An appellate court in Indiana, affirming a trial court's decision, has ruled that plaintiffs who settled with a tortfeasor without proper notice to or consent of the underinsured motorist ("UIM") insurer destroyed their right to recover under the UIM policy as a matter of law.
The Case
Penny Denecho was driving a vehicle owned by Darlene Johnson when she and Ryan Inglis were involved in an accident on State Road 9 in Madison County, Indiana.
Thereafter, Penny and Edward Denecho sued Mr. Inglis and Ms. Johnson's auto insurer, Indiana Farm Bureau Insurance Company. The Denechos alleged that they suffered injuries, losses, and damages as a direct and proximate result of the negligent, reckless, or careless maintenance by Mr. Inglis of his vehicle. The Denechos further alleged that because Mr. Inglis may have been underinsured at the time of the accident, Farm Bureau had to provide UIM benefits to the Denechos.
Thereafter, the Denechos executed a settlement agreement with Mr. Inglis and signed a written release of "any and all claims" against him in exchange for the payment by his auto insurer, Allstate Insurance Company, of the $50,000 policy limits.
Farm Bureau subsequently moved for summary judgment, contending that the Denechos had breached the Farm Bureau policy and had lost their right of action against Farm Bureau because they settled their claims with Mr. Inglis without proper notice to Farm Bureau or its consent.
The trial court granted Farm Bureau's motion, and the Denechos appealed.
The Farm Bureau Policy
The Farm Bureau policy provided:
If we make any payment, we are entitled to recover what we paid from other parties.
Any person or for whom we make payment must assign to us their rights of recovery against any other party. This person must do everything necessary to secure these rights and must do nothing after a loss that would jeopardize them.
(Emphasis added.)
The Appellate Court's Decision
The appellate court affirmed.
In its decision, the appellate court explained that Indiana law was clear that when an insured settled a claim with the tortfeasor without the insurer's consent, the insured breached the insurance policy's provisions requiring protection of the insurer's subrogation rights and forfeited any claim for UIM benefits under the policy.
Here, the appellate court found, the Denechos executed their settlement and a release of all claims against Mr. Inglis – including Farm Bureau's subrogation rights – without Farm Bureau's consent.
In doing so, the appellate court added, the Denechos "unquestionably denied Farm Bureau the opportunity to advance payment in an amount equal to the amount provided for in the offer in order to maintain its full rights of subrogation." It then ruled that this was a "clear breach of the insurance policy's provisions requiring protection of the insurer's subrogation rights."
The appellate court concluded that because the Denechos had released their claims against Mr. Inglis before settling with Farm Bureau, the release destroyed the Denechos' right of action against Farm Bureau by operation of law and they were precuded as a matter of law from maintaining an action against Farm Bureau for UIM benefits.
The case is Denecho v. Indiana Farm Bureau Ins. Co., No. 18A-CT-2900 (Ind. Ct. App. Sep. 12, 2019). Attorneys involved include: ATTORNEY FOR APPELLANT: Alan D. Naggatz, Law Office of Alan D. Naggatz, Valparaiso, Indiana. ATTORNEY FOR APPELLEE: Josef Musser, Spitzer Herriman Stephenson, Holderead Conner & Persinger, LLP, Marion, Indiana.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].