Nationwide Mut. Ins. Co. v. Hatfield, 2001-SC-0969-DG.

Decision Date18 December 2003
Docket NumberNo. 2001-SC-0969-DG.,2001-SC-0969-DG.
Citation122 S.W.3d 36
PartiesNATIONWIDE MUTUAL INSURANCE COMPANY, Appellant, v. Timothy G. HATFIELD, Executor of the Estate of Charles Gay Hatfield, Appellee.
CourtUnited States State Supreme Court — District of Kentucky

Gregory L. Smith, Kristie Babbitt Walker, Smith & Hoskins, Louisville, Counsel for Appellant.

Lee E. Sitlinger, Louisville, Counsel for Appellees.


This appeal is from a decision of the Court of Appeals which reversed a summary judgment entered by the circuit court which had dismissed the claim of the Hatfields and upheld the exclusion for underinsured coverage as found in the Nationwide policy of insurance.

This case involves a question of insurance coverage arising from an automobile collision. The key question relates to the validity of excluding government-owned vehicles from underinsured coverage.

Nationwide frames the issues as follows: 1) that the Court of Appeals erred in voiding the plain language of the policy excluding government-owned vehicles; 2) that the Supreme Court has specifically upheld the exclusion of coverage for damages caused by governmental agencies; 3) that U.S. Fidelity & Guaranty Co. v. Preston, Ky., 26 S.W.3d 145 (2000), does not overrule the principles of Commercial Union Insurance Co. v. Delaney, Ky., 550 S.W.2d 499 (1977); 4) that the Court of Appeals erred in applying the doctrine of "reasonable expectations" to the contract language; and 5) that long-standing public policy may not be amended without legislative authority.

Hatfield states that the questions presented are as follows: 1) that the policy language "due by law" does not preclude recovery of underinsured motorist coverage benefits under the facts of this case; 2) that the policy language contained in the "recovery" provision of the underinsured motorist endorsement does not preclude recovery in this case; 3) that the underinsured motorist coverage exclusion for government vehicles is void and unenforceable; and 4) that the doctrine of reasonable expectations compels the extension of underinsured motorist coverage benefits under the facts of this case.


In 1997, Charles and Elouise Hatfield of Louisville, were traveling in Missouri when they were involved in a collision with a fire truck owned by the City of Montgomery. The driver of the fire truck was found responsible. Elouise Hatfield died from the injuries sustained in the crash, and Charles Hatfield survived the accident but is now deceased. This action is prosecuted by the executor of the estate of Charles Hatfield.

Under Missouri law, the municipality enjoys sovereign immunity except to the extent that the governmental body purchased liability insurance for tort claims. See Mo.Rev.Stat. § 537.610(1)(2003). Charles Hatfield and the estate of Elouise Hatfield each recovered $100,000 in damages following the collision, the maximum amount allowed by Missouri law. Those amounts did not cover the aggregate damages caused by the accident. Consequently, the Hatfields filed a claim with Nationwide to collect additional damages under their insurance policy provision providing underinsured motorist coverage. The Hatfields had purchased this optional coverage for two vehicles in exchange for an additional premium. Nationwide rejected the claim because of the exclusion of government-owned vehicles from the definition of what would be covered by underinsured protection. Nationwide reasoned that the policy language excluding accidents involving government-owned vehicles and the language requiring damages to be "due by law" before payment is required under the policy to be controlling. The policy of insurance was purchased in Kentucky and contained the underinsured motorist coverage benefits provision payable in accordance with the underinsured motorist statute, KRS 304.39-320.

The circuit judge granted summary judgment in favor of Nationwide and the Court of Appeals reversed and remanded, finding that the exclusion was against public policy. This Court accepted review.

I. Policy Language "Due by Law"

In rejecting the claim by the Hatfields, Nationwide relied on the following language in the policy:

We will pay compensatory damages, including derivative claims, because of bodily injury suffered by you or a relative and due by law from the owner or driver of... an underinsured motor vehicle.... (emphasis ours)

Nationwide argues that because the City of Montgomery is protected from monetary liability by the doctrine of sovereign immunity, the language above prevents the Hatfields from recovering under their underinsured motorist coverage. We do not agree.

In Kentucky, the exclusionary or limiting language in policies of automobile insurance must be clear and unequivocal and such policy language is to be strictly construed against the insurance company and in favor of the extension of coverage. See Louisville Gas & Electric v. American Ins. Co., 412 F.2d 908 (6th Cir.1969); Eyler v. Nationwide Mutual Fire Ins. Co., Ky., 824 S.W.2d 855 (1992); Wolford v. Wolford, Ky., 662 S.W.2d 835 (1984); B. Perini & Sons, Inc. v. Southern Ry. Co., Ky., 239 S.W.2d 964 (1951).

