfeasor, is not required to be a party to the action, and the UIM carrier may be sued before the insured has even obtained a judgment against the tort-feasor.9

On several occasions we have reviewed attempts by insurers to limit the time in which insureds may bring uninsured motorist (UM) and UIM claims. Though we have emphasized that insurance companies are not “inhibitfed] ... from contracting with their insureds for a shorter period of time to file a contractual claim,”10 we have yet to approve such a limitation. A few principles have become settled with regard to such limitations: (1) any limitation in> posed by the insurer must be “reasonable” 11; (2) requiring insureds to bring a UM 'or UIM claim within one year from the accident is unreasonable12; (3) it is “illogical to ... require a plaintiff to sue his own insurer before discovering whether or not the tort-feasor is in fact, [uninsured or únderinsured] motorist”13; (4) UM and UIM claims are grounded in contract so in the absence of a limitation provision, by omission or invalidation, the fifteen-year statute of limitations for general actions on a written contract is applicable14; and (5) an insured seeking UM or UIM benefits “should have the .same rights as he would have had against an insured third party.”15 But what remains unclear is— outside, of a one-year limitation — how may an insurer reasonably limit the time within which to claim UIM coverage.

In the instant case, State Farm linked Riggs’s UIM coverage to the tort claim time limitation found in the KMVRA, KRS 304.39-230(6). That statute requires a tort action to “be commenced not later than two (2) years after the injury or death, or the last basic or added reparation payment made by any reparation obli-gor, whichever later occurs.” This is the exact language used by State Farm in the UIM portion of Riggs’s policy.

We are unable to find this limitation unreasonable'. Consistent with the principles listed above, providing the insured with the same time as a tort claim (perhaps longer depending on the duration of *728BKB16 payments) does not require an insured to sue his own insurer before filing suit against the torfeasor,17 nor. does it require “a plaintiff to sue his own insurer before discovering whether or not the tort-feasor is in fact an [underinsured] motorist.”18 Instead, State Farm’s provision brings together all insurance claims stemming from a particular auto accident and places them on equal footing. Two years '(or more if BRBs are paid) is enough time for the insured' to discover the extent of automobile liability insurance coverage the tortfeasor has and whether that coveragé will be sufficient for the suffered injuries. Admittedly, there' may be circurhstances where an insured may need to fíle his UIM claim while his tort lawsuit is pending or, to put it more directly, béfore the value of his claim has exceeded the policy limits of the tortfeasor’s liability policy and a UIM claim’s viability is more apparent.

So, on its face, State Farm’s provision seems reasonable. But KRS 304.39-320 poses a problem, according to Riggs. In Riggs’s estimation, a UIM claim does not exist until after entry of a judgment against the tqrtfeasor. If this were so, State Farm’s limitation, would be unreasonable because it would apparently require an insured to assert a fictitious claim — a UIM claim before a judgment against the tortfeasor.19 We, understand this argument is based in the text of the statute, hut it lands wide of the mark.

Relevant to Riggs’s assertion, KRS 304.39-320(1) defines an “underinsured motorist” as “a party with motor vehicle liability insurance coverage in an amount less than a judgment recovered against that party for damages on account of injury due to a motor vehicle accident.”20 Riggs also relies heavily on KRS 304.39-020(3), specifically the following provision: “If an injured person or, in the case of death, the personal representative agrees to settle a claim with a liability insurer and its insured, and the settlement would not fully satisfy the claim for personal injuries *729or wrongful death so as to.create an un-derinsured motorist claim ... .”21 These provisions simply cannot support the weight Riggs places upon them. .

It bears repeating here that the tortfeasor is not an indispensable party in an action between an insured and his UIM carrier, nor does the insured need first obtain a judgment against the tortfeasor before filing suit against his UIM carrier — at-least not in the strict sense argued by Riggs. We have been down- this road many times before. In Coots, we noted that with regard to both UM and UIM, “proof the offending motorist is a tortfea-sor and proof of the amount of damages caused by the offending motorist are not preconditions to coverage, but only essential facts that must be proved before the insured can recover judgment in a lawsuit against the insurer on the contract of insurance.” 22 Going further, we read KRS 304.39-320 to require “the policy limits in the tortfeasor’s policy [to] be exhausted before the UIM carrier [is obligated] to pay,” but recognized that “the liability of the tortfeasor and the amount of damages sustained are ,elements that-must be established in measuring, the UIM carrier’s obligation and n.ot a statutory precondition to coverage.”23 Riggs argues,a UIM. claim does not .exist without a judgment against the tortfeasor, but this is simply not true— we were clear in Coots and have repeatedly stood on. that principle since. A judgment. is not a prerequisite, it is simply. a material element to a claim for UIM coverage. In other words, an insured must prove the extent of the tortfeasor’s liability in order to claim UIM benefits.24

The, bottom line is this: an insured’s UIM claim does not spring-to life only after a judgment against the tortfea-sor. The insured is always in possession of the UIM claim because his contractual rights are independent of the tort judgment.25 : Even -without State Farm’s limitation here, an insured could proceed against his UIM carrier before he proceeds against the tortfeasor26 or, the overwhelm*730ingly more likely and popular option, proceed against both, simultaneously. Orn-ease' law, in fact, is replete with examples of this, long before State Farm’s limitation was challenged as unreasonable.27 Examples of this process have not been viewed with any degree of diéfavor by any court, including this one. So it is difficult to argue State Farm’s limitation is unreasonable when it does nothing more than reflect a practice that has been ongoing for years. All this to say, State Farm’s limitation is not inconsistent with KRS 304.39-320.

