Lambert v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 11 January 1991
• Citation: 576 So.2d 160
• Parties: Robert L. LAMBERT and Shelby N. Lambert v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY. 89-1098.
• Court: Alabama Supreme Court

Page 160

576 So.2d 160

Robert L. LAMBERT and Shelby N. Lambert v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY.

89-1098.

Supreme Court of Alabama.

Jan. 11, 1991.

Lee H. Copeland and Gregory L. Davis of Copeland, Franco, Screws & Gill, Montgomery, for appellants.

William P. Sawyer of Weiss & Sawyer, Montgomery, for appellee.

MADDOX, Justice.

This appeal presents once again an issue that has been described as "[t]he single most important unresolved issue concerning underinsured motorist coverage" ¹--the right of an insured to settle with a tort-feasor, and to give the tort-feasor a complete release without getting the consent of the insured's carrier of underinsured motorist coverage to the settlement. This appeal is from a summary judgment in which the trial court held, as a matter of law, that an underinsured motorist insurance carrier, which had refused to consent to a settlement between its insured with the tort-feasor, was not liable to pay its insured any benefits.

The facts are essentially undisputed. On October 18, 1985, Shelby Lambert and her son, Ryan Lambert, were injured in an automobile accident as a result of the alleged negligence of Ms. Kitty Hall. Ms. Hall's liability insurer, Alfa Mutual Insurance Company, settled Ryan Lambert's claims shortly thereafter upon payment of the sum of $350.

During the next several months, Ms. Lambert was unable to reach a settlement agreement with Alfa, apparently because Ms. Lambert believed her damages to be greater than the amount of Alfa's original offer of $7,500. In any event, in 1987, Shelby and Robert Lambert sued Ms. Hall in the Montgomery Circuit Court, claiming damages of $250,000; Robert Lambert claimed damages for loss of consortium. Ms. Hall sought a change of venue and the case was removed to the Elmore Circuit Court.

While this initial suit remained pending in the Elmore Circuit Court, the Lamberts filed a similar suit in the Montgomery Circuit Court on January 5, 1989, naming as defendants their own underinsured motorist insurance carrier, State Farm Mutual Insurance Company, and Ms. Hall. In this complaint, the Lamberts alleged that they were insureds under two separate underinsured motorist policies issued by State Farm and that the policy provisions that required them to obtain State Farm's consent before they could settle with the tort-feasor were unconscionable, violative of public policy, and void.

In April 1989, Alfa, Ms. Hall's liability insurer, offered the Lamberts $25,000, the maximum amount of coverage under Ms. Hall's liability policy. The Lamberts informed State Farm of this offer, but State Farm refused to give its consent to a settlement for this sum and informed the Lamberts that if they accepted Alfa's settlement offer without first obtaining State Farm's written consent, as required by their policy, State Farm would refuse to pay any underinsured motorist benefits. Nonetheless, on September 18, 1989, one month before the trial date of the Lambert's suit against Ms. Hall in the Elmore Circuit Court, the Lamberts agreed to accept Alfa's offer of $25,000 and to release Ms. Hall and Alfa from further liability, and they so notified State Farm. The next day, State Farm offered the Lamberts $25,000 in an attempt to protect its subrogation rights. However, the Lamberts refused State Farm's offer, basing their refusal to accept on the ground that they had already agreed to dismiss their action against Ms. Hall. The Lamberts accepted Alfa's settlement offer and executed a release.

Thereafter, State Farm filed its motion for summary judgment in the suit filed against it, and as grounds for the motion stressed that the Lamberts had breached their contract with State Farm by releasing Ms. Hall and Alfa without first obtaining its written consent as required by the policy. The trial court agreed, entered summary judgment for State Farm, and made the judgment final pursuant to the provisions of Rule 54(b), Ala.R.Civ.P. The Lamberts appeal.

Although the only issue presented is whether the trial court properly entered the summary judgment for State Farm, the Lamberts ask us to hold that "consent to settle" clauses in uninsured/underinsured motorist policies are void as against public policy. ²

The enforceability of "consent to settle" and "subrogation" clauses in uninsured/underinsured motorist policies is a troublesome issue, and the issue has been considered by this Court and the Court of Civil Appeals on other occasions, but neither this Court nor the Court of Civil Appeals has specifically held, in a situation involving underinsured motorist coverage, that a consent-to-settle clause or a subrogation clause is void, and neither Court has set out specific procedures that should be followed when a dispute develops between an insured and his or her provider of underinsured motorist coverage. In this case, we will attempt to set forth some specific guidelines that should be of assistance to the disputants and the courts when such problems arise.

