Farmers Ins. Co., Inc. v. Farm Bureau Mut. Ins. Co., Inc.

• Decision Date: 05 April 1980
• Docket Number: No. 50402,50402
• Citation: 608 P.2d 923,227 Kan. 533
• Parties: FARMERS INSURANCE COMPANY, INC., Appellee, v. FARM BUREAU MUTUAL INSURANCE COMPANY, INC., Appellant.
• Court: Kansas Supreme Court

Page 923

608 P.2d 923

227 Kan. 533

FARMERS INSURANCE COMPANY, INC., Appellee, v. FARM BUREAU MUTUAL INSURANCE COMPANY, INC., Appellant.

No. 50402.

Supreme Court of Kansas.

April 5, 1980.

Syllabus by the Court

1. Personal injury protection (PIP) insurance coverage provides first party insurance. The injured party looks to his own insurance company for payment of PIP benefits.

2. K.S.A. 40-3113(a ) provides that the insurer has a right to recover back from its insured any PIP payments paid by the insurer if and when the insured has recovered from a tortfeasor damages which include sums duplicative of the PIP payments.

3. Any tort action brought by either the injured person or his PIP insurer against the tortfeasor or the liability insurer pursuant to K.S.A. 40-3113(c ) is limited by K.S.A. 60-513(a )(4) to two years from the date of the injuries.

4. The statutory provisions in K.S.A. 40-3113 for recoupment by the PIP insurer of PIP benefits paid to its insured were not meant to create some new statutory cause of action.

5. Any defense which a wrongdoer has against the insured, such as the statute of limitations, is good against the insurer subrogated to the rights of the insured.

6. The PIP insurer which has paid PIP benefits to its insured has rights of reimbursement and subrogation against the tortfeasor and his or her liability insurer under K.S.A. 40-3113. These rights, recognized by statute, are limited by the same two year statute of limitations which applies to an action against the tortfeasor, K.S.A. 60-513.

Paul Hasty, Jr. of Wallace, Saunders, Austin, Brown & Enochs, Overland Park, argued the cause and was on the brief for appellant.

William Terry Fitzgerald of McAnany, Van Cleave & Phillips, P. A., Kansas City, argued the cause and was on the brief for appellee.

FROMME, Justice:

This action arose between two insurance companies under the "Kansas automobile injury reparations act," K.S.A. 1979 Supp. 40-3101, et seq. It was filed by Farmers Insurance Company, Inc. (Farmers), against Farm Bureau Mutual Insurance Company, Inc. (Farm Bureau), to recover $1,540.00 which amount it paid to its insured as personal injury protection (PIP) benefits. See K.S.A. 1979 Supp. 40-3103(q ) for definition of PIP benefits.

Robert King was insured by Farmers. William Latham was insured by Farm Bureau. King was injured in a two-vehicle automobile accident on October 19, 1974. Latham was the owner-operator of the second car. Pursuant to the terms of the PIP endorsement to King's policy, Farmers paid $1,540.00 to King for medical and wage benefits resulting from the accident with Latham. Farmers notified Latham's liability carrier, Farm Bureau, that PIP benefits had been paid to King and that Farmers claimed a lien as a result of the payments pursuant to K.S.A. 40-3113, now K.S.A. 1979 Supp. 40-3113a.

King retained an attorney, Mr. Lloyd Alvey, to represent him in recovering on a claim against Latham based in tort arising from the accident on October 19, 1974. Attorney Alvey notified his client's insurer, Farmers, that his client, King, had retained him to make a claim against Latham and Latham's insurance carrier, Farm Bureau. Farmers instructed attorney Alvey that he had no authority to represent Farmers in collecting its claim for reimbursement of PIP benefits paid to King.

With the position of Farmers clearly in mind attorney Alvey made claim against Farm Bureau as the liability insurer of Latham. A settlement was agreed to between King and Farm Bureau. It was understood by Farm Bureau that King had no authority to settle the reimbursement claim for PIP benefits paid by Farmers. The settlement figure of $2,000.00 was understood by both parties not to be duplicative of PIP benefits. King executed a standard release in favor of Latham and received a draft for $2,000.00 issued by Farm Bureau on April 17, 1976. Farmers was not made a joint payee on the settlement draft as no amount for PIP benefit payments was included in the draft.

When the accident occurred on October 19, 1974, and the right to PIP benefits accrued, K.S.A. 40-3113 was in effect. The statute was still in effect when the $2,000.00 settlement was made between King and Farm Bureau on April 17, 1976. However, K.S.A. 40-3113 was repealed and K.S.A. 1979 Supp. 40-3113a became law on July 1, 1977. The present action was filed October 24, 1977.

