Barlett v. CNA

• Decision Date: 28 January 2005
• Docket Number: No. 91,634.,91,634.
• Citation: 104 P.3d 1011,33 Kan.App.2d 519
• Parties: THOMAS BARLETT, d/b/a MAJIC POOLS, Appellee, v. CNA and TRANSPORTATION INSURANCE CO., Appellants.
• Court: Kansas Court of Appeals

33 Kan.App.2d 519

104 P.3d 1011

THOMAS BARLETT, d/b/a MAJIC POOLS, Appellee, v. CNA and TRANSPORTATION INSURANCE CO., Appellants.

No. 91,634.

Court of Appeals of Kansas.

Opinion filed January 28, 2005.

Robert J. Luder and Steven J. Book, of McCormick, Adam & Long, P.A., of Overland Park, for appellants.

Luke A. Sobba and Richard F. Hayse, of Morris, Laing, Evans, Brock & Kennedy, Chtd., of Topeka, for appellee.

Before JOHNSON, P.J., PIERRON and GREEN, JJ.

Petition for review denied 279 Kan. 1005 (2005).

JOHNSON, J.:

Transportation Insurance Company (Transportation) appeals the summary judgment granted to Thomas Barlett in his action to recover underinsured motorist (UIM) coverage under his automobile policy with Transportation. Finding that judgment in the full amount of Transportation's UIM limits was erroneous, we reverse and remand.

Barlett was the sole proprietor of a business, operating under the name of Majic Pools. On January 1, 1997, Barlett drove his motorcycle to a service call for a Majic Pools customer; enroute, an automobile driven by Amanpreet Singh collided with the motorcycle. Barlett sustained substantial injuries.

Singh had bodily injury liability insurance coverage with a per person limit of $25,000. Barlett had three insurance policies that contained UIM coverage. The motorcycle Barlett was operating was insured with Progressive Casualty Insurance Company which provided a $25,000 limit. Barlett owned a 1992 Chrysler which was insured with an American Family Insurance policy providing a $100,000 UIM limit. Two other vehicles were covered by a business auto coverage form issued to Majic Pools, which provided UIM limits of $300,000. The business auto policy has "CNA" in the heading but recites that coverage is provided by Transportation. Because CNA was dismissed from this lawsuit, we will refer to the business auto insurer as Transportation.

Barlett reported the accident to Transportation the following day, January 2, 1997. Barlett filed suit against Singh and, in January 1999, notified Transportation of its lawsuit. Later, Barlett specifically notified Transportation of the possibility of a UIM claim on the business auto policy and even invited Transportation to participate in a settlement conference. Transportation denied coverage and declined to participate in the action between Barlett and Singh. Eventually, pursuant to a settlement between Barlett and Singh, the district court entered a journal entry of judgment in which the court found that Singh was the sole cause of the accident and that Barlett had sustained damages in the amount of $945,300.72.

Barlett then sued CNA to collect the full $300,000 of UIM coverage on the business auto policy. Subsequently, Transportation was added as a defendant and CNA was dismissed from the lawsuit. Both parties filed motions for summary judgment. Ultimately, the district court granted summary judgment to Barlett against Transportation for $300,000. On appeal, Transportation claims that the district court was wrong to hold the UIM carrier bound by the consent judgment previously entered in the action between the insured and the tortfeasor. Further, Transportation contends that the district court erroneously precluded Transportation's enforcement of applicable policy provisions based upon its failure to intervene in the underlying negligence lawsuit. Transportation argues that its insurance policy provisions requiring an insured to notify the insurer of an accident, the provisions defining underinsured coverage, and the provisions relating to other insurance coverage would have reduced or eliminated the amount Transportation was required to pay Barlett.

To the extent Transportation challenges the appropriateness of summary judgment, we determine whether there is no genuine issue as to any material fact and whether Barlett is entitled to judgment as a matter of law. See Bracken v. Dixon Industries, Inc., 272 Kan. 1272, 1274-75, 38 P.3d 679 (2002). To the extent we must construe the insurance contract and construe statutory provisions, our review is unlimited. See Loucks v. Farm Bureau Mut. Ins. Co., 33 Kan. App. 2d 288, 101 P.3d 1271 (2004).

