Under-Insured Coverage And Settlement Credits

Insurance lawyers in Fort Worth and elsewhere need to read this case regarding settlement credits and under-insured (UIM) coverage.  It is from the Houston Court of Appeals [14th Dist.].  It is styled, Farmers Texas County Mutual Insurance Company v. Okelberry, et al.

Steven Okelberry and his wife, Patricia has UIM coverage with Farmers.  Steven and his two sons were injured in an accident caused by an 18 wheeler insured by Home State.  Steven suffered a neck injury requiring surgery and possibly future surgeries.

Home State settled Steven’s property damage claim for $20,066.12 out of a total policy limits of $750,000.  Steven and his two sons sued the 18 wheeler company and its driver for their personal injuries.

Farmers gave Steven consent to settle the lawsuit for himself and his two sons for $729,993.88, which was the remaining liability coverage on the policy.  Under the settlement agreement the parties agreed to the following terms:

  1.  $269,212.06 payable to Steven’s counsel on Steven’s behalf;
  2. $320,776.71 payable to Steven and Patricia;
  3. $50,000.00 payable to Ingenix Subrogation Services on Steven’s behalf.

The three checks totaled $639,988.77.  The check for $320,776.71 was made payable to Patricia and Steven jointly.  The balance was paid on behalf of the sons.

The above are the underlying facts and then, Steven, on behalf of himself and his sons, sued Farmers for UIM benefits.  The kids were eventually dismissed from the lawsuit.  At trial, the jury awarded Steven $825,675.84 for past and future physical pain, mental anguish, physical impairment, and medical expenses, as well as past loss of earning capacity.  This amount exceeded Farmer’s $500,000.00 policy limit.

Farmer’s policy provides that the policy limit can be offset by settlement amounts paid to the covered insured by the legally responsible parties.  Under the policy, Farmers was obligated to pay the lesser of (1) the difference between the amount of Steven’s damages and the amount “paid or payable” to Steven for his damages, or (2) the full amount of the $500,000.00 policy limit.
The issue of how to calculate an offset was raised several times during the course of the trial.  Ultimately, Farmers rested its case after ensuring that the record included evidence of the settlement and the amounts paid to Steven by the three checks.  Steven’s counsel also stipulated to the property-damages payment Steven had received.
The dispute about how to apply the settlement credits is lengthy in the opinion and looks at the policy language, the law on UIM coverage, and is fact specific to this case.  There is even a discussion about the laws regarding community property and whether they are relevant to this case.  However, it is worth reading to get an idea how the courts look at and make decisions about settlement credits.