Ex parte GEICO Indem. Co., et al.: When an UIM insurer allows the applicable statute of limitations to run as to any “new” claims that it may assert directly against a tortfeasor, the UIM insurer (1) maintains its rights to opt out of the litigation and decline to consent to the settlement between the claimant and tortfeasor, pursuant to its consent-to-settle clause in the policy, and (2) may still obtain reimbursement from the insured’s recovery against the tortfeasor.

Consent-to-Settle Clauses and UIM Carrier Subrogation Rights

The matters addressed in this decision arise from separate automobile accidents involving persons having underinsured (UIM) motorist coverage with either Allstate or GEICO and allegedly underinsured tortfeasors. Each of the insurance policies considered in this decision contained a “consent-to-settle” clause that required the insured to provide notice to and obtain the consent of the UIM carrier prior to the insured claimant settling any claims against the allegedly underinsured tortfeasor and/or releasing the tortfeasor from liability.

In such instances, the insured must notify the UIM carrier of the offer of settlement from the tortfeasor and seek in the insurance company’s consent to settle. Lambert v. State Farm Mut. Auto. Ins. Co., 576 So.2d 160 (Ala. 1991). The insurance company then has the option either to consent to the settlement, or decline to consent and opt to advance the settlement money (known as a Lambert advance) and opt out of participating in further litigation to determine liability and damages. An insurance company may decline to consent to the settlement in order to preserve its subrogation rights against the tortfeasor. See Penn. Nat’l Mut. Cas. Ins. Co. v. Bradford, 164 So.3d 537 (Ala. 2014); Hardin v. Metlife Auto & Home Ins. Co., 982 So.2d 522 (Ala.Civ.App. 2007). The court was clear in Lambert as to the purpose of consent-to-settle clauses, which exist in UIM coverage to protect the insurance carrier’s subrogation rights against the tortfeasor, as well as to protect the UIM carrier against the possibility of collusion between its insured and the tortfeasor’s liability insurer at the UIM carrier’s expense. Lambert, 576 So.2d at 167.

Ex parte Allstate Prop. and Cas. Ins. Co. – In re Zajic

Allstate did not consent to the settlement offer made to Zajic by the tortfeasor Payne and advanced the $50,000.00 liability limits. However, Allstate allowed the statute of limitations to run without asserting either a subrogation crossclaim or seprate action against Payne. Payne moved to enforce the original settlement agreement with Zajic. But Allstate argued that despite the statute of limitations running as to direct actions against Payne, Allstate may still have reimbursement rights as to any funds Zajic might obtain from Payne in excess of the liability policy, pursuant to the UIM coverage policy and under Bradford. The trial court granted Payne’s motion to enforce the settlement. Allstate did not timely file its petition for writ of mandamus

Ex parte Allstate Prop. and Cas. Ins. Co. – In re Carter

As a result of a car wreck, Carter sued Walker and Allstate (her UIM insurer). Walker offered his policy limits of $25,000.00 to settle Carter’s claims against him, but Allstate refused to sent to the settlement and instead made a Lambert advance of the $25,000.00. As in In re Zajic, Allstate allowed the statute of limitations to run without asserting claims against Walker. Walker moved to enforce his settlement agreement with Carter. Allstate argued that it may have other rights to recovery in the event of a verdict that exceeded Walker’s liability limits. The trial court granted Payne’s motion to enforce the settlement. Allstate appealed the decision.

Ex parte GEICO Indem. Co. – In re Harris-Williams

Following an automobile accident, Harris-Williams sued Chamberlin. She did not name GEICO in the suit, but did put it on notice of her intent to seek UIM benefits under her policy, and that Chamberlin had offered his $25,000 liability policy limits. GEICO refused to consent to the settlement, fronted the Lambert advance, and stated that it was preserving its subrogation rights. However, GEICO did not assert any claims against Chamberlin before the statute of limitations ran. Chamberlin sought to have the settlement agreement with Harris-Williams enforced, which the trial court granted. GEICO filed a petition for writ of mandamus.

Arguments of the Parties

Ex parte Allstate Prop. and Cas. Ins. Co. [Ms. 1150511 5/5/17] and Ex parte GEICO Indem. Co. [Ms.1151266 5/5/17]. ___ So.3d ___ (Ala. 2017): GEICO and Allstate argued in their petitions that because they had complied with the procedural requirements established in Lambert and Lowe, they possessed a legal right to have a jury to determine the insurer’s liability to pay UIM benefits. They contended that the trial courts had infringed on their rights by ordering the enforcement of the settlement and forcing the insurers to participate in litigation.

The claimants responded arguing that the insurers’ rights had not been abrogated because the insurers had allowed their subrogation claims against the tortfeasors to be expired by the running of the statute of limitations.

Appellate Findings and Holdings

The Alabama Supreme Court found that GEICO and Allstate had complied with Lowe and Lambert by (1) declining to consent after receiving notice, (2) which is a right conferred upon the insurers by the consent-to-settle clause in their contracts, (3) properly advancing the amount of the tortfeasor’s settlement offer, and (4) opting out of participation in litigation to avoid mention of its potential involvement. Nevertheless, the decisions of the trial courts forced the insurers to accept the settlements they previously declined to consent to. The resulting dismissal of the tortfeasors denied the insurers (who became the sole remaining defendant in each case) the opportunity to opt out and avoid mention.

Although the insurers had allowed the statute of limitations to toll as to their direct means of recovering against the tortfeasors via subrogation, the Alabama Supreme Court held in Bradford that “insurers need not file a direct action against the tortfeasor to protect their rights of reimbursement … [but] may obtain reimbursement from the insured’s recovery against the tortfeasor.” Bradford, 164 So.3d at 540. The statute of limitations only precludes the insurer from filing “some new claim in its own name against [the tortfeasor] after the statute of limitations has expired.” Id. at 541.

Based on the above findings, the appellate court granted the timely-filed petitions, and remanded the cases to the trial courts to vacate their respective orders to enforce the settlements with the tortfeasors.

Photo by Randy Rathbun.