Lou Ann DOWNEY and Delbert Downey
v.
TRAVELERS PROPERTY CASUALTY INSURANCE COMPANY.
Supreme Court of Alabama.
*953 Myron K. Allenstein and Rose Marie Allenstein of Allenstein & Allenstein, LLC, Gadsden, for plaintiffs.
Brenen G. Ely and Susan Haygood McCurry of Ely & Isenberg, LLC, Birmingham, for defendant.
WOODALL, Justice.
The United States District Court for the Northern District of Alabama, Middle Division, has certified to this Court the following question:
"Under Alabama law does the failure of an insured to give prior notice to his *954 or her insurer of a proposed settlement and release of an alleged tortfeasor cause the insured to forfeit underinsured motorist coverage regardless of the insured's actual knowledge of said coverage and regardless of prejudice to the insurer if the insured has possession of the policy which provides the coverage?"
We answer this question in the affirmative.
I. Factual Background
The facts are undisputed. On April 21, 2007, Delbert Downey was operating a motorcycle on which Lou Ann Downey was a passenger. While the Downeys' motorcycle was stopped at an intersection controlled by a traffic light, an automobile operated by Wyndell Thompson approached the intersection from the Downeys' rear. Mrs. Downey was seriously injured when Thompson failed to stop.
At the time of the accident, a number of insurance policies were in force. Thompson had a liability policy issued by First Acceptance Insurance Company, Inc. ("First Acceptance"), in the amount of $10,000. The Downeys had, among others, a Personal Automobile Insurance Policy ("the poliсy") issued by Travelers Property Casualty Insurance Company ("Travelers"). Each of the Downeys was a named insured on the policy. The policy listed three of the Downeys' vehicles, none of which was the motorcycle.[1] The policy provided uninsured/underinsured-motorist coverage as follows:
"COVERAGE D1 UNINSURED MOTORISTS (BODILY INJURY)
"INSURING AGREEMENT
"A. We will pay damages which an `insured' is legally entitled to recover from the owner or operator of an `uninsured motor vehicle' because of `bodily injury':
"1. Sustained by an `insured'; and
"2. Caused by an `accident.'
"The owner's or operator's liability for these damages must arise out of the ownership, maintenance or use of the `uninsured motor vehicle.'
"....
"B. `Insured' as used in this coverage means:
"1. You or any `family member.'
"2. Any other person `occupying' `your covered auto.'
"....
"C. `Uninsured motor vehicle' means a land motor vehicle or trailer of any type:
"1. To which no bodily injury liability bond or policy applies at the time of thе accident.
"2. To which a bodily injury liability bond or policy applies at the time of the accident. In this case its limit for bodily injury liability must be less than the minimum limit for bodily injury liability specified by the financial responsibility law of Alabama.
"3. For which the sum of the limits of liability under all bodily injury liаbility bonds or policies applicable at the time of the accident is not enough to pay the full amount the `insured' is legally entitled to recover as damages. In this case the applicable limits for bodily injury liability must be equal to or greater than the minimum limit for bodily injury liability specified by the financial responsibility law of Alabama.
*955 "....
"EXCLUSIONS
"A. We do not provide Uninsured Motorists Coverage for `bodily injury' sustained by any `insured':
"1. If that `insured' or the legal representative settles the `bodily injury' claim without our consent."
(Emphasis added.)
On July 8, 2008, the Downeys, in consideration of $10,000while represented by counsel but without having notified Travelers of the accident and without notifying it that they were doing soexecuted a general release fully discharging Thompson and First Acceptance from all liability arising out of the accident. On August 19, 2009, the Downeys, represented by different counsel, notified Travelers for the first time of the accident and that they were making a claim for underinsured-motorist ("UIM") benefits under the policy. Travelers denied the claim pursuant to Exclusion A.1. of the policy because of the Downeys' failure to obtain its consent to the settlement.
Subsequently, the Downeys sued Travelers in the Etowah Circuit Court alleging breach of contract. Travelers removed the case to the United States District Court for thе Northern District of Alabama, Middle Division. Each side moved for a summary judgment. In opposition to Traveler's motion, the Downeys submitted their own affidavits addressing the pre-settlement-notification issue. Specifically, they stated that the reason they "did not notify Trаvelers of the liability settlement is because [they] did not know [they] had UIM coverage because [they] had no UIM coverage on the motorcycle which was involved in the accident." (Emphasis added.) The federal district court certified to this Court the question regarding the legal effect of the Downeys' alleged ignorance of the scope of the policy's coverage.
