COA: Insurance company cannot swerve around state’s UIM Statute

A worker injured in a car accident while on the job will receive payment from his insurance company after the Court of Appeals of Indiana found the policy provision which reduced coverage by the amount paid on a workers’ compensation claim payment did not comport with the state’s underinsured motorist statute.

Donald Kearschner was in an automobile collision while working at Walmart and injured his shoulder. The other driver was found to be at fault, but his car insurance policy had a limit of $50,000.

Kearschner’s auto insurance policy included an underinsured motorist endorsement of $100,000 per person/$300,00 per accident. Also, the policy contained a provision that stated a payment received from a workers’ compensation claim would reduce the coverage award.

After Kearschner filed a lawsuit he and the other driver settled by $50,000, but American Family sought summary judgment. The insurance company argued that under Kearschner’s policy, he had already received $50,000 from the other driver and $62,084.52 from workers’ compensation. Since the combined amount exceeded his underinsured motorist coverage of $100,000, American Family contended it did not owe Kearschner anything.

Kearschner countered the policy’s setoff for workers’ compensation payments was “void” and “unenforceable” because it was contrary to state statute. He pointed to the state’s underinsured motorist statute, Indiana Code § 27-7-5-2, and asserted the law contained two minimum coverages of either $50,000 or “an amount at least equal to the bodily injury liability coverage,” which under Kearschner’s policy was $100,000. The insurance company would not have to provide such coverage only if the insured rejected the payment in writing.

Owen Circuit Court granted summary judgment, but the Court of Appeals reversed in Donald Kearschner v. American Family Mutual Insurance Company, S.I., 21A-CT-1888, on Wednesday.

American Family relied on Justice v. Am Fam. Mut. Ins. Co., 4 N.E. 3d 1171 (Ind. 2014) to support its argument that Kearschner’s underinsured liability limit had been reduced to zero.

However, the appellate panel noted the Justice court held the inquiry must go further than an examination of the insurance policy. Specifically, the justices noted a determination had to be made as to whether the policy provision comported with the state’s underinsured motorist statute.

They noted the language of the underinsured statute required insurers provide an insured with a minimum underinsured motorist coverage amount of $50,000.

As in Justice, the Court of Appeals found American Family’s move to reduce Kearschner’s underinsured payment by the amount he received from workers’ compensation was “contrary to the relevant part of the UIM Statute and, therefore, unenforceable.”

The appellate court found Kearschner is entitled to the difference between his underinsured policy limit of $100,000 and the $50,000 he received from the other driver.

“The worker’s compensation reduction in the UIM Limit Reduction Provision resulted in a reduction of Kearschner’s UIM policy limit to zero and diminished the protection required by the UIM Statute,” Judge Rudolph Pyle wrote for the court. “AFI’s policy provision attempting to reduce Kearschner’s UIM policy limit to zero based on the payment of any worker’s compensation benefits provided less coverage than the UIM statute required and is inconsistent with the view that the UIM Statute is a full recovery, remedial statute. Thus, we conclude that this specific policy provision is unlawful and unenforceable.”

In a footnote, the appellate panel noted American Family had cited Justice and Anderson v. Ind. Ins. Co., 8 N.E.3d 258, 262 (Ind. Ct. App. 2014) and argued underinsured motorist policies that contain carveouts for workers’ compensation are permissible as long as the insured receives at least $50,000 from either the other driver alone or a combination of the payments from the other driver and the insurance carrier.

The Court of Appeals rejected that argument.

“… We note that the Justice and Anderson Courts addressed only the $50,000 UIM statutory minimum discussed in the UIM Statute,” Pyle wrote. “Neither case addressed the UIM statutory minimum in Indiana Code § 27-7-5-2(a) that requires an insurer to provide UIM coverage in limits at least equal to the limits of liability specified in the bodily injury liability provisions of an insured’s policy, unless rejected in writing by the insured. Here, that provision is applicable to this case on appeal.”