In addition, as State Farm points out, the insured may file the lawsuit asserting entitlement to UIM benefits and request the trial court stay the proceedings until the tort lawsuit is completed and the tort-feasor’s policy limit is known or the insured could seek a tolling agreement from the UIM provider so that the clock would be stopped until the tort lawsuit was completed.' Riggs, perhaps rightly so, paints this option as unappealing and impractical. But it is an option nonetheless.

Such a contractual term is not unreasonable because it dovetails nicely with our law regarding the tortfeasor’s role (or lack thereof) in- an insured’s suit against his UIM insurer as well as the relationship between the tortfeasor’s and UIM insurer’s respective liabilities. And the two-year period, in and of itself, is not unreasonable because it is unlikely that injured parties will delay.any longer than absolutely necessary asserting a claim against the tortfeasor or the UIM carrier. In fact, as our case law indicates rather plainly, the vast majority of insureds file a single suit naming both the tortfeasor and UIM insurer as defendants.28 State Farm’s limitation operates largely the same.

We are aware, that a UIM claim does not sound in tort and would not otherwise be governed by the MVRA’s two-year statute of limitation — in fact, we explicitly said so in Gordon. But an argument here *731based' on that concept misses the mark because we are not so much concerned with whether a UIM claim should- be labeled a tort claim, or a contract claim as whether State Farm and Riggs have contracted for a UIM claim limitation that accomplishes the policy and purpose of UIM coveragé in a reasonable way; It is difficult to condemn State Farm’s provision as unreasonable because, at its simplest, it encourages the 'prompt presentation of all the potential insurance claims relating to a single accident and’ forces them to progress through the court system in a more cohesive way — a way that insurance claims have' proceeded through our court system for decades. This is not contrary to public policy — in fact, a strong argument could be made that it benefits the public. State Farm’s provision provides an insured with “the same rights as he would have had against an insured third party”29 —a result that is not at all unreasonable.

III. CONCLUSION.

The trial court did not err when it concluded that the provision is enforceable and Riggs’s claim was untimely. So we reverse the decision of the Court of Appeals and reinstate the judgment of the trial court.

All sitting. Minton, C.J., Cunningham, Hughes, JJ., concur. Noble, J., concurs by separate opinion. Keller, J., dissents by separate opinion, in which-Venters and Wright, JJ., join,

. 174 Fed.Appx. 311 (6th Cir. 2006).

. See Kentucky Revised Statutes (KRS) 413.090(2).

. Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 483 (Ky.1991).

. Paintsville Hosp. Co. v, Rose, 683 S.W.2d 255, 256 (Ky.1985). "Impossible,” of course, should be interpreted in "a practical sense, not in an absolute sense.” Perkins v. Hausladen, 828 S.W.2d 652, 654 (Ky.1992).

. Steelvest, 807 S.W.2d at 482.

. Shelton v. Ky. Easter Seals Soc., Inc., 413 S.W.3d 901, 905 (Ky.2013).

. Coots v. Allstate Ins. Co., 853 S.W.2d 895, 898 (Ky.1993).

. Id.

. See id.

. Gordon v. Ky. Farm Bureau Ins. Co., 914 S.W.2d 331, 333 (Ky.1995).

. See Elkins v. Ky. Farm Bureau Mut. Ins. Co., 844 S,W.2d 423 (Ky.App.1992); Belcher v, Travelers Indemnity Co., 740 S,W.2d 952 (Ky:1987).

. Elkins, 844 S.W.2d at 425.

. Gordon, 914 S.W.2d af332.

. Gordon, 914 S.W.2d at 332-33.

. Elkins, 844 S.W.2d at 425.

. Or PIP payments. As we have repeatedly acknowledged, PIP and BRB payments are the same — the terminology is interchangeable. See, e.g., Stevenson ex rel. Stevenson v. Anthem Cas. Ins. Group, 15 S.W.3d 720, 723 (Ky.1999) ("Although the correct terminology is, of course, ‘basic reparation benefits,’ that terminology has been used interchangeably with ‘personal injury protection’ (PIP) benefits when describing what are generally known as ‘no-fault’ benefits under Kentucky law.”).

