Safeco Ins. Co. of America v. Allen, 77910

• Decision Date: 11 July 1997
• Docket Number: No. 77910,77910
• Citation: 262 Kan. 811,941 P.2d 1365
• Parties: SAFECO INSURANCE COMPANY OF AMERICA, Appellant, v. Terry V. ALLEN, Lou Accurso, and Robert Schroeder, Appellees.
• Court: Kansas Supreme Court

Page 1365

941 P.2d 1365

262 Kan. 811

SAFECO INSURANCE COMPANY OF AMERICA, Appellant, v. Terry V. ALLEN, Lou Accurso, and Robert Schroeder, Appellees.

No. 77910.

Supreme Court of Kansas.

July 11, 1997.

Syllabus by the Court

1. In interpreting an insurance contract where there is a conflict of laws, Kansas follows the lex loci rule, and the law of the state where the contract is made governs.

2. In an action by an insurer seeking to recover for payments made under a Missouri insurance policy for medical expenses incurred by its insured as a result of an automobile accident in Kansas, the record is examined, and it is held: The district court did not err in determining that Missouri law applies and, under the terms of the Missouri insurance policy, the payment of first-party medical expenses is not subject to subrogation by the insurer.

Paul Hasty, Jr., of Wallace, Saunders, Austin, Brown and Enochs, Chartered, Overland Park, argued the cause, and Chad K. Gillam, of the same firm, was with him on the briefs, for appellant.

Charles H. McKenzie, of The Accurso Law Firm, P.C., of Kansas City, MO, argued the cause, and Frederick J. Ernst, of the same firm, was with him on the brief, for appellees.

ALLEGRUCCI, Justice:

This is an action by Safeco Insurance Company of America (Safeco) against its insured, Terry Allen, and Lou Accurso, the attorney who represented Allen in a personal injury claim, and the attorney's assistant, Robert Schroeder, alleging that they failed to protect Safeco's subrogation interest. Allen was injured in an automobile accident that occurred in Kansas. The district court dismissed the claims against Allen and Schroeder for lack of personal jurisdiction. The district court granted summary judgment to Accurso on the first $2,000 of medical expenses paid and granted summary judgment to Safeco on the remaining $925 (rounded up to the next dollar), subject to any attorney fees to which Accurso may be entitled. Safeco appealed to the Court of Appeals. The case was transferred to this court on Safeco's motion, pursuant to K.S.A. 20-3017.

Material facts are not in dispute. The following facts are taken from the uncontroverted facts on which the district court based its rulings.

In September 1991, an automobile accident occurred in Prairie Village, Kansas, involving a vehicle operated by Allen and a vehicle operated by Ruth Head. Allen, a Missouri resident, was insured by Safeco in the state of Missouri. Allen made claim on Safeco under his insurance policy for medical expenses incurred as a result of the accident. Safeco paid Allen $2,924.60.

Allen made a tort claim against Head, and he was represented in his claim by the law firm of Accurso, Stein, McCaskill and Smith. The firm was located in Jackson County, Missouri. Schroeder was a legal assistant employed by that law firm. Acting on behalf of the firm, Schroeder agreed in a telephone conversation with a Safeco adjuster in St. Louis, Missouri, to protect Safeco's personal injury protection (PIP) lien in the event Allen recovered in tort against Head. At the time of the conversation, Schroeder was under the impression that Allen was a Kansas resident.

In December 1991, Allen settled all claims against Head. Safeco has not been reimbursed for the money it paid to Allen.

In addition to the facts put forward by the parties, the district court found that the Safeco policy provided $2,000 of medical payment coverage to Allen.

The district court dismissed Safeco's claims against Allen and Schroeder for lack of personal jurisdiction. Although Safeco cited the section of the long arm statute dealing with the commission of a tortious act in Kansas, the insurer made no factual allegations to support the exercise of jurisdiction on that basis. The district court also stated that there were no allegations even tending to show that the nonresident defendants purposely availed themselves of the privilege-conducting activities in Kansas from which Safeco's claims against them arose.

The district court concluded that State Farm Mut. Auto. Ins. Co. v. Baker, 14 Kan.App.2d 641, 797 P.2d 168, rev. denied 247 Kan. 705 (1990), was controlling. On the basis of Baker, the district court granted summary judgment to Accurso up to the limit of Safeco's liability under the medical payment provision of its policy, $2,000.

