Hensley v. State Farm Mut. Auto. Ins. Co., NO. 2013-CA-000006-MR

CourtCourt of Appeals of Kentucky
Writing for the CourtJONES, JUDGE
Decision Date15 August 2014
Docket NumberNO. 2013-CA-000006-MR


NO. 2013-CA-000006-MR

Commonwealth of Kentucky Court of Appeals

AUGUST 15, 2014


ACTION NO. 12-CI-000479



JONES, JUDGE: This appeal requires us to consider when the statute of limitations begins to accrue on an underinsured motorist ("UIM") claim. For the reasons more fully explained below, we hold that the statute of limitations on a UIM claim begins to run when the insurer denies a claim for UIM coverage. While an insurer can shorten the limitations period by contract, KRS1 304.14-370 operates to prevent a foreign insurer from relying on policy provisions that bar

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claims filed less than a year from the accrual of the cause of action. Under both the policy terms at issue and the common law of Kentucky, the UIM claim in this case did not accrue until November 4, 2011, when State Farm denied Hensley's claim, less than a year before this action was filed. Accordingly, the Jefferson Circuit Court erred when it concluded that this action was time-barred. As such, we reverse the circuit court's summary judgment in favor of the Appellee, State Farm Mutual Automobile Insurance Co. ("State Farm"), and remand this action to the circuit court for adjudication on the merits.

I. Factual and Procedural Background

On August 7, 2009, the Appellant, Amberee N. Hensley, was involved in a motor vehicle accident with Awet Beyene. It is undisputed that Beyene negligently caused the accident. Beyene had liability coverage up to $50,000.00 with Nationwide Insurance ("Nationwide"). The automobile Hensley was driving was owned by Louisville Metro Government and did not have UIM coverage on it. However, Hensley had UIM coverage through two policies of insurance she maintained with State Farm.

In February 2010, Nationwide accepted liability and offered to tender the $50,000.00 policy limits to Hensley in exchange for a settlement agreement releasing Beyene from any further liability. Pursuant to KRS 304.39-320, Hensley

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sent a letter to State Farm advising it of Beyene's proposed settlement.2 Ultimately, State Farm advised that it did not wish to pursue a subrogation claim.

Thereafter, Hensley began negotiating with State Farm for UIM coverage under her policies. She made a formal demand for UIM benefits on November 4, 2011, which State Farm denied. On January 24, 2012, Hensley filed a breach of contract action against State Farm in Jefferson Circuit Court seeking UIM benefits under her policies.

After a period of discovery, State Farm moved for summary judgment based on the limitations provisions in its policies with Hensley. The policies provide in relevant part:

2. Suit Against Us

There is no right of action against us unless:

d. under uninsured motorist vehicle coverage and underinsured motor vehicle coverage unless such action is commenced not later than two (2) years after the injury, death or the last basic reparations payment made by any reparations obligor, whichever later occurs.

Relying on these provisions, State Farm maintained that because the accident occurred on August 7, 2009, and no death or reparation payments were involved, Hensley was barred from pursuing any "right of action" against it after August 7, 2011. Since Hensley's claim was not filed until January 24, 2012, State Farm argued that it was time-barred.

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Hensley responded by asserting that the limitations period contained in her policies was unreasonable (and therefore unenforceable) because it began running her time to file a UIM claim before her breach of contract cause of action against State Farm accrued. She also argued that the limitations provisions were internally inconsistent with another portion of the policies defining an underinsured motorist as one whose coverage is less than the amount of any judgment.3 She argued that this ambiguity should be construed in her favor. State Farm countered that the limitations period in its policies was presumptively reasonable because it mirrored the limitations period in Kentucky's Motor Vehicle Reparations Act ("MVRA") for filing a personal injury claim.

On December 18, 2012, the circuit court granted State Farm's motion and entered summary judgment in its favor. The circuit court reasoned that the policy at issue provided Hensley with a "reasonable amount of time after the accident to establish that the tortfeasor was an underinsured [motorist] and subsequently file suit against State Farm."

