Schwartz v. Hasty

• Decision Date: 16 November 2005
• Docket Number: No. 2003-CA-000796-MR.,2003-CA-000796-MR.
• Citation: 175 S.W.3d 621
• Parties: Robert SCHWARTZ, Appellant, v. Billy HASTY and Kentucky Farm Bureau Mutual Insurance Company, Appellees.
• Court: United States State Supreme Court — District of Kentucky

175 S.W.3d 621

Robert SCHWARTZ, Appellant, v. Billy HASTY and Kentucky Farm Bureau Mutual Insurance Company, Appellees.

No. 2003-CA-000796-MR.

Court of Appeals of Kentucky.

February 11, 2005.

Discretionary Review Denied by Supreme Court November 16, 2005.

COPYRIGHT MATERIAL OMITTED

Don A. Pisacano, Lexington, KY, for appellant.

Guy R. Colson, Casey C. Stansbury, Lexington, KY, for appellee, Kentucky Farm Bureau.

Before BUCKINGHAM, DYCHE, and TAYLOR, Judges.

OPINION

BUCKINGHAM, Judge.

Robert Schwartz appeals from an order of the Garrard Circuit Court holding that the underinsured motorist (UIM) benefits received by him were not subject to the collateral source rule and could be credited against the tort damages awarded to him in determining the damages recoverable from Billy Hasty, the tortfeasor. This is apparently an issue of first impression in Kentucky law. We reverse and remand.

On May 29, 2000, Schwartz was severely injured in a vehicular accident when a car driven by Hasty made a left turn into a driveway in front of him. Hasty had vehicle liability insurance coverage through a policy with Kentucky Farm Bureau Mutual Insurance Company (Farm Bureau). As the policy related to this accident, the liability limit was $100,000. Schwartz had two vehicle liability insurance policies, one with State Farm Insurance Company (State Farm) on his truck and the other with Progressive Northern Insurance Company (Progressive) on his motorcycle. As the policies were applicable to this accident, the State Farm policy had UIM coverage for $100,000 and the Progressive policy had UIM coverage for $25,000.

Schwartz filed a personal injury tort complaint against Hasty in the Garrard Circuit Court, seeking damages suffered as a result of the accident. Hasty filed an answer and counterclaim alleging contributory negligence. Schwartz later filed an amended complaint that added Farm Bureau, State Farm, and Progressive as parties. The amended complaint included a new claim of bad faith against Farm Bureau.

After conducting discovery, Farm Bureau, State Farm, and Progressive each elected not to participate in the trial. Schwartz and Farm Bureau also entered into an agreed order bifurcating the proceeding by first trying the original personal injury tort claim and reserving the bad faith settlement tort claim until resolution of the injury claim. Schwartz filed a pretrial motion asking the court to exclude any evidence of collateral source payments, and the court granted the motion.

The case was tried before a jury, and the jury found both parties contributorily negligent with Hasty 80% at fault and Schwartz 20% at fault. The jury found total damages of $248,313. Consistent with the jury's verdict assessing contributory fault, the trial court entered a judgment in favor of Schwartz for $198,650.40 plus costs and interest. Hasty then filed a notice of appeal of the trial court's judgment.¹

After Hasty filed a notice of appeal, Schwartz settled his claims against both of the UIM carriers. He recovered the policy limit of $25,000 from Progressive and also recovered $78,614.27 from State Farm.² Schwartz subsequently filed a notice to take Hasty's deposition to inquire as to his financial assets in order to facilitate collection on the judgment.

In January 2003 Schwartz, Hasty, and Farm Bureau entered into a partial settlement whereby Farm Bureau paid Schwartz $160,000, $100,000 of which was related to Hasty's liability insurance coverage and $60,000 of which was related to Schwartz's bad faith claim against Farm Bureau. In return, Schwartz released and discharged Hasty and Farm Bureau from all actions or claims that arose from the accident. Schwartz also agreed to indemnify and hold Hasty harmless for any potential claim of Progressive for indemnity against Hasty for its payment of UIM benefits to Schwartz.³ The settlement agreement, however, stated that the parties disagreed as to the effect of the UIM payments, and it reserved the issue of whether these payments would offset the jury's verdict as collateral source payments. Farm Bureau agreed to be responsible for any additional payments to satisfy the judgment should resolution of this issue so require.

Consistent with the settlement agreement, Farm Bureau filed a motion for order of satisfaction, seeking resolution of the reserved issue. Farm Bureau argued that KRS⁴ 304.39-320 limited Schwartz to recovery of an amount equal to the jury's verdict reduced by UIM payments. Farm Bureau asserted that the UIM payments did not fall within the collateral source rule. Schwartz filed a response to the motion, maintaining that UIM benefits do constitute collateral source payments and that KRS 304.39-320 did not apply to Farm Bureau.

Meanwhile, Progressive filed a motion for declaratory judgment, seeking indemnification from Hasty for the $25,000 it paid to Schwartz under its UIM policy based on its subrogation rights recognized in KRS 304.39-320(4). Hasty responded that Progressive was required to file a separate action on its subrogation claim rather than utilize a summary proceeding. The trial court summarily denied Progressive's motion.

