Mutual Mistake in Kentucky Auto Accident Coverage

by Mandy Hicks

Insurance policies can be difficult for a layperson to interpret. There are a number of additional principles that govern insurance contracts, which insurers know, but their insured do not always understand. An experienced personal injury attorney can help make sure that you are not tripped up in a personal injury settlement with an insurer due to confusing policy terms or principles of which you may not be aware.

In a recent case, the Kentucky Supreme Court reviewed an appellate court’s opinion agreeing with the insurance company and against an injured person. In the case, the lower court’s grant of summary judgment dismissed a man’s claim for underinsured motorist coverage on the grounds that the underinsured motorist coverage was the result of a mutual mistake in making the insurance contract. Mutual mistake is a defense that an insurer may raise to show there is no coverage for an accident.

The man argued that the “mutual mistake” defense wasn’t available because the insurer failed to present clear and convincing evidence proving it mistakenly issued underinsured motorist coverage. He also argued that the insurer hadn’t plead mutual mistake with particularity and therefore it waived the defense. He also claimed the trial court should have permitted him to amend his complaint to include statutory bad faith. The man was a truck driver for a corporation when he got into an auto collision that left him severely injured. His employer had a commercial fleet vehicle insurance policy issued in 2002. It included an underinsured motorist endorsement with limits of $1,000,000. A broker obtained the policy. As a result of his injuries, the man received workers’ compensation benefits that were paid through the same insurer.

The negligent driver who had caused the injures had an insurance policy with a $25,000 limit. The insurer offered to pay policy limits. Because the driver was aware of the underinsured motorist coverage on the employer’s policy notified the insurer he planned to settle with the negligent driver. This notification (“Coots notice”) is required under prior case law.

The insurer did not respond to the notice. The man accepted the settlement from the insurer and foreclosed his ability to collect damages directly from the negligent driver. He continued to try to recover the remainder of his damages from the underinsured motorist coverage from his employer’s policy, the UIM coverage in the Zurich policy.

However, later, his attorney learned that the insurer claimed there was no underinsured motorist coverage. The insurer claimed the corporate employer had rejected this coverage in Kentucky and some other states where they conducted business. The man sued the insurer to recover damages. The insurer asserted the policy would speak for itself, but did not deny the policy included UIM coverage. The insurer moved for summary judgment arguing there was no underinsured motorist coverage for the man’s accident.

The trial court denied the motion the first time because there were legitimate disputed issues of fact. However, as discovery progressed, the court learned that the corporate employer had rejected coverage 16 days after the man’s accident, but backdated the rejection to before the accident. The first notice to the man was 34 months after the policy was issued. The man moved for partial summary judgment on the issue of liability arguing that his injuries were clearly covered by the underinsured motorist coverage. The insurer also moved for summary judgment arguing mutual mistake. It argued that the policy should be reformed to reflect the corporate employer’s intent to reject the coverage. The trial court granted the insurer’s motion and denied the man’s. The man moved to vacate this order and asked to amend his complaint to allege statutory bad faith by the insurer. His motion was denied and the appellate court affirmed.

The Kentucky Supreme Court explained that a written contract can only be reformed if the mistake is mutual and the mistake is proven by clear and convincing evidence. Whoever is alleging mistake must show the parties agreed on different terms and the mistake must be factual, not a legal error about the effects of those facts. The Court explained that there was no evidence of common intent to execute a policy excluding UIM coverage. The insurer had not intended to exclude UIM coverage and mistakenly issued a policy with that type of coverage. Rather the insurer was only informed of the desire to reject coverage after the accident occurred.

In this case, the risk manager for the employer had not even informed the insurer that this was the company’s intent. Therefore, the insurer had intended to issue a police with the coverage.  Further, the insurer had not denied UIM coverage when the man settled his tort claim and gave the Coots notice to the insurer. An agreement cannot be reformed on the basis of mutual mistake if third parties’ rights will be unfairly affected. If you are seriously hurt in a car accident, you should consult with an attorney as soon as possible to determine whether any relief is available to you. The knowledgeable Kentucky personal injury attorneys of English, Lucas, Priest & Owsley may be able to help you. Contact us at 270-781-6500 or via our online form.