This appeal followed.

II. Standard of Review

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The question before us is a purely legal one regarding coverage under insurance policies. Our standard of review, therefore, is de novo. Dowell v. Safe Auto Ins. Co., 208 S.W.3d 872, 875 (Ky. 2006). Under de novo review, we owe no deference to the trial court's application of the law to the established facts. Grange Mutual Ins. Co. v. Trude, 151 S.W.3d 803, 810 (Ky. 2004).

III. Analysis

A. Interpretation and Construction of Insurance Contracts

Generally speaking, two parties of equal bargaining power are free to contract to any terms and conditions they negotiate with one another; with few exceptions, our courts will not endeavor to rewrite such contracts for the benefit of one party or the other. See Frear v. P.T.A. Ind., Inc., 103 S.W.3d 99, 106 (Ky. 2003). Where the contract at issue involves insurance, however, our courts must carefully weigh the right to freely contract against the commercial realities and public policy concerns at issue. See Wehr Constructors, Inc. v. Assurance Co. of Am., 384 S.W.3d 680, 687 (Ky. 2012).

To this end, the Kentucky Supreme Court has recognized that insurance contracts with general consumers are "standard-form contracts without the option of arms' length negotiations with the insureds." Employers Ins. of Wausau v. Martinez, 54 S.W.3d 142, 145 (Ky. 2001). "Standard form insurance policies . . . are recognized as contracts of adhesion because they are not negotiated; they are offered to the insurance consumer on essentially a 'take it or leave it' basis without affording the consumer a realistic opportunity to bargain."

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Jones v. Bituminous Cas. Corp., 821 S.W.2d 798, 801-02 (Ky. 1991). Thus, when interpreting contracts of insurance, we must consider the commercial reality that most such contracts between consumers and insurance companies do not contain negotiated terms. See Wehr, 384 S.W.3d at 687 n.8 (recognizing that "an individual member of the general public, [] will normally have considerably less bargaining power than the insurance company from whom he purchases his policy, and thus will generally be compelled to accept the company's standardized adhesion contract.")

Given the disparity in bargaining power between consumer insureds and insurance companies, Kentucky has adopted "four basic principles of insurance policy construction." Brown v. Indiana Ins. Co., 184 S.W.3d 528, 541 (Ky. 2005).

They are as follows: 1) all exclusions are to be narrowly interpreted and all questions resolved in favor of the insured; 2) exceptions and exclusions are to be strictly construed so as to render the insurance effective; 3) any doubt as to the terms of the policy should be resolved in favor of the insured; and, 4) because the policy is drafted in all details by the insurance company, it must be held strictly accountable for the language employed.


Additionally, where the insurance at issue is regulated by statute, public policy considerations preclude the parties from agreeing to terms and conditions that are hostile to or overly frustrate the statutory purposes behind such insurance. Bishop v. Allstate Ins. Co., 623 S.W.2d 865, 867 (Ky. 1981). Thus,

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"[w]hile we recognize that insurance carriers have the right to impose reasonable conditions and limitations on their insurance coverage even where coverage is required by law, nevertheless the question then becomes the reasonableness of the condition as a limitation on public policy as opposed to one of strict contract considerations between private parties where no public interest is involved." Jones, 821 S.W.2d at 802.

We are also mindful that it is not for the courts to unilaterally determine public policy. "[T]he public policy of the Commonwealth is normally expressed through the acts of the legislature, and not through decisions issued by the courts." Wehr, 384 S.W.3d at 687. "[P]ublic policy, invoked to bar the enforcement of a contract, is not simply something courts establish from general considerations of supposed public interest, but rather something that must be found clearly expressed in the applicable law." State Farm Mut. Auto. Ins. Co. v. Hodgkiss-Warrick, 413 S.W.3d 875, 881 (Ky. 2013).

B. UIM Coverage 4

Because determining the public policy of the Commonwealth is the General Assembly's prerogative, we...

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