UNDERLYING JUDGMENT

Transportation first argues that Barlett should have to prove the reasonableness of the underlying settlement with Singh in order to prevail on his UIM claim. The overarching theme of Transportation's arguments is that, because the settlement terms relieved Singh of any personal responsibility for the judgment, he had no incentive to oppose the amount of damages proffered by Barlett. Therefore, Transportation believes it should have an opportunity to challenge whether Barlett actually sustained $945,300.72 in damages. Transportation does not explain why it is concerned with any damages above its $300,000 UIM limit.

In its brief, Transportation acknowledges that K.S.A. 40-284 provides a means for UIM carriers to protect against collusive settlements. K.S.A. 40-284(f) provides:

"An underinsured motorist coverage insurer shall have subrogation rights under the provisions of K.S.A. 40-287 and amendments thereto. If a tentative agreement to settle for liability limits has been reached with an underinsured tortfeasor, written notice must be given by certified mail to the underinsured motorist coverage insurer by its insured. Such written notice shall include written documentation of pecuniary losses incurred, including copies of all medical bills and written authorization or a court order to obtain reports from all employers and medical providers. Within 60 days of receipt of this written notice, the underinsured motorist coverage insurer may substitute its payment to the insured for the tentative settlement amount. The underinsured motorist coverage insurer is then subrogated to the insured's right of recovery to the extent of such payment and any settlement under the underinsured motorist coverage. If the underinsured motorist coverage insurer fails to pay the insured the amount of the tentative tort settlement within 60 days, the underinsured motorist coverage insurer has no right of subrogation for any amount paid under the underinsured motorist coverage."

Barlett gave Transportation more than adequate notice of the proposed settlement with Singh. An April 24, 2001, transmittal by certified mail contained a copy of the formal settlement offer and a court order authorizing the release of Barlett's medical and employment records. On November 6, 2001, Barlett offered to settle for the UIM limits unless defendants substituted payment, allowing the insurer 60 days to advise as to its intentions. The settlement judgment was entered March 7, 2002. Transportation apparently opted to simply ignore the correspondence, thereby forfeiting its subrogation rights under K.S.A. 40-287. That provision allows a UIM provider to have a cause of action "against any other person or organization legally responsible for the bodily injury or death" of its insured. In this instance, Transportation would have been subrogated to the action against Singh.

Transportation also acknowledges that our Supreme Court has held that a UIM insurer which has been notified of its insured's action against the tortfeasor and thereafter elects not to intervene is bound by a judgment "based on a proper settlement agreement between the parties to the action and approved by the court." Guillan v. Watts, 249 Kan. 606, 617, 822 P.2d 582 (1991). However, Transportation argues that the term "proper settlement agreement" has not been specifically defined as it relates to the UIM statute, and, therefore, a UIM insurer should be permitted to relitigate the propriety of the settlement agreement. We disagree.

The Guillan holding was based upon "[t]he Kansas public policy, that all issues in a lawsuit should be tried in one trial." 249 Kan. at 616. The case provides straightforward instructions to a UIM insurer. It can intervene in its insured's negligence action, require the insured to prove the tortfeasor's liability and the insured's damages, and preclude the tortfeasor from confessing judgment. On the other hand, the UIM insurer that fails to intervene in the negligence action is unequivocally bound by a court-approved settlement judgment's determination of liability and damages.

This case illustrates the fairness of the intervene-or-be-bound rule. Barlett notified his insurance company of the accident, advised his insurer that he had a potential underinsured motorist coverage claim, notified the insurer of the damages he claimed to have suffered, and provided Transportation with a court order allowing the insurer access to Barlett's medical and employment records. Transportation had an opportunity to investigate the accident and make an independent assessment of Singh's liability and Barlett's damages. If Transportation had either verified the legitimacy of Barlett's damages or intervened in the negligence action to challenge the damages, that issue could have been resolved without unnecessary delay and expense to the insured. Transportation's complaint, at this late date, that Barlett failed to prove his damages is particularly unavailing, given Transportation's failure to be proactive at the outset. The district court's ruling that Transportation was bound by the settlement judgment is affirmed.

INSURANCE POLICY PROVISIONS

One of the district court's findings was that, "by not intervening in the action against the tortfeasor, the Defendant is now precluded from raising or has waived its affirmative defenses of apportionment, if any, under its `Other Insurance' provisions of its contract." Transportation argues that intervention was unnecessary for it to enforce the terms of its insurance policy. We agree.

The district court indicated that it could find no Kansas authority dealing with coverage questions where the insurer had not intervened in the insured's suit against the tortfeasor. The court then suggested that a...