To establish these procedures, we begin by reviewing the history of uninsured/underinsured /underinsured motorist coverage in Alabama. The legislature in 1966 adopted Alabama's first Uninsured Motorist Act. See Act No. 866, Acts of Alabama 1965, Regular Session, Vol. II, p. 1614, amended by Act No. 84-301, Acts of Alabama 1984, p. 672; many of the provisions of those acts have now been codified in Ala.Code 1975, § 32-7-23.

From the beginning, disputes have surfaced between insurers and their insureds over the extent to which insurers can exclude coverage in view of the mandates of the legislature contained in the Uninsured Motorist Act, as amended. Some of the first cases involved the right of an insurer to prevent "stacking" of coverage, for example. See Travelers Ins. Co. v. Jones, 529 So.2d 234 (Ala.1988) (even though the passengers were not named insureds, they could stack coverage because they came within the definition of "insured" under the terms of the uninsured motorist portion of the policy and there was additional coverage for another automobile within the contract); White v. Georgia Cas. and Sur. Ins. Co., 520 So.2d 140 (Ala.1987) (a company employee, designated in the primary liability section of the insurance policy as one who is "insured thereunder," was allowed to stack coverage under the company's fleet policy; the passenger was held not to be "insured thereunder" and was not allowed to stack coverage); and Safeco Ins. Co. of America v. Jones, 286 Ala. 606, 243 So.2d 736 (1970). Other cases have raised different issues. See, e.g., Sweatt v. Great American Ins. Co., 574 So.2d 732 (Ala.1990) (the provisions of the uninsured motorist statute do not apply to excess insurance policies); Best v. Auto-Owners Ins. Co., 540 So.2d 1381 (Ala.1989) (a person who voluntarily elects not to obtain underinsured motorist coverage in a state that does not mandate such coverage is not protected by underinsured coverage when involved in an accident in Alabama merely because Alabama mandates uninsured coverage unless rejected by the policy owner).

The purpose of the Uninsured Motorist Act has been stated many times and was summarized in Champion Ins. Co. v. Denney, 555 So.2d 137 (Ala.1989), as follows:

"It appears from the plain and unambiguous wording of [Ala.Code 1975, § 32-7-23] that it is the purpose of the Uninsured Motorist Act, and, thus, the public policy of the state, that Alabama citizens purchasing automobile liability insurance are to be able to obtain, for an additional premium, the same protection against injury or death at the hands of an uninsured motorist as they would have had if the uninsured motorist had obtained the minimum liability coverage required by the Motor Vehicle Safety Responsibility Act."

Apparently, the first attack on the validity of consent-to-settle and subrogation clauses was made in Alabama Farm Bureau Mut. Cas. Ins. Co. v. Clem, 49 Ala.App. 457, 273 So.2d 218 (Ala.Civ.App.1973). In that case, the insured "settled with the insurer of one possible tort-feasor for $10,000.00, and later recovered a $39,300.00 judgment from the uninsured tort-feasor, leaving unrecovered damages of $29,300.00." 49 Ala.App. at 461, 273 So.2d at 221. The insurer in that case argued on appeal that its insured had not first obtained its written consent to settle with the tortfeasor, that it had the right to limit its liability in this manner, and that the policy provision did not contravene public policy. The Court of Civil Appeals, in affirming the judgment of the trial court holding that the exclusionary clause did not prevent a settlement under the facts of that case, stated, "This exclusion, when applied to tort-feasors other than the uninsured motorist, is an invalid abridgment of the coverage required by the statute, and is void." 49 Ala.App. at 461, 273 So.2d at 222 (quoting with approval Harthcock v. State Farm Mut. Auto. Ins. Co., 248 So.2d 456, 459 (Miss.1971)). (Emphasis added.)

The Court of Civil Appeals reached a similar result in Alabama Farm Bureau Mut. Cas. Ins. Co. v. Humphrey, 54 Ala.App. 343, 308 So.2d 255 (Ala.Civ.App.1975). There, plaintiff's intestate, the defendant's insured, was killed in an automobile accident involving three vehicles. The insured was riding in an uninsured automobile. One of the other automobiles was also uninsured, but the third vehicle was insured. The personal representative of the insured entered into a pro tanto settlement with the insured tort-feasor without first obtaining the consent of the intestate's insurer and without protecting the insurer's subrogation rights. The court held, as it had in Clem, "that the Alabama uninsured motorist statute contain[s] no provision as to rights of subrogation, as do the statutes in some other states," but that the principle of law enunciated by this Court in Safeco Ins. Co. of America v. Jones, 286 Ala. 606, 243 So.2d 736 (1970), would not permit an insurer "to insert any provision...