. As an aside, perhaps requiring an insured to proceed in this manner would be problematic. Perhaps. In the abstract, though, there is no principle of law that prohibits an insured from seeking relief from his UIM provider before proceeding against the tortfeasor. In essence, that would be nothing more than subrogation. As we mention below, our case law is filled with examples of an insured suing simultaneously his UIM insurer and tortfeasor. Often, the UIM insurer elects to pay its insured in place of the tortfeasor and then turn its attention to the tortfeasor for subrogation. And1 again, as we note below, our case law treats the UIM insurer’s payment as a judgment against the tortfeasor, so KRS 304.39-320 does not prevent this procedure. As it is, we see little reason why an insured could choose to go directly to his UIM insurer for recovery, assuming, of course, he .proved the tortfeasor’s liability.

. Gordon, 914 S.W.2d at 332.

. Riggs uses KRS 304.39-320(2) to argue why State Farm’s limitation is prohibited. That section requires the terms and conditions of UIM coverage to not be “inconsistent with this section.”

. Emphasis added. KRS 304.39-320(2) likewise states that under UIM coverage "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 ■ liability policies thereon-” Emphasis added.

. Emphasis added.

. Coots, 853 S.W.2d at 899.

. Id.

. This is exactly what KRS 304.39-320(1) says. It defines an “uninsured motorist,” not an uninsured-motorist claim. Of course, any motorist who has contracted with a UIM provider can claim their right to those benefits. A motorist does not become an "uninsured motorist” until either receiving a judgment against the tortfeasor for an amount below the amount of injury damages or receiving payment from the UIM insurer in the tortfea-sor’s stead. Be this as it may, it does not mean a motorist cannot file a claim seeking the benefits because he believes he is underin-sured. It simply means he is not underin-sured unless his damages are greater than the tortfeasor’s policy limit.

. Often a UIM claim is labeled as a breach-,of-contract action. While this may be true in limited circumstances, it is not the most accurate categorization available. A UIM claim, in its - simplest form, is more analogous to a declaratory- action. The insured is simply seeking to have his rights declared- under the insurance policy, i.e. the contract. More often than not, the UIM insurer has not denied coverage to constitute a breach ; rather, the insured simply files a claim with the insurer and demands the policy amount outlined in the contract. The UIM insurer .may,- of course, dispute the amount, but that does not constitute a breach. If it -did, the breach would be occurring after the breach-of-contract action was filed. We mention this because State Farm's limitation does not force an insured to file a breach-of-contract action before the breach any more than any UIM . insured is forced to, policy provisions aside.

.The UIM carrier could elect to pay its insured the tortfeasor’s policy limits and preserve its subrogation right. The insured would then be fully compensated both for the damage caused by the tortfeasor and the amount owed under his UIM policy. The *730UIM insurer’s substitution of its own funds "operates as the equivalent of a settlement between the party claiming damages and the tort-feasor because the tortfeasor is released from further liability to the party claiming damages.” True v. Raines, 99 S.W.3d 439, 447 (Ky.2003) (quoting Washington v. Milbank Ins. Co., 562 N.W.2d 801, 806 n. 3 (Minn.1997)). Put another way, the ÜIM insurer’s payment constitutes a judgment against the tortfeasor for purposes of KRS 304.39-320. Clearly, though, the viability of the UIM claim was in no way dependent on this judgment existing before the claim was filed.

. See, e.g., Earle v. Cobb, 156 S.W.3d 257 (Ky.2004) (suit against both tortfeasor and UIM provider); True, 99 S.W.3d 439 (injured party filed a single action against the tortfea-sor and the UIM insurer; jury meted out damages for each); Hill v. State Farm Mut. Auto Ins., 2008 WL 2219835 (“In other words, anticipating a large jury verdict against [the tortfeasor], Hill asserted an UIM claim against her insurer, State Farm.”) (emphasis added); G & J Pepsi-Cola Bottlers, Inc. v. Fletcher, 229 S.W.3d 915 (Ky.App.2007); Hughes v. Lampman, 197 S.W.3d 566 (Ky.App.2006); Hamilton Mut. Ins. Co. v. U.S. Fid. & Guaranty Co., 926 S.W.2d 466 (Ky.App.1996) (reviewing suit where injured party filed suit against the tortfeasor and UIM insurer). This practice makes a good deal of sense considering our repeated acknowledgement that "the UIM carrier and the tortfeasor are ‘codebtors in solido ', i.e., they are jointly and severally liable for damages recoverable as a result of the tortfeasor’s negligence.” Cincinnati Ins. Co. v. Samples, 192 S,W.3d 311, 315 (Ky.2006) (internal citation omitted).

. For reasons unknown, Riggs's counsel elected .not to proceed this way. There is a morsel of truth in clichés and, in this instance, bad facts do indeed threaten to make bad law. The date of the accident is the crucial date in insurance litigation for all parties. The accident is the engine that drives every aspect of the litigation. Tying UIM to this date does not seem unreasonable; to' the contrary, it makes a lot of sense.

. Elkins, 844 S.W.2d at 425.