Ms. White sued Llewellyn, seeking $3 million in compensatory damages for personal injuries she suffered, including pain and suffering, and $350,000 in punitive damages. Intending to rely on the underinsured motorist (“UIM”) coverage provision of her Erie policy, Ms. White also served a copy of her lawsuit against Llewellyn on Erie.

Before trial, Ms. White settled her potential UIM claims against Erie for $750,000. The settlement between Ms. White and Erie stated that it was “in full and complete settlement of all claims” Ms. White had against Erie. Ms. White agreed to release Erie from liability for “any and all claims” arising out of the lawsuit she had filed against Llewellyn.

In addition to the monetary payment, Erie agreed with Ms. White that Erie would waive its right, arising from Virginia Code § 38.2-2206 (regarding UIM coverage) or otherwise, to be subrogated to the rights Ms. White had against Llewellyn. Llewellyn was not a party to the settlement agreement.

A jury awarded Ms. White $1,500,000 against Llewellyn. Thereafter, Llewellyn moved under Virginia Code § 8.01-35.1 to reduce the verdict against her because of the $750,000 Erie had paid to Ms. White. She argued that Erie, as Ms. White’s UIM insurance carrier, was liable for the same injury as Llewellyn, and that because of the settlement between Ms. White and Erie, Llewellyn was statutorily entitled to an offset of $750,000.

Ms. White argued that Code § 8.01-35.1 did not apply because Erie, unlike Llewellyn, was not “a person liable for the . . . injury” to Ms. White. She argued that Code § 8.01-35.1 was enacted to enable the release of one joint tortfeasor without affecting the remaining tortfeasors, and Erie and Llewellyn were not joint tortfeasors. She also contended that the settlement between Erie and Ms. White only concerned a contract claim, not the resolution of a tort dispute, and that Code § 8.01-35.1 did not apply.

The trial court decided that Section 8.01-35.1 did not entitle Llewellyn to an offset and it awarded Ms. White a judgment against Llewellyn for the full amount of the jury’s verdict.

The dispute reached the Supreme Court of Virginia.

Virginia Law

Virginia Code § 8.01-35.1(A)(1) provides:

When a release or a covenant not to sue is given in good faith to one of two or more persons liable for the same injury to a person or property, . . . [the release or covenant not to sue] shall not discharge any other person from liability for the injury . . . unless its terms so provide; but any amount recovered against the other person or any one of them shall be reduced by any amount stipulated by the covenant or the release.

(Emphases added.)

The Virginia Supreme Court’s Decision

The Supreme Court of Virginia affirmed.

In its decision, the court explained that under Section 8.01-35.1(A), a defendant was entitled to a reduction of the judgment entered against the defendant by the amount the plaintiff received in settlement from another who also was responsible for the “identical wrong, harm, or damage as the defendant.”

In this case, the court said, the jury rendered a verdict against Llewellyn for her liability in tort that resulted from her negligent conduct towards Ms. White. In the court’s view, Erie, by virtue of its UIM policy with Ms. White, was not responsible for the same wrong or harm as that represented by the jury award against Llewellyn.

The court reasoned that when the jury found Llewellyn negligent, it found that she failed to exercise ordinary care for Ms. White’s safety, and that her failure caused Ms. White to suffer personal injuries.

By contrast, the court continued, Erie’s payment to Ms. White was not to compensate Ms. White’s personal injuries but to protect her against the potential inadequacy of Llewellyn’s assets to pay the damages awarded against Llewellyn.

The court added that Erie’s contractual obligation was to pay Ms. White because of Llewellyn’s inadequate motor vehicle insurance. That “contractual obligation” was not the same as Llewellyn’s tort obligation to pay for damages caused by her negligence, the court said. Therefore, it found, Erie and Llewellyn were not “persons liable for the same injury” under Section 8.01-35.1 and Llewellyn was not entitled to an offset because of Erie’s settlement agreement with Ms. White, its insured.

It concluded that Llewellyn failed to cite any reason the jury’s award of damages for injuries she alone was responsible for should be reduced by Ms. White’s insurance.

The case is Llewellyn v. White, No. 181108 (Va. Aug. 15, 2019). Attorneys involved include: For LLEWELLYN, ANN ELIZABETH, Appellant: SHANDS, WILLIAM TYLER, (ESQ.), KEENEY, CARTER TALIAFERRO, (ESQ.), FERRELL, EDWARD BRANDON, (ESQ.). For WHITE, ANN MICHELLE, Appellee: OOSTDYK, SCOTT CHARLES, (ESQ.), FENDER, MATTHEW DEVANE, (ESQ.), LOFTIN, ROBERT WILLIAM, (ESQ.).

Insurance Coverage Law Center Comment

Under similar circumstances, the Supreme Court of North Carolina held that the defendant was not entitled to a reduction of the amount of the judgment the plaintiff obtained against him on account of the existence of a UIM payment. Hairston v. Harward, 821 S.E.2d 384, 393 (N.C. 2018). The court noted in that case that the plaintiff’s entitlement to proceeds from UIM coverage depended equally on proof of the defendant’s negligence, as well as on the plaintiff’s foresight in purchasing UIM coverage. The court recognized that resolving whether to credit the amount of judgment with the insurance proceeds would inevitably result in a windfall to one party or the other, and concluded:

[T]he better option is to allow plaintiff to retain the “windfall” that results from his foresight in voluntarily electing to purchase [UIM] coverage rather than allowing defendant, who failed to purchase enough liability coverage to adequately compensate plaintiff for his injuries, to be the ultimate beneficiary of plaintiff’s decision to procure additional insurance coverage.

That decision was consistent with the vast majority of other jurisdictions that have decided this issue. See Stanford v. City of Flora, 112 N.E.3d 136, 145 (Ill. Ct. App. 2018) (“[A]lthough Illinois courts generally disfavor a double recovery, this is a situation where a double recovery is appropriate because plaintiff bargained for such a double recovery when he purchased his underinsured motorist policy.”); State Farm Mutual Automobile Ins. Co. v. Kern, 976 N.E.2d 716, 720 (Ind. Ct. App. 2012); Schwartz v. Hasty, 175 S.W.3d 621, 628-29 (Ky. Ct. App. 2005); Voge v. Anderson, 512 N.W.2d 749, 752 (Wis. 1994) (“Any windfall in benefits should inure to the injured party, not to the tortfeasor.”); Johnson v. Gen. Motors Corp., 438 S.E.2d 28, 36 (W. Va. 1993); Estate of Rattenni v. Grainger, 379 S.E.2d 890, 890 (S.C. 1989); International Sales-Rentals Leasing Co. v. Nearhoof, 263 So.2d 569, 570 (Fla. 1972).