The question as to which law applies confronts us. The answer is found in Nitchals v. Williams, 225 Kan. 285, 590 P.2d 582 (1979). In Nitchals it was held that paragraph (e ) of K.S.A. 1979 Supp. 40-3113a regarding apportionment of attorney fees should be given retrospective application since it effected a procedural change. At pp. 291 and 292, 590 P.2d at p. 587 of that opinion, however, it is said:

"It is clear that a statutory right of an insurance company to reimbursement for insurance benefits paid, where the insured recovers from a third party, is a substantive legal right. Insurance Co. v. Cosgrove, 85 Kan. 296, 116 P. 819 (1911), affirmed on rehearing 86 Kan. 374, 121 P. 488 (1912). Conceding that the right of reimbursement for PIP benefits paid provided in both the old and the new statute is substantive in nature, it becomes necessary to determine whether 40-3113a(e ), which allows the apportionment of attorney fees between the PIP insurer and insured, is merely a change in an existing remedy or a statutory change which alters a vested substantive right. . . ."

The questions raised herein with regard to reimbursement rights concern substantive rights existing prior to the effective date of the new statute. Therefore, the decision in this case must be governed by our former statute K.S.A. 40-3113. Our decision here will give but limited guidance for the future because the new statute contains several major changes which we will not consider here.

The facts of this case are not in dispute. After hearing evidence and considering the stipulations of counsel the trial court made findings on the record and entered a judgment in favor of plaintiff-Farmers for $1,540.00, the amount of PIP benefits paid its insured. The findings upon which the judgment rests are paraphrased by Farmers in its brief as follows:

"(1) The settlement between Mr. King (through Mr. Alver y) and Kansas Farm Bureau was over and above the PIP benefits which had been paid; this settlement was effectuated while a claim for PIP benefits existed between plaintiff-appellee Farmers and defendant-appellant Farm Bureau.

"(2) The plaintiff Farmers does not have a right of subrogation (or reimbursement) against its insured (Mr. King or attorney Alver y) for the PIP benefits in question.

"(3) The release taken by Farm Bureau, on behalf of its insured (Mr. Latham) disturbs Farmers' cause of action, or PIP claim, against Kansas Farm Bureau.

"(4) Farm Bureau is obligated under K.S.A. 40-3113(c ) to indemnify Farmers for the loss Farmers suffered in the amount of the PIP benefits paid (to Mr. King)."

Defendant-Farm Bureau appeals from the judgment. It agrees with finding (1) above but disagrees with the conclusory findings (2), (3) and (4). The five points raised on appeal bear upon the positions of these two parties under the reimbursement provisions of K.S.A. 40-3113. We will first analyze the section in view of existing Kansas case law.

This section of the Kansas automobile reparations act is divided into five paragraphs identified by letters (a ) through (e ), dealing with insurers' rights of reimbursement and indemnity. The section explains the rights, duties and liabilities of the respective parties after PIP benefits have been paid. It is well to keep in mind that personal injury protection insurance coverage provides first party insurance. The injured party looks to his own insurance company for payment of PIP benefits. Farm & City Ins. Co. v. American Standard Ins. Co., 220 Kan. 325, Syl. P 1, 552 P.2d 1363 (1976).

Section (a ) of the statute refers to rights of the PIP insurer after its insured has recovered damages by judgment or settlement upon the tort claim. The section provides that when ongoing PIP payments are being made to the insured and the insurer has recovered damages from the tortfeasor, the insurer may then subtract from further PIP payments coming due the amount of PIP payments which the insured has already recovered in damages. It further provides, if PIP benefits have already been received and the insured recovers duplicative benefits from the tortfeasor, that the insured shall repay to the insurer the PIP benefits he or she previously received under first party coverage. The section further provides: "The injured person's insurer or insurers shall have a lien on such recovery to this extent." In other words, K.S.A. 40-3113(a ) provides that the insurer has a right to recover back from its insured any PIP payments paid by the insurer if and when the insured has recovered from a tortfeasor damages which include sums duplicative of the PIP payments. Easom v. Farmers Insurance Co., 221 Kan. 415, Syl. P 4, 560 P.2d 117 (1977). The present action was not brought against the insured. It was brought to recover from the liability insurer of the tortfeasor. So section (a ) is not of present concern.

Section (b ) of the foregoing statute recognizes in the PIP insurer a right of reimbursement "if suffering loss from inability to collect such reimbursement out of a payment received by an injured person upon a tort claim." In addition it provides if a tortfeasor, or the liability insurer of tortfeasor, makes payment to the injured person without making such person and the PIP insurer joint payees on the payment draft, the PIP insurer is entitled to indemnity to the extent of any payment duplicative of PIP payments. In order to obtain such indemnity it must appear (1) the PIP insurer is suffering loss from inability to collect reimbursement from its insured, (2) the tortfeasor or the liability insurer had notice of...