Earle v. Cobb

Opinion of the Court by

Chief Justice LAMBERT.

The issue presented is whether an underinsured motorist (UIM) carrier must be identified at trial when it chooses to preserve its subrogation rights by means of the procedure set forth in Coots v. Allstate Ins. Co.1 (the “Coots procedure”). We conclude that the UIM carrier should be so identified as a party because it was named as a party by virtue of its contract and because it chose to retain its subrogation rights by substitution of its payment for that of the liability insurance carrier. As the trial court and the Court of Appeals held otherwise, and the case was tried without all real parties, we reverse and remand for a new trial.

On February 17, 1998, Appellant, Bonita Earle, and Appellee, Alice Cobb, were involved in an automobile accident in Muhlenberg County. As a result of the accident, Earle was injured. She sought recovery from Appellee Cobb and from her UIM carrier, Appellee Indiana Insurance Company (Indiana Insurance). Earle sought damages for medical expenses, lost wages, and pain and suffering. Indiana Insurance filed a cross-claim against Cobb for indemnity.

*259Prior to trial, Cobb’s liability insurance carrier, Hartford Insurance Company, offered its policy limit of $25,000 to Earle as full settlement of her claims against Cobb. Earle was willing to accept this sum, but as was its right, the UIM carrier, Indiana Insurance, elected to preserve its subrogation right against Cobb by using the Coots procedure of substituting its payment for Hartford’s (liability carrier) proposed $25,000 settlement. Thus, Cobb was not released and she remained a party defendant.

For the purposes of trial, the court ordered Earle’s claims against Indiana Insurance for UIM benefits to be determined after the jury rendered a verdict. The trial court also held that the existence of the UIM coverage provided by Indiana Insurance could not be revealed to the jury. Thus, Indiana Insurance was not identified as a party, did not participate at trial, and agreed to be bound by the jury verdict. However, Indiana Insurance did defend by participating in pretrial motions and discovery. In short, the case was tried to the jury as Earle v. Cobb, and nothing more was revealed.

During its deliberations, the jury asked the trial judge the following question: “Is insurance involved or is it coming from Ms. Cobb?” The trial judge declined to answer the jurors’ question. Thereafter a verdict was returned and Earle was awarded $500.00 for pain and suffering, $500.00 for past medical bills, and $500.00 for lost wages. Judgment was entered thereon. Earle appealed and Cobb cross-appealed to the Court of Appeals. In its opinion, the Court of Appeals affirmed the trial court holding that the interest and participation of Indiana Insurance was properly withheld from the jury. Earle was granted discretionary review by this Court.

CR 17.01 provides, in part, “Every action shall be prosecuted in the name of the real party in interest.... Nothing herein, however, shall abrogate or take away an individual’s right to sue.”2 In the case at bar, Appellee Indiana Insurance was a party defendant in the trial court and was allowed to participate in all pretrial proceedings and discovery.3 At trial, however, it was not identified and the case was presented as if the only parties were the plaintiff, Earle, and the defendant, Cobb. Such a trial is fundamentally misleading to the jury and it deprives a plaintiff of the right to try her case against the party she chooses.4

For sound policy reasons, evidence of liability insurance to show culpability is excluded. However, where a direct contractual relationship exists between a plaintiff and a defendant insurance company no such policy is warranted. In Wheeler v. Creekmore,5 we explained this proposition as follows:

The insurance company was in fact a party and we think properly so, because it had a direct contractual obligation to Mrs. Wheeler. Since the company was a party and was actively represented by counsel we think the jury was entitled to *260know that fact and to have the company’s counsel identified. Otherwise the jury would be left to speculate as to the interest represented by an attorney participating in the trial who had no apparent connection with any of the parties. It is our opinion that the considerations which have prompted the rule against mention of ordinary liability insurance in an automobile negligence case must yield in uninsured-motorist [UM] cases to the procedural desirability of letting the jury know who are the parties to the litigation where the uninsured motorist carrier elects to participate actively in the trial.6 (Citations omitted).

While Wheeler addressed UM coverage, we held in Coots v. Allstate Ins. Co. that UM and UIM coverage should be treated similarly as the purpose and intent of their coverages is similar.7

Kentucky is not alone in recognizing the right of a plaintiff to bring a contract claim against his or her UIM carrier and have that UIM carrier identified as such at trial.8 The reasoning employed in some jurisdictions for allowing identification of UIM or UM carriers to the jury is well articulated in King v. State Farm, Mut. Auto. Ins. Co.9:

In the instant matter, the defendant, a corporation, has no personal right of privacy. Further, the unsubstantiated belief by State Farm that its disclosure as the defendant would adversely affect the jury’s verdict furnishes insufficient justification for withholding from the jury, and from the general public, State Farm’s identity as the defendant at a public trial. The lack of per se prejudice to the UM/UIM carrier in being identified at a trial at which the insured’s damages, under the policy, are determined by rules applicable to tort cases is shown by the permissibility of joining, as defendants in an action brought by the insured, the tortfeasor and the UM/ UIM carrier. Indeed, State Farm’s position here is no different from that of any insurer that is sued directly for breach of its policy or from that of any apparently “deep pocket” corporation that is sued for breach of contract by its promisee. We hold that the circuit court abused its discretion in imposing this partial blackout on public information. (citations omitted).10

Prejudice to a UM/UIM carrier from being identified as a party has been considered insignificant, and in any event the contractual relationship and full disclosure must prevail.11 The Supreme Court of Florida *261has recently held in Medina v. Peralta12 that a trial court’s failure to identify to the jury a properly joined UM7UIM motorist carrier to be per se reversible error.13

As in the foregoing cases, Earle brought a direct action against her UIM carrier and Cobb. The claim against Cobb was based on negligence and the claim against the UIM carrier was based on its contractual undertaking. As analyzed by the Florida Court, the danger of not naming Indiana Insurance at trial is that the jury is left to “speculate about the exact role of plaintiffs carrier in the lawsuit, perpetuating the ‘charades in trials.’ ”14 The note from the jury verifies this. As reiterated in Wheeler;15 and in King and Medina, the policy of full disclosure outweighs any prejudice that Indiana Insurance might experience.