In Preston, supra, the insured filed a lawsuit in the State of Georgia where his automobile accident had occurred. The jury found that he was 60 percent at fault. Because Georgia has a modified comparative fault statute, the insured was precluded from recovering against the tortfeasor and his Georgia lawsuit was dismissed. Thereafter, the insured filed suit in Kentucky seeking uninsured motorist coverage benefits from his own carrier, USF & G. The carrier rejected the claim relying on the following language in the policy:

We will pay all sums the insured is legally entitled to recover as compensatory damage from the owner or driver of an uninsured motor vehicle.

Ultimately, we held that an insured was legally entitled to recover damages from an uninsured motorist even though the insured was 60 percent at fault and Georgia law of modified comparative fault precluded recovery. Further, we held that the liability of USF & G is not vicarious or purely derivative, but is based on an independent contract that could be enforced even if the tortfeasor had been unidentified. This Court adopted the "essential facts" approach in interpreting such policy language even though the insured was not capable of obtaining a judgment against the tortfeasor. This approach requires an insured to prove 1) the fault of the uninsured motorist, and 2) the extent of damages caused by the uninsured motorist. Preston, cited with approval Puckett v. Liberty Mutual Ins. Co., Ky., 477 S.W.2d 811 (1971), where it was held that a requirement of a judgment was not essential to a claim for uninsured motorist coverage even though the inability to obtain a judgment effectively abolished the subrogation rights of the carrier.

We recognize that the trial judge did not have the benefit of the Preston decision when she considered the summary judgment motions in this case. There is no material distinction between the policy language "due by law" used by Nationwide and "legally entitled to recover" used by USF & G.

In Preston, this Court cited with approval cases from various foreign jurisdictions which support the essential facts approach. In summary, they are as follows: Harvey v. Mitchell, 522 So.2d 771 (Ala.1988); Hettel v. Rye, 251 Ark. 868, 475 S.W.2d 536 (1972); Allstate Ins. Co. v. Elkins, 63 Ill.App.3d 62, 21 Ill.Dec. 66, 381 N.E.2d 1 (1978); Allied Fidelity Ins. Co. v. Lamb, 361 N.E.2d 174 (Ind.Ct.App.1977); Patrons Mutual Ins. Ass'n v. Norwood, 231 Kan. 709, 647 P.2d 1335 (1982); Reese v. Preferred Risk Mutual Ins. Co., 457 S.W.2d 205 (Mo. Ct.App.1970); Pemberton v. Farmers Ins. Exchange, 109 Nev. 789, 858 P.2d 380 (1993); Satzinger v. Satzinger, 156 N.J.Super. 215, 383 A.2d 753 (Ch.Div.1978); In the Matter of the Arbitration between De Luca and MVAI Corp., 17 N.Y.2d 76, 268 N.Y.S.2d 289, 215 N.E.2d 482 (1966); Torres v. Kansas City Fire & Marine Ins. Co., 849 P.2d 407 (Okla.1993); Sahloff v. Western Casualty & Surety Co., 45 Wis.2d 60, 171 N.W.2d 914 (1969).

Under the facts here, the policy language in question was not intended to exclude the application of underinsured motorist coverage. It simply requires that the insured establish fault on the part of the underinsured motorist and uncompensated damages sustained as a result of that fault. The policy language is not to be interpreted so as to deny coverage when both essential elements are clearly established.

We are persuaded by the analysis provided by Professor Alan Widiss in his treatise, Widiss, Uninsured and Underinsured Motorist Coverage, § 35:10 (1992). He concludes that such phrases should not be interpreted to preclude the right of an insured to recover underinsured motorist insurance when tort immunity either precludes securing or restricts the indemnification from a tortfeasor. A majority of courts in the United States have accepted this interpretation. See Jay M. Zitter, Validity, Construction & Application of Exclusion of Government Vehicles from Uninsured-Motorist Provision, 58 A.L.R. 5th 511, 1998 WL 210783 (1998). Seventeen states have held that such clauses are void as against public policy while five states are listed as upholding such exclusions. Kentucky is listed among the latter category by reason of the Delaney, supra, decision. Most of the cases in the A.L.R. article deal with uninsured coverage as contrasted with underinsured coverage. As noted by the Court of Appeals, this distinction is of critical importance. Uninsured coverage is required by statute and consequently it is not separately bargained for. However, underinsurance coverage must be requested by the insured and a separate additional premium is required.

Such an interpretation of policy language is consistent with other Kentucky case law. In Philadelphia Indemnity Insurance Co. v. Morris, Ky., 990 S.W.2d 621 (1999), the issue was whether the exclusive...

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