Finally, the district court granted summary judgment in favor of Safeco on the $925 of medical expenses paid in excess of the medical payments coverage. The court reasoned that Safeco was entitled to judgment on its claims against Accurso for breach of contract and conversion. The court cited in particular a written confirmation of the assurance, which first had been given by Schroeder in a telephone conversation, that Safeco's interest would be protected. In this regard, the district court stated:

"Safeco has not suggested that the written confirmation from Schroeder as to the terms of the agreement between Accurso and Safeco is inaccurate in its attorney fee provision. However, that issue was not squarely presented by the summary judgment motions." The court further stated: "Safeco's recovery is subject to any agreement made by Safeco to pay an attorney fee to Accurso on that recovery. If Accurso is entitled to an attorney fee of one-third, then Safeco would be entitled to judgment for two-thirds of the $924.60, which amount was clearly paid as PIP benefits, which are subject to Safeco's lien."

Safeco appealed from the parts of the judgment adverse to it. Accurso did not.

We first consider if Safeco had any right to recover the first $2,000 of medical payments to Allen. The district court concluded that Safeco did not, relying on the holding in Baker. Safeco suggests that this court should overturn Baker. Baker, a Missouri resident, was insured by State Farm under a policy issued in Missouri that provided medical payment coverage up to $1,000 not subject to subrogation by the insurer. Baker was involved in an automobile accident in Kansas. State Farm reimbursed him $511 for medical payments. State Farm alleged that the settlement of Baker's tort claim against the other driver was subject to subrogation. The Court of Appeals decided otherwise.

First, the Court of Appeals decided that Missouri law rather than Kansas law was applicable in construing the insurance policy "and determining the benefits afforded and paid, including those mandated under [the Kansas Automobile Injury Reparations Act] KAIRA." 14 Kan.App.2d at 645, 797 P.2d 168. The Court of Appeals parenthetically noted that the rules of construction applicable to insurance policies are virtually identical in Missouri and Kansas. Then, the Court of Appeals turned to the insurance policy:

"[T]he policy explicitly provides first-party medical payments coverage to the insured wholly apart from liability coverage. We also note that the policy states the medical payment coverage applies '[i]n the United States of America.' It is difficult to imagine any clearer language stating the parties' intent that the first-party medical payments coverage would apply out of state as well as within state. The insured, Baker, is entitled under the terms of the policy to the explicitly bargained for coverage and, in the event of an out-of-state accident [and exhaustion of medical payments coverage under the policy], replacement of that explicit coverage by coverage required under the laws of the sister state. There is no provision within the policy, nor under KAIRA, that would even remotely suggest Kansas personal injury protection benefits, statutorily mandated as part and parcel of liability coverage under a no-fault scheme, require elimination of first-party medical benefits insurance explicitly bargained for and provided in the policy. We hold that, under the circumstances of this litigation, the first $1,000 in medical benefits paid to or on behalf of Baker were under the first-party medical benefits, not under Kansas personal injury protection benefits, and not subject to subrogation." 14 Kan.App.2d at 646, 797 P.2d 168.

Hence, the district court's entry of summary judgment in favor of Baker and against State Farm was affirmed. 14 Kan.App.2d at 647, 797 P.2d 168.

With the exception that Allen's medical expenses exceeded his policy's expressed coverage, the facts in the present case match those in Baker. Safeco reimbursed Allen for his medical expenses. If the reimbursement was a medical expenses payment under the policy that Allen purchased, Safeco is not entitled to subrogation of recovery Allen received from Head up to the amount of the medical expenses coverage under the Missouri policy. If the reimbursement was a Kansas statutory PIP benefit, Safeco is entitled to subrogation. K.S.A. 40-3113a(b) provides, in part: "In the event of recovery from such tortfeasor by the injured person ... by judgment, settlement or otherwise, the insurer ... shall be subrogated to the extent of ... personal injury protection benefits provided to date of such recovery and shall have a lien therefor against such recovery."

Safeco urges this court to overturn the decision in Baker "because the conclusion reached by the [Court of Appeals] is in error insofar as the Court failed to consider the express language of the statute, K.S.A. 40-3110(a)." K.S.A. 40-3110(a) provides, in part:

"[P]ersonal injury protection benefits due from an insurer ... under this act shall be primary and shall be due and payable as loss accrues, upon receipt of reasonable proof of such loss and the amount of expenses and loss incurred which are covered by the policy issued in compliance with this act."

Safeco's reading of this provision is focused strictly on the phrase "shall be primary." Its position is that this statute "mandates that PIP is primary." Safeco does not take into consideration that the statute does not state that PIP benefits shall be primary but rather that PIP benefits "due from an insurer ... under this...