In our last blog, we wrote about Erie Ins. Exch. v. Craighead in which the Indiana Court of Appeals held car insurance companies do not get setoffs against underinsured motorist (UIM) limits for payments made to their insureds under medical payments coverages. The day after the Court’s decision in Craighead, the Indiana Court of Appeals issued a similar opinion in Kearschner v. Am. Family Mut. Ins. Co., S.I. with respect to setoffs for worker’s compensation payments.
In Kearschner, Donald Kearschner (Kearschner) injured his shoulder in a car crash while working for Wal-Mart. The at-fault driver had a liability insurance policy with a $50,000 limit. Kearschner had his own insurance coverage with American Family Mutual Insurance Company (AFI), with $100,000 in liability coverage and $100,000 in UIM coverage. Kearschner sued the at-fault driver and AFI. Kearschner settled with the at-fault driver for the at-fault driver’s liability limit of $50,000 and sought an additional $50,000 in UIM coverage from AFI. AFI moved for summary judgment arguing that Kearschner was not entitled to any UIM coverage because, in addition to the $50,000 he received from the at-fault driver, he had also received a net amount of $62,084.52 in worker’s compensation payments, and his UIM policy stated that his UIM limit would be reduced by any payment from an at-fault driver and by any payment made under any worker’s compensation law. The trial court granted AFI’s motion and Kearschner appealed.
Similar to its decision in Craighead, the Indiana Court of Appeals held that the provision of Kearschner’s AFI policy providing a setoff for the $62,084.52 in worker’s compensation payments violated Indiana’s uninsured/UIM statute, specifically Indiana Code § 27-7-5-2 (“the UIM Statute”). The Court noted that the purpose of UIM coverage is to provide an insured with a recovery the insured would have received had the at-fault party carried adequate liability insurance, with the UIM Statute providing a minimum level of compensation. The UIM Statute provides that, absent a written rejection, UIM coverage (1) must be provided “in limits at least equal to the limits of liability specified in the bodily injury liability provisions of an insured’s policy,” and (2) may not be provided in an amount less than $50,000. Ind. Code § 27-7-5-2(a).
In reaching its holding, the Court found the Indiana Supreme Court’s decision in Justice v. Am. Family Mut. Ins. Co. to be instructive. The Court in Justice invalidated an identical policy provision that would have prevented an insured who had been paid $25,000 from an at-fault driver from receiving the statutory minimum of $50,000 in UIM coverage the insured had purchased. Here, AFI argued unsuccessfully that, despite the opinion in Justice, the setoff here did not violate the UIM Statute, as Kearschner had already received the $50,000 minimum set forth in the UIM Statute. AFI’s position was that the UIM Statute allows setoffs from UIM limits for worker’s compensation payments, even if they reduce UIM coverages to zero, so long as an insured receives, either from the at-fault party and/or the UIM carrier, at least the minimum $50,000 set forth in the UIM Statute. However, the Court of Appeals disagreed, noting the UIM Statute sets forth two minimum coverage amounts: the first (applicable here) is the coverage amount equal to an insured’s liability coverage limit (here, $100,000), and the second is the $50,000 minimum, which applies when an insured rejects in writing UIM coverage equal to the insured’s liability coverage. Rejecting AFI’s argument, the Court found AFI’s policy reducing Kearschner’s UIM coverage to zero violated the UIM Statute and reversed and remanded the case for further proceedings.
You can read the full opinion here.