IS AN INSURANCE COMPANY REQUIRED TO PAY THE DIFFERENCE BETWEEN THE SETTLEMENT AMOUNT RECEIVED BY AN INSURED AND THE LIMITS OF THE INSURED’S UNDERINSURED MOTORIST POLICY?

Sometimes the black letter law passed by the legislature is unclear. The legislature can’t anticipate every possible fact scenario when they pass a law, so it lay to the courts to interpret the law and give guidance to what it means. This interpretation is called case law. When the court decides a certain meeting to the law it essentially answers a legal question. Lawyers and other courts then can rely on that ruling when they have a similar issue in their case. The following case answers the question above.

O’Donogue v. Farm Bureau Mutual Insurance Co., 275 Kan. 430, 66 P.3d 822 (2003).

This case addresses the following issue:

Is an insurance company required to pay the difference between the settlement amount received by an insured and the limits of the insured’s underinsured motorist policy?

Plaintiff was a passenger that was killed in a single-car accident. Id. at 431. However, because the car had three passengers, the limits of the driver’s insurance policy had to be divided between the victims, resulting in a very minimal payout to Plaintiff’s estate. Id. The court determined that Plaintiff’s own policy, which covered accidents with underinsured motorists, covered Plaintiff’s claim. Id. at 431. The court ultimately found that Defendant would owe Plaintiff the difference between her recovery from the underinsured motorist and the limits of Plaintiff’s own policy. Id. at 441.

This case is a bit convoluted and involves some odd facts. Plaintiff was one of three passengers in a car being driven by Plaintiff’s friend. Id. at 432. The driver carelessly caused an accident which severally injured two passengers and killed Plaintiff. Id. All three passengers (Plaintiff via her estate) filed suit against the driver, resulting in the driver’s insurance policy limits being divided equally between the three. Id. Plaintiff also had her own underinsured motorist policy with Defendant. Id. Plaintiff’s policy was limited to $100,000, so her estate sought $75,000—the difference between the policy limits and what the estate had received from the driver’s insurance—from Defendant pursuant to the policy. Id.

The court was largely being asked to interpret a statute, Section 40-284, which allows an insured to pursue claims under her own insurance policy, even though such claims would be the responsibility of another motorist. Id. at 433. The confusion largely dealt with whether the insured’s policy limits must be greater than those of the responsible motorists. Id. at 434.

After weighing the options and reviewing—in great, great detail—the language of the statute, the court found that the test itself was flawed. Id. at 440. Rather than testing the policy limits of the insured’s policy against the policy limits of the third-party, the real question was whether the insured’s damages exceeded what the insured was entitled to receive under the other driver’s policy. Id. Here, because there were three claimants who each got a portion of the settlement from the responsible driver, that was the appropriate metric. Id. The Defendant was responsible for the difference between the policy limits and what the Plaintiff had already actually received. Id. The ultimately policy limits, while generally useful in a single-claimant scenario, were not appropriate to use in this situation. Id. Thus, the trial court had correctly awarded Plaintiff her policy limits ($100,000) minus her recovery from the driver ($25,000), for an actual award of $75,000. Id.