State Farm Mutual Automobile Insurance Co. v. Riggs
2016 Ky. LEXIS 97
| Ky. | 2016Background
- Lonnie Dale Riggs, a police officer, was severely injured in a car accident and received workers’ compensation (so he did not receive Basic Reparation Benefits).
- Nearly two years after the accident Riggs sued the alleged tortfeasor and later added a UIM claim against his insurer, State Farm; he settled the tort claim for the tortfeasor’s policy limits about two months after adding State Farm.
- Riggs’s State Farm policy contained a provision requiring UM/UIM actions to be commenced no later than two years after the injury or the last BRB payment, whichever is later (language mirroring KRS 304.39-230(6)).
- State Farm moved for summary judgment arguing Riggs’s UIM claim, filed three years after the accident, was time-barred by the policy clause; the trial court granted summary judgment for State Farm.
- The Court of Appeals reversed, holding the contractual two-year limit unreasonable because it could force insureds to sue before knowing whether the tortfeasor was underinsured; the Kentucky Supreme Court granted review.
- The Kentucky Supreme Court reversed the Court of Appeals and reinstated the trial court judgment, holding the two-year contractual limitation reasonable and enforceable.
Issues
| Issue | Plaintiff's Argument (Riggs) | Defendant's Argument (State Farm) | Held |
|---|---|---|---|
| Whether a contractual two-year limitation for filing UIM claims is reasonable and enforceable | The two-year clock from date of injury can expire before a UIM claim exists because the insured cannot know if the tortfeasor is underinsured until settlement or judgment; thus the clause is unreasonable and conflicts with KRS 304.39-320 | The clause mirrors the KMVRA two-year tort statute, is reasonable, allows insurers to be joined early, and does not force plaintiffs to obtain a tort judgment first | Held: The two-year contractual limitation is reasonable and enforceable; Riggs’s claim was untimely and summary judgment for State Farm affirmed |
| Whether a UIM cause of action accrues only after a judgment or settlement against the tortfeasor | A UIM claim does not exist until after settlement or judgment demonstrating underinsurance; accrual should be tied to that event | The insured’s contract rights to UIM benefits exist independently of a tort judgment; insurer may be sued before judgment as a breach/contract or declaratory action | Held: UIM claims are first-party contractual rights that exist prior to judgment; proof of liability/amount is an element of recovery but not a statutory prerequisite to filing |
| Whether the policy term conflicts with the statutory scheme in KRS 304.39-320 | The statutory scheme requires procedural protections (notice on settlement) and envisions UIM obligations only after settlement/judgment; a contractual clock running from injury is inconsistent with the statute | The policy term is not inconsistent because it aligns insureds’ enforcement window with the tort statute and is consistent with established practice of joining UIM carriers early | Held: The policy provision is not inconsistent with KRS 304.39-320 and is permissible |
| Remedy/limitations if clause invalid | If clause void, the 15-year statute of limitations for written contracts applies | Enforce the shorter contractual period to avoid long stale claims and coordinate litigation | Held: Clause valid; fallback 15-year contract statute not applied in this case |
Key Cases Cited
- Coots v. Allstate Ins. Co., 853 S.W.2d 895 (Ky. 1993) (UIM/UM claims are first-party contract-based rights; judgment is not a prerequisite to filing against insurer)
- Gordon v. Kentucky Farm Bureau Ins. Co., 914 S.W.2d 331 (Ky. 1995) (insurers may contract for shorter filing periods but limitations must be reasonable)
- Pike v. Governmental Employees Ins. Co., 174 Fed. Appx. 311 (6th Cir. 2006) (upholding analogous two-year policy limitation as reasonable under controlling law)
- True v. Raines, 99 S.W.3d 439 (Ky. 2003) (UIM insurer’s payment can operate as equivalent of settlement/judgment for purposes of statutory exhaustion/subrogation)
- Cincinnati Ins. Co. v. Samples, 192 S.W.3d 311 (Ky. 2006) (recognizing UIM carrier and tortfeasor as joint obligors and discussing procedural posture of UIM claims)