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What are Insurance Damages?

That was one of the issues that the Court of Appeals of Indiana faced in the case, Erie Insurance Exchange v Craighead, a case decided on July 12, 2022.¹

THE FACTS

The facts of this case are relatively simple.  The Appellee, Olivia Craighead,² was a passenger in a car driven by Morgan Miller.  When Miller crashed the car, Craighead was severely injured.  Miller had an auto insurance policy with bodily injury coverage in the amount of $50,000.  His policy also contained medical payments coverage (MPC) in the amount of $5,000.

Craighead also had an auto insurance policy.  That policy, issued by the Appellant, Erie Insurance Exchange, provided uninsured/underinsured coverage (UIM) in the amount of $100,000.  In addition, Craighead’s policy also provided $5,000 of MPC.

Miller’s policy paid Craighead the limit of its liability coverage in the amount of $50,000.  Miller’s insurer also paid Craighead MPC in the amount of $5,000.  Craighead then filed a claim under her policy demanding that Erie pay her $50,000; the difference between the UIM limit of her policy ($100,000) and the liability limit of Miller’s policy ($50,000).  Erie paid Craighead MPC of $5,000 but offered to pay only $40,000 on the UIM claim.  Erie claimed that the MPC payments made by it and under Miller’s policy, which totaled $10,000, were a set-off against the UIM coverage under Craighead’s policy.  This lawsuit followed.

THE ERIE POLICY

Craighead’s policy contained the following provision, which the Court referred to as the “set-off provision”:

Reductions

The limits of protection available under this Uninsured/Underinsured Motorists Coverage will be reduced by:

1. the amounts paid by or for any person who or organization which may be liable for bodily injury or property damage to “anyone we protect.”

[….]

4. the amount of any payments to the “insured” and/or injured party made pursuant to any auto medical payments provision in this or any other policy applicable to the loss.

The so-called set-off provision would seem to support Erie’s case.  However, there was an applicable Indiana statute.

THE STATUTE

Section 27-7-5-2(a) of the Indiana statutes provides, in part, as follows:

The uninsured and underinsured motorist coverages must be provided by insurers […] in limits at least equal to the limits of liability specified in the bodily injury liability provisions of an insured’s policy, unless such coverages have been rejected in writing by the insured. However, underinsured motorist coverage must be made available in limits of not less than fifty thousand dollars ($50,000). [….] Insurers may not sell or provide underinsured motorist coverage in an amount less than fifty thousand dollars ($50,000).

Based on this statute, the Court determined that Erie could not make a UIM payment in an amount less than $50,000.  As result, the Court determined that Erie could not set-off the MPC payments of $10,000, notwithstanding the language of the contract.  However, that is not what is interesting about this case.

WHAT ARE INSURANCE DAMAMGES?

That leads us back to the question asked in the title of this article.

In its opinion, the Court said that another section of the Indiana statutes is relevant to this case.  Indiana Code section 27-7-5-5(c)  provides, in part, that:

(c) The maximum amount payable for bodily injury under uninsured or underinsured motorist coverage is[…]:

(1) the difference between:

(A) the amount paid in damages to the insured by or for any person or organization who may be liable for the insured’s bodily injury; and

(B) the per person limit of uninsured or underinsured motorist coverage provided in the insured’s policy[.]

The Court then focused on the word “damages” in the statute.  It cited Black’s Law Dictionary and defined damages as:

“[m]oney claimed by, or ordered to be paid to, a person as compensation for loss or injury[,]” Damages, BLACK’S LAW DICTIONARY (11th ed. 2019), (which then) elaborates on that definition, making it clear that the term “damages” specifically refers to compensation for a wrong:

“A sum of money adjudged to be paid by one person to another as compensation for a loss sustained by the latter in consequence of an injury committed by the former or the violation of some right.” Martin L. Newell, A Treatise on the Law of Malicious Prosecution, False Imprisonment, and the Abuse of Legal Process 491 (1892).

“Damages are the sum of money which a person wronged is entitled to receive from the wrongdoer as compensation for the wrong.” Frank Gahan, The Law of Damages 1 (1936). Id.

The Court then contrasted the money paid by Miller’s policy for bodily injury against the money paid for MPC by both Miller’s policy and the Erie policy.  It noted that the $50,000 was paid to Craighead because Miller’s negligence had cause Craighead’s injuries and that Miller’s insurer had acknowledged his liability.  However, the MPC was paid simply because Craighead was a passenger in Miller’s car.  Miller’s liability for the accident was not a precondition to the MPC payment.  In other words, MPC is a “no-fault” provision, and because it is a “no-fault” provision, it does not constitute damages.

An MPC payment, even by the liable party, does not qualify as an “amount paid in damages” pursuant to Section 27-7-5-5(c)(1)(A) because it is not made as amends for a wrong . . .

An MPC payment, even by the liable party, does not qualify as an “amount paid in damages” pursuant to Section 27-7-5-5(c)(1)(A) because it is not made as amends for a wrong. Consequently, to the extent that the Setoff Clause allows Erie’s UIM obligations to be reduced by “any auto medical payments provision in this or any other policy applicable to the loss[,]” it violates the provisions of Section 27-7-5-5(c) and cannot be enforced as written . . .

This interpretation of Section 27-7-5-5(c) adheres to the well-settled principles that the UIM statutes must be read in a light most favorable to the insured and that statutes be construed so as to avoid rendering any language meaningless or superfluous . . . The underlying purpose of UIM coverage is to fully indemnify victims of negligence in cases where the tortfeasor’s liability coverage is inadequate, and allowing the setoff of MPC payments (which are unrelated to liability) would not serve that purpose. Moreover, allowing the setoff of MPC payments would render the General Assembly’s inclusion of the “damages” qualifier in Section 27-7-5-5(c) superfluous. The phrase’s inclusion, however, indicates a legislative intent to treat payments compensating the injured for a wrong differently than non-liability payments.

THE TAKEAWAY

The takeaway from this case is that whether coverage is afforded by a policy is not always determined by the language of the policy.  It must be read in light of state laws.  You may think that you have coverage when you do not.  Or, as happened in this case, you may have coverage when your insurance company thinks that you do not.

In order to avoid any gaps or confusion in your coverage, you need to speak to an insurance professional.  That is where RMC Group comes in.  Our insurance professionals can help you navigate the choppy waters of insurance and help you ensure that you are fully covered with the right coverages and no gaps.


¹ The Supreme Court of Indiana recently refused to hear an appeal of this case.

² Craighead, as the Appellee, was the winner in the trial court.