Hartford Ins. Co. of Midwest v. Mullinax

• Decision Date: 11 February 1999
• Docket Number: No. 98-389,98-389
• Citation: 336 Ark. 335,984 S.W.2d 812
• Parties: HARTFORD INSURANCE COMPANY OF THE MIDWEST, Appellant, v. Melvin MULLINAX and Jim Bottin Enterprises, Inc., Appellees.
• Court: Arkansas Supreme Court

Page 812

984 S.W.2d 812

336 Ark. 335

HARTFORD INSURANCE COMPANY OF THE MIDWEST, Appellant, v. Melvin MULLINAX and Jim Bottin Enterprises, Inc., Appellees.

No. 98-389.

Supreme Court of Arkansas.

Feb. 11, 1999.

Gene Williams, Little Rock, for Appellant.

Robert A. Ginnaven III, Bryant, Margaret M. Newton, Roy Gene Sanders, Little Rock, for Appellee.

ROBERT L. BROWN, Justice.

Hartford Insurance Company of the Midwest (Hartford Insurance) appeals a summary-judgment order in favor of appellees Melvin Mullinax and Jim Bottin Enterprises, Inc. (Jim Bottin), on four grounds: (1) error in granting summary judgment to Mullinax for breach of contract; (2) error in denying Hartford Insurance's motion for summary judgment against Mullinax; (3) error in granting summary judgment to Jim Bottin on Hartford Insurance's subrogation claim; and (4) error in denying Hartford Insurance's motion for summary judgment against Jim Bottin. We agree with Hartford Insurance that it was error to grant summary judgment in favor of Mullinax on the breach-of-contract claim, and we reverse and remand the judgment relating to that claim for further proceedings. We affirm the trial court in its grant of summary judgment to Jim Bottin on Hartford Insurance's subrogation claim.

On August 7, 1992, Mullinax was injured in a car accident when Cassandra White backed into his vehicle in a K-Mart parking lot in Little Rock. White was employed by Jim Bottin at the time, and Mullinax worked at ALCOA. The injuries to Mullinax's neck and back were such that his physician determined he could not return to his job. In July of 1993, White's liability carrier, Farmers Insurance Group, offered Mullinax $25,000 to settle.

On July 19, 1993, Mullinax asked his insurer, Hartford Insurance, if he should accept the $25,000. At the same time, he made demand on Hartford Insurance for the $100,000 policy limits of his underinsured motorist benefits. Hartford Insurance sent Mullinax its own check for $25,000 in substitution for the offer from Farmers Insurance. On November 19, 1993, Hartford Insurance rejected Mullinax's demand for $100,000 in underinsured motorist benefits because (1) his injuries were aggravations of preexisting injuries, and (2) if White was in the scope of her employment at the time of the accident, Mullinax had an obligation to exhaust any other liability coverage available from her employer, Jim Bottin. On April 20, 1994, Mullinax provided some proof to Hartford Insurance that Jim Bottin did not have insurance for White covering the accident, but Hartford Insurance contended that it was inconclusive. Hartford Insurance later admitted on September 12, 1996 that Jim Bottin had no liability insurance.

On November 18, 1994, Mullinax filed suit against White and Jim Bottin. Hartford Insurance received a copy of the complaint and wrote Mullinax on December 22, 1994, that it stood ready to participate and be bound by any "verdict" against the tortfeasors in excess of their policy limits up to Mullinax's policy limits. Hartford Insurance also requested that its subrogation interest be protected if there was a settlement or judgment in favor of Mullinax within the tortfeasor's policy limits. On July 2, 1996, the trial court dismissed White from the lawsuit without prejudice upon Mullinax's motion to do so and set a trial date for his complaint against Jim Bottin. By letter dated June 27, 1996, Hartford Insurance wished Mullinax luck in his case against Jim Bottin.

On the afternoon of July 1, 1996, Mullinax notified Hartford Insurance that Jim Bottin had consented to judgment in his favor in the amount of $125,000. ¹ He also told Hartford Insurance that it should call immediately if it had any questions or concerns about the consent judgment because he planned to accept the offer the next day. At the time, Hartford Insurance was unaware that, contemporaneous with the consent judgment, Mullinax had agreed not to execute on the judgment or to assign the judgment to Hartford Insurance for subrogation purposes. Mullinax and Jim Bottin also agreed that the consent judgment would be set aside if Mullinax did not receive the underinsurance coverage from Hartford Insurance. The next day, July 2, 1996, the trial court approved the consent judgment, and Mullinax demanded that Hartford Insurance pay $100,000 in underinsurance benefits. Hartford Insurance refused.