II. Discussion
Central to this case is Lambert v. State Farm Mutual Automobile Insurance Co.,
In lieu of holding that consent-to-settle clauses were unenforceable,[2] this Court set forth a framework "that will guarantee that the insured will receive the benefits of the bargain he has madе, but that will, at the same time, protect the [UIM] insurance *956 carrier's subrogation rights against the tort-feasor ... and also protect the carrier against the possibility of collusion between the tort-feasor and his liability insurer,"
"[(1)] If the tort-feasor's liability insurance carrier and the insured enter into negotiations that ultimately lead to a proposed compromise or settlement of the insured's claim against the tort-feasor, and if the settlement would release the tort-feasor from all liability, then the insurеd, before agreeing to the settlement, should immediately notify the underinsured motorist insurance carrier of the proposed settlement and the terms of any proposed release.
"[(2)] At the time the insured informs the underinsured motorist insurance carrier of the tort-feasor's intent to settle, the insured should also inform the carrier as to whether the insured will seek underinsured motorist benefits in addition to the benefits payable under the settlement proposal, so that the carrier can determine whethеr it will refuse to consent to the settlement, will waive its right of subrogation against the tortfeasor, or will deny any obligation to pay underinsured motorist benefits. If the insured gives the underinsured motorist insurance carrier notice of the claim for underinsured motorist benefits, as may be provided for in the policy, the carrier should immediately begin investigating the claim, should conclude such investigation within a reasonable time, and should notify its insured of the action it proposes with regard to the claim for underinsured motorist bеnefits.
"[(3)] The insured should not settle with the tort-feasor without first allowing the underinsured motorist insurance carrier a reasonable time within which to investigate the insured's claim and to notify its insured of its proposed action.
"[(4)] If the uninsured motorist insurance carrier refuses to consent to a settlement by its insured with the tortfeasor, or if the carrier denies the claim of its insured without a good faith investigation into its merits, or if the carrier does not conduct its investigation in a reasonable time, the carrier would, by any of those actions, waive any right to subrogation against the tort-feasor or the tort-feasor's insurеr.
"[(5)] If the underinsured motorist insurance carrier wants to protect its subrogation rights, it must, within a reasonable time, and, in any event before the tort-feasor is released by the carrier's insured, advance to its insured an amount equal to the tort-feasor's settlement offer."
Lambert,
Notwithstanding the Lambert framework, the Downeys contend that "Alabama [case]law recognizes that lack of notice is excusable under certain circumstances." The Downeys' brief, at 3. This argument is unavailing.
"In the typical case, the insured must, at a minimum, put on evidence showing the reason for not complying with the [insurer's] notice requirement. This prerequisite satisfied, the insurer may then demonstrate that it was prejudicеd by the insured's failure to give timely notice." State Farm Mut. Auto. Ins. Co. v. Burgess,
The only reason proffered by the Downeys for their noncompliance with the notice requirement regarding settlement of their claim is that they did not know that the policy provided UIM coverage for the bodily injuries suffered by Mrs. Downey whilе riding the motorcycle. It is well settled, however, that "`uninsured motorist coverage inures to a person, not to a vehicle.'" State Farm Mut. Auto. Ins. Co. v. Jackson,
It is сlear, however, that where a named insured not only has possession of the policy but also is represented by counsel, ignorance of policy terms resulting from a failure to read the policy does not, as a matter of law, constitute an acceptable excuse for noncompliance with the notification requirements of the policy. See Southern Guar. Ins. Co. v. Thomas,
III. Conclusion
In this case, the Downeys were at all relevant times in possession of the policy, which clearly provided UIM coverage to them for bodily injury caused by the operator of an "uninsured motor vehicle." Not only so, but they were represented by legal counsel when, without prior notice to Travelers, they settled with Thompson and released him from all further liability. The only excuse they offer is that they were ignorant of the coverage the policy provided. That excuse is unreasonable as a matter of law. Consequently, they have not met the threshold of showing any allеged "certain conditions" under which "lack of notice [may be] excusable." In other words, the Downeys have "forfeit[ed]" UIM coverage.
QUESTION ANSWERED.
COBB, C.J., and STUART, BOLIN, PARKER, SHAW, MAIN, and WISE, JJ., concur.
MURDOCK, J., concurs in the result.
*958 MURDOCK, Justice (concurring in the result).
I concur in the result.
The underinsured-motorist ("UIM") insurance contract at issue in this case, like most such contracts, contains a clause that purports to prevent the insured from settling with an alleged tortfeasor without the consent of the insurance carrier to the proposed settlement. In Lambert v. State Farm Mutual Automobile Insurance Co.,
Burgess was decided in 1985, six years before the adoption in Lambert of the above-referenced procedural scheme. Moreover, Burgess addressed the possibility of an insured's being excused from giving notice of his or her accident; it did not concern the issue whether an insured could ever be excused from giving notice of a prоposed settlement.
NOTES
Notes
[1] The motorcycle was insured by yet a third insurer that did not provide uninsured/underinsured-motorist coverage.
[2] Lambert thus answers any contention that consent-to-settle clauses violate public policy or the Alabama Motor Vehicle Safety-Responsibility Act, Ala.Code 1975, § 32-7-23 ("the Act"). In other words, operation within the Lambert framework obviates concern over any alleged conflict with the Act.