Appellant also argues that it is improper to maintain the legal fiction of permitting the UIM carrier to either participate or sit idly by and allow the tortfeasor to defend at trial, thereby hiding the identity of a bona fide party. Coots criticized this “legal fiction” of substituting the name of the tortfeasor for the UIM carrier.16 The basis for the criticism was enhanced with our decision in True v. Raines whereby the tortfeasor’s liability to the plaintiff is totally extinguished when the Coots procedure is undertaken.17 When only the tortfeasor is identified, a fictitious presence appears at trial instead of the bona fide party. Moreover, when that practice is followed, one with only a contingent and secondary liability by means of subrogation is presented as the solely and exclusively liable party. We denounced this practice in Coots:

There is no more reason to create a legal fiction by substituting the name of the tortfeasor for the UIM carrier, when the carrier alone is the real party in interest in UIM cases, than there is reason to do so when dealing with UM coverage. The issue of permitting a “legal fiction” to be employed has been laid to rest in uninsured motorist claims which involve a direct action against the UM carrier in Wheeler v. Creekmore, Ky., 469 S.W.2d 559 (1971). Underin-sured and uninsured carriers should be treated similarly, as their -purpose and the intent of their coverage is similar.18 (emphasis added).

In our recent decision in True, we held that when a UIM used the Coots procedure, the tortfeasor is released from liability to the plaintiff.19 Although the tortfea-sor remains liable for indemnity to the UIM, the UIM then becomes the only real party with potential liability to the plaintiff. Precedent, parity, and fairness demand that this Court put an end to charades and legal fictions, and treat UIM and UM carriers the same. Therefore, we hold that the failure to identify to the jury a named party defendant at trial that is also the plaintiffs UIM carrier to be reversible error.

With respect to Appellees’ argument that KRE 411 would prevent UIM identification, there is no rule of exclusion of evidence showing insurance coverage if offered “for another purpose, such as proof *262of agency, ownership, or control, or bias or prejudice of a witness.”20 Whether Ms. Cobb had liability insurance is not at issue. Indiana Insurance is a party defendant to this action based upon the contractual relationship between Appellant and Indiana Insurance, her UIM carrier. As stated hereinabove, when Indiana Insurance invoked the Coots procedure it should have been identified as a party to the jury.

For the forgoing reasons, we reverse the Court of Appeals and remand to the trial court for proceedings consistent with this opinion.

GRAVES, STUMBO, and WINTERSHEIMER, JJ., concur.

GRAVES, J. files a separate concurring opinion.

COOPER, J., dissents by separate opinion in which JOHNSTONE, J., joins.

. Ky., 853 S.W.2d 895 (1993). The Coots procedure has been statutorily adopted and is codified at KRS 304.39-320.

. CR 17.01.

. A party who undertakes defense of a case and avoids default is a party for all purposes. Cf. Stuart v. Richardson, Ky., 407 S.W.2d 716 (1966) (holding real party in interest is one entitled to the benefits of action upon the successful termination thereof). One cannot be a party for purposes of motion and discovery, and later strategically conceal its identity at trial. See King v. State Farm Mut. Auto. Ins. Co., 157 Md.App. 287, 294-96, 850 A.2d 428, 434-436 (2004).

. CR 17.01.

. Ky., 469 S.W.2d 559 (1971).

. Id. at 563.

. 853 S.W.2d at 903.

. E.g., Lima v. Chambers, 657 P.2d 279, 285 (Utah 1982) (identity of intervening insurance company should be made known to the jury); State ex rel. State Farm Mut. Auto. Ins. Co. v. Canady, 197 W.Va. 107, 475 S.E.2d 107, 113 (1996) ("[T]he jury is entitled to be aware of the uninsured motorist carrier's identity”); Tucker v. McQuery, 107 Ohio Misc.2d 38, 736 N.E.2d 574, 576 (1999) ("[J]urors have the right to know who the real party in interest is”); Lamz v. Geico Gen. Ins. Co., 803 So.2d 593 (Fla.2001) (holding petitioners are entitled to have their UIM carrier identified as such, when the carrier is joined as party defendant).

. 157 Md.App. at 298-99, 850 A.2d at 435.

. King, 157 Md.App. at 298-99, 850 A.2d at 435.

. Id. at n. 6 (noting federal magistrate judge considered any prejudice "not significant” when denying the carrier’s motion in limine seeking to suppress its identity by relying on Farley v. Allstate, 355 Md. 34, 733 A.2d 1014 (1999) and Allstate v. Miller, 315 Md. 182, 553 A.2d 1268 (1989); See also Connolly v. Lotkin, 2000 WL 1508258 (D.Md.2000)).

. 724 So.2d 1188 (Fla.1999).

. Id. at 1189.

. Lamz v. Geico Gen. Ins. Co., 803 So.2d 593, 596 (Fla.2001).

. 469 S.W.2d 559 (1971).

. 853 S.W.2d at 903.

. Ky., 99 S.W.3d 439, 448 (2003).

. Coots, 853 S.W.2d at 903.

. 99 S.W.3d at 448.

. KRE 411.