On July 16, 1996, Mullinax filed an amended complaint against White for negligence and against Hartford Insurance for bad faith and breach of contract. He sought compensatory and punitive damages against the insurance company. As part of its responsive pleading, Hartford Insurance filed a third-party complaint against Jim Bottin, asserting its subrogation rights for the $7,280 it had paid to Mullinax in wage-loss benefits, the $25,000 it had paid in substitution for White's carrier, and any future payments. Hartford Insurance also offered $30,000 in settlement of the claim for underinsured benefits. On February 27, 1997, Mullinax voluntarily dismissed his complaint against White for a second time, which was a dismissal with prejudice under Ark. R. Civ. P. 41(a). The parties next filed cross motions for summary judgment. Mullinax only prayed for partial summary judgment on his breach-of-contract claim against Hartford Insurance. The day before trial, the trial court announced that it was ruling in favor of Mullinax and Jim Bottin and against Hartford Insurance on the summary-judgment motions. The bad-faith claim against Hartford Insurance was tried to a jury on April 24, 1997, and the jury returned a verdict in favor of the insurance company.

On January 16, 1998, the trial court (1) granted Jim Bottin's motion for summary judgment because Hartford Insurance's subrogation claim was precluded by the underinsured motorist statute (Ark.Code Ann. § 23-89-209 (Supp.1997)), which provides for subrogation only against the "owner or operator" of an underinsured motor vehicle, (2) denied Hartford Insurance's motion for summary judgment against Mullinax because Hartford Insurance failed to intervene in the underlying lawsuit against Jim Bottin and because there was no contractual provision requiring cooperation with the insurance company, and (3) granted Mullinax's motion for summary judgment against Hartford Insurance on the contract claim based on the insurance company's failure to intervene in the underlying lawsuit and because it was bound by the consent judgment. The trial court entered judgment in favor of Mullinax for $92,720, plus $26,973. 68 in attorney's fees, and prejudgment interest of 6% annually to run from July 13, 1993. ²

I. Denial of Motion for Summary Judgment

Two of Hartford Insurance's points on appeal deal with alleged errors in the trial court's denial of the insurance company's motion for summary judgment. We cannot reach the merits of these two arguments because a denial of a summary-judgment motion is neither reviewable nor appealable. See Direct Gen. Ins. Co. v. Lane, 328 Ark. 476, 944 S.W.2d 528 (1997); Nucor Holding Corp. v. Rinkines, 326 Ark. 217, 931 S.W.2d 426 (1996).

II. Breach of Contract

We turn then to the first issue appropriately before us: whether the trial court erred in granting summary judgment in favor of Mullinax on the breach-of-contract claim. We believe that error was committed. The reason stated by the trial court in granting summary judgment in favor of Mullinax was Hartford Insurance's failure to intervene in the underlying action when Jim Bottin consented to judgment in favor of Mullinax in the amount of $125,000. According to the trial court, Hartford Insurance was bound by this amount as the value of Mullinax's claim. Hartford Insurance vigorously contends that the consent judgment was a sham judgment because Mullinax agreed not to enforce the judgment or to assign it to his carrier, Hartford Insurance, for subrogation purposes. We agree with Hartford Insurance that the circumstances surrounding the consent judgment are highly questionable and smack of a subterfuge. We decline to give the consent judgment credence as a true barometer of the extent of damages incurred by Mullinax.

We turn then to the policy considerations behind underinsured motorist coverage. It is clear to us that this coverage is secondary and supplemental coverage that is activated only after certain hurdles have been crossed. See Shepherd v. State Auto Property & Cas. Ins. Co., 312 Ark. 502, 850 S.W.2d 324 (1993). In tracing the history of the underinsured motorist coverage statute from Act 335 of 1987 to Act 1180 of 1993, it is clear that in all versions of the statute, the amount of damages incurred by the insured for bodily injury and the amount of the liability insurance benefits that the insured has recovered from the tortfeasor must be known before payment by the underinsurance carrier is required. See Ark.Code Ann. § 23-89-209 (Supp.1997); see also State Farm Mut. Auto. Ins. Co. v. Thomas, 316 Ark. 345, 871 S.W.2d 571 (1994). Our caselaw has certainly emphasized the necessity for knowing the amount of liability benefits paid. See State Farm Mut. Auto. Ins. Co. v. Beavers, 321 Ark. 292, 901 S.W.2d 13 (1995); Birchfield v. Nationwide Ins., 317 Ark. 38, 875 S.W.2d 502 (1994); State Farm Mut. Auto. Ins. Co. v. Thomas, supra. We underscored in both the Beavers and Thomas decisions that the obligation to pay underinsurance benefits could not be triggered until it is determined whether the insured is in fact underinsured. That necessarily entails knowing the extent of the insured's damages and the liability benefits that have been paid by the tortfeasor's carrier. We further stated in the Birchfield decision that the limits of the...