State Farm Mut. Ins. Co. v. Fireman's Fund Am. Ins. Co.

• Decision Date: 22 April 1977
• Citation: 550 S.W.2d 554
• Parties: STATE FARM MUTUAL INSURANCE COMPANY, Appellant, v. FIREMAN'S FUND AMERICAN INSURANCE COMPANY and Roy Edward Fite, Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 554

550 S.W.2d 554

STATE FARM MUTUAL INSURANCE COMPANY, Appellant, v. FIREMAN'S FUND AMERICAN INSURANCE COMPANY and Roy Edward Fite, Appellees.

Supreme Court of Kentucky.

April 22, 1977.

Woodson T. Wood, Fox, Wood & Wood, Maysville, for appellant.

Bernard J. Blau, Kaufmann, Johnson & Blau, Newport, for appellee Fireman's Fund American Ins. Co.

John H. Clarke, Jr., Clarke & Clarke, Maysville, for appellee Roy Edward Fite.

PALMORE, Justice.

State Farm Mutual Insurance Company (hereinafter State Farm) appeals from a judgment declaring invalid two provisions of its automobile liability insurance policy relating to the uninsured motorist coverage required by KRS 304.20-020. The questions are of first impression in this state.

The appellee Fite was injured while riding as a passenger in a truck owned and operated by his employer, Styleline Furniture Company (hereinafter Styleline). He was paid $4856.29 in workmen's compensation benefits by the appellee Fireman's Fund American Insurance Company (hereinafter Fireman's Fund), Styleline's compensation carrier. He also brought suit for common-law damages against an uninsured third-party tortfeasor whose negligence had caused the accident and against Styleline's automobile liability carrier, State Farm, under its uninsured motorist coverage. On State Farm's motion Fireman's Fund was made a third-party defendant and was required to assert its claim as Fite's subrogee.

The pertinent statutes in force at the time the facts giving rise to this controversy occurred were as follows:

KRS 304.20-020, a section of the Insurance Code applicable to casualty insurance contracts, prohibited the issuance or delivery of an automobile liability insurance policy in this state unless it provided coverage "for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury," etc. By reference to KRS 187.330(3) it required that the limits of such coverage be not less than $10,000 for injury to or death of one person and $20,000 for two or more persons.

KRS 342.055 (now KRS 342.700(1)), a section of the Workmen's Compensation Law, provided that whenever a compensable injury resulted from circumstances creating liability in some person other than the employer the injured employe could either claim workmen's compensation or sue the other person at common law, but could not have double recovery. The concluding sentence of this section provided for subrogation by operation of law, as follows: "If compensation is awarded under this chapter, either the employer or his insurance carrier, having paid the compensation or having become liable therefor, may recover in his or its own name or that of the injured employe from the other person in whom legal liability for damages exists, not to exceed the indemnity paid and payable to the injured employe."

In conformity with the Insurance Code, "Coverage U" of State Farm's policy obligated the insurer to pay, within the minimum statutory limits, all sums the insured should become legally entitled to recover for personal injuries from the owner or operator of an uninsured automobile.

Under an "Exclusions" clause the policy provided that Coverage U would not apply "so as to inure directly or indirectly to the benefit of any workmen's compensation or disability benefits carrier," etc. We shall refer to this as the exclusion.

Under the "Limits of Liability" section of a "Conditions" clause the policy provided that any amount payable under Coverage U "shall be reduced by . . . the amount paid . . . and payable on account of such bodily injury under any workmen's compensation law, disabilities benefits law or any similar law." We shall refer to this as the offset condition.

The cases cited in Fireman's Fund's brief all deal with provisions similar to State Farm's offset condition. Decisions from other jurisdictions on that subject are collected and discussed in an annotation at 24 A.L.R.3d 1369. They go in all directions. Suffice it to say, however, that in our opinion the minimum coverage limits prescribed by KRS 304.20-020 and KRS 187.330(3) cannot be reduced by a condition requiring the amount of workmen's compensation to be offset against such amount as the injured party otherwise would be entitled to recover under the uninsured motorist coverage of an automobile liability policy. Cf. Meridian Mutual Insurance Company v. Siddons, Ky., 451 S.W.2d 831 (1970).

The exclusion is a different matter. It does not affect the minimum coverage required by the insurance statutes, nor does it in any way diminish the compensation carrier's right of subrogation under KRS 342.055. The compensation carrier's right to pursue the third-party tortfeasor remains intact.

The trial court adjudged that both the exclusion and the offset condition were invalid and that to the extent of its compensation payments Fireman's Fund was entitled to reimbursement out of Fite's recovery against State Farm.

Under comparable statutes the Virginia Supreme Court of Appeals held a similar contractual exclusion valid on the theory that the compensation carrier's statutory right of subrogation is against the tortfeasor, not...