On March 26, 2003, the trial court entered an order of satisfaction in favor of Farm Bureau. The order relieved Farm Bureau of any further obligation on the judgment, holding that Hasty was entitled to a credit or setoff against the amount in the jury verdict due to the UIM payments made by State Farm and Progressive. The court stated it could find nothing in KRS 304.39-320 to indicate an intent to allow an injured party to receive a double recovery. Schwartz has brought this appeal from the order of satisfaction.

Schwartz contends that the trial court erred by failing to apply the collateral source rule to deny Hasty a credit for the UIM payments by State Farm and Progressive. Farm Bureau maintains that the court correctly held that the collateral source rule did not apply and that the rule was inconsistent with KRS 304.39-320. The applicability of the collateral source rule is a matter of law subject to our independent review. See, e.g., Weatherly v. Flournoy, 929 P.2d 296, 298 (Okla.Ct.App.1996); Paulson v. Allstate Ins. Co., 263 Wis.2d 520, 665 N.W.2d 744, 749 (2003). Similarly, the interpretation of a statute is a legal issue subject to de novo or independent review. See Bob Hook Chevrolet Isuzu, Inc. v. Commonwealth, Transp. Cabinet, 983 S.W.2d 488, 490-91 (Ky.1998).

Farm Bureau's major contention is that denying Hasty a credit or setoff for the UIM payments received by Schwartz would allow Schwartz to receive a double recovery. A general goal of compensatory damages in tort cases is to put the victim in the same position he would have been prior to the injury or make him whole to the extent that it is possible to measure his injury in terms of money. See, e.g., Kentucky Cent. Ins. Co. v. Schneider, 15 S.W.3d 373, 374 (Ky.2000); Paducah Area Pub. Library v. Terry, 655 S.W.2d 19, 23 (Ky.App.1983); 22 AM.JUR.2D Damages § 27 (2003). As a result, an injured party typically cannot receive more than one recovery as compensation for the same harm or element of loss. See Morrison v. Kentucky Cent. Ins. Co., 731 S.W.2d 822, 825 (Ky.App.1987). However, the collateral source rule is an exception to the rule against double recovery. See Hardaway Management Co. v. Southerland, 977 S.W.2d 910, 918 (Ky.1998).

The collateral source rule provides that benefits received by an injured party for his injuries from a source wholly independent of, and collateral to, the tortfeasor will not be deducted from or diminish the damages otherwise recoverable from the tortfeasor. See, e.g., 22 AM.JUR.2D Damages § 392 (2003); BLACK'S LAW DICTIONARY 254 (7th ed.1999); Restatement (Second) of Torts § 920A(2) (1979). The collateral source rule has been long recognized in Kentucky. See Louisville & N.R. Co. v. Carothers, 65 S.W. 833, 834 (Ky.1901); McFarland v. Bruening, 299 Ky. 267, 185 S.W.2d 247, 249 (1945); Barr v. Searcy, 280 Ky. 535, 133 S.W.2d 714, 715 (1939). In Taylor v. Jennison, 335 S.W.2d 902 (Ky.1960), the court stated:

The general rule recognized in other jurisdictions is that damages recoverable for a wrong are not diminished by the fact that the injured party has been wholly or partly indemnified for his loss by insurance (to whose procurement the wrongdoer did not contribute). We are convinced this rule is sound, particularly since there is no logical or legal reason why a wrongdoer should receive the benefit of insurance obtained by the injured party for his own protection. It is a collateral contractual arrangement which has no bearing upon the extent of liability of the wrongdoer. [Citations omitted.]

Id. at 903.

Various justifications have been presented in support of the rule. First, the wrongdoer should not receive a benefit by being relieved of payment for damages because the injured party had the foresight to obtain insurance. See Taylor, 335 S.W.2d at 903; O'Bryan v. Hedgespeth, 892 S.W.2d 571, 576 (Ky.1995). Second, as between the injured party and the tortfeasor, any so-called windfall by allowing a double recovery should accrue to the less culpable injured party rather than relieving the tortfeasor of full responsibility for his wrongdoing. See Johnson v. Beane, 541 Pa. 449, 664 A.2d 96, 100 (1995); Bozeman v. State, 879 So.2d 692, 703 (La.2004); 22 AM.JUR.2D Damages § 392 (2003). Third, unless the tortfeasor is required to pay the full extent of the damages caused, the deterrent purposes of tort liability will be undermined. See Restatement (Second) of Torts § 901(c) (1979); Ellsworth v. Schelbrock, 235 Wis.2d 678, 611 N.W.2d 764, 767 (2000).

Another issue often raised with the collateral source rule involves subrogation. Especially with automobile insurance coverage, insurers have an equitable, contractual, or statutory right of subrogation in the benefits paid to the insured. See, e.g., Wine v. Globe Am. Cas. Co., 917 S.W.2d 558...