Underinsured Motorist Insurance and Subrogation Rights

State Farm Mutual Automobile Insurance Company v. Kern (Ind. Ct. App. Sept. 20, 2012)

The Court of Appeals issued an important decision regarding underinsured motorist insurance and subrogation rights.

A jury found Alan Steady one-hundred percent at fault for injuries Ronald Kern sustained when the two were involved in a car accident and awarded Kern $98,000 in damages. Steady had $25,000 worth of insurance coverage. Therefore, State Farm, Kern’s insurer, paid the difference between the $98,000 and the payments made by Steady’s insurance company. Steady asked the trial court to deem the judgment against him satisfied pursuant to Indiana Trial Rule 60(B)(7) because Kern was compensated by State Farm. The trial court granted Steady’s motion. State Farm, appealed and the Court of Appeals reversed the trial court’s decision. The Court’s explanation is thorough, persuasive, and worth reproducing in full:
When an insurer compensates its insured due to a third party tortfeasor being underinsured, the third party tortfeasor’s liability is not reduced. Rather, Indiana Code section 27-7-5-6(a) provides that the insurer may enforce its insured’s right of recovery against the third-party tortfeasor, either in its own name or in the name of its insured, and that the insurer shall then be subrogated to the proceeds of any settlement or judgment that results.2 To allow a judgment entered against the third-party tortfeasor to be deemed satisfied due to the insurer’s underinsured motorist payment to its insured would undermine the purpose of this statute. Thus, we conclude that when a judgment is entered against a third-party tortfeasor, said judgment is not satisfied when the plaintiff’s insurer compensates the plaintiff due to the third-party tortfeasor’s being underinsured. Steady is not entitled to benefit from Kern’s carefulness and assiduousness in obtaining underinsured motorist insurance coverage.
(Slip Op. p.5-6.)

This decision is very important for insurance defense counsel who represents potentially underinsured defendants and those who represent underinsurance carriers. Counsel should be aware of the consequences of a verdict in excess of the defendant’s insurance policy limits and should communicate these consequences to their clients.

This Rule provides that a trial court may relieve a party from a judgment after the judgment is satisfied.

Uninsured motorist carriers who pay benefits to their insureds may subsequently attempt to recover from the at-fault party.