Key Points

  • KRS 304.39-070(4) and KRS 304.39-140(3) place on the tortfeasor's liability carrier, not the injured person's basic reparation benefits carrier, the duty to ensure the injured person's damages recovery takes priority over subrogation.
  • A liability carrier's voluntary subrogation payment made before the injured person's claim is resolved does not reduce the policy limits available to the injured person, and the liability carrier bears the loss.
  • An injured person states no claim against the BRB carrier for repayment of a premature subrogation payment, whether framed under KRS 446.070, unjust enrichment, or common-law or statutory bad faith.
  • Justice Goodwine, joined by Justice Bisig, dissented on the BRB carrier's statutory duty, and Justice Thompson dissented on the unjust enrichment claim.
  • The court reversed the Court of Appeals and remanded with directions to reinstate the Ohio Circuit Court's dismissal, expressing no opinion on any claim against State Farm.

The Kentucky Supreme Court ruled Thursday that when a negligent driver's liability insurer repays an injured motorist's own no-fault carrier before the motorist's injury claim is resolved, the liability insurer must absorb the loss. The injured motorist cannot recover the early payment from his own carrier, the court held.

Justice Nickell wrote for the court, which reversed a Court of Appeals decision that had allowed Kenneth Jarnigan to pursue Allstate Property and Casualty Insurance Co., his insurer, for $9,000 that State Farm Mutual Automobile Insurance Co. paid Allstate while Jarnigan's injury suit was pending. Chief Justice Lambert and Justices Conley and Keller joined the opinion in full. Justice Goodwine, joined by Justice Bisig, dissented on whether Allstate owed Jarnigan a statutory duty, and Justice Thompson dissented on an unjust enrichment theory.

The ruling settles which insurer is responsible for a violation of the "made whole" rule in Kentucky's Motor Vehicle Reparations Act, the state's no-fault auto law. Under that rule, an injured person's collection of damages from the at-fault driver's insurer takes priority over the no-fault carrier's right to be reimbursed. The court placed the duty to honor that priority on the liability carrier.

Jarnigan was injured on Aug. 15, 2017, in a collision with a car driven by Deborah Middleton near Hartford, in Ohio County. Allstate paid $10,000 in basic reparation benefits, the no-fault coverage often called PIP, toward his medical bills. Before Jarnigan's bodily injury claims against Middleton were resolved, Allstate demanded subrogation from State Farm, Middleton's carrier. Subrogation, the opinion explains, allows a party obligated to satisfy another's debt to acquire the creditor's rights against the debtor. State Farm sent Allstate $9,000.

Middleton's policy had $50,000 in limits. In June 2021, defense counsel wrote that State Farm had paid the $9,000 "out of the policy leaving $41,000 in benefits still available." Jarnigan settled for $41,000 in July 2021 and fully released Middleton.

Jarnigan then amended his complaint to claim the $9,000 from Allstate, alleging bad faith because Allstate demanded subrogation without asking whether he planned an injury claim. The Ohio Circuit Court dismissed those claims, reasoning that "the plaintiff's argument was against State Farm, not Allstate." The Court of Appeals reversed in August 2024, holding "that an insured party may recover directly from its insurer (reparation obligor) such amount of the improperly received BRB reimbursement that would have been available from a tortfeasor's liability carrier."

The Supreme Court disagreed. Nickell wrote that "a voluntary subrogation payment, made in violation of the priority established by statute, will not be deemed to reduce the liability limits available to an injured person." The court found "no statutory, contractual, or quasi-contractual basis to support a cause of action by an injured person against a BRB carrier for reimbursement of a premature subrogation payment."

Adopting language from the Couch on Insurance treatise, the court held that a liability carrier must remain "cognizant of its primary obligation to an injured victim under the no-fault law and, if it volunteers payment to the subrogated carrier before the resolution of the claim of the injured party, it cannot assert any right to reduce the available coverage for that injury by the amount of the payment, and it must absorb the loss caused by its folly."

The liability carrier, the court reasoned, controls settlement of the injury claim and is best placed to know its status. Nickell wrote that "the BRB carrier will have no knowledge or dependable method to verify the status of any open bodily injury claim" until an underinsured motorist claim is raised. Jarnigan also knew of the early payment when he settled. "He could have insisted that State Farm, as the tortfeasor's carrier, fully compensate him for his injuries and held State Farm to the burden of retrieving the premature subrogation," Nickell wrote.

The court rejected Jarnigan's remaining theories. It held that KRS 446.070, a general Kentucky statute allowing suits for statutory violations, was never pleaded and creates liability only for breach of an existing duty. On unjust enrichment, a claim to recover a benefit unfairly kept, the court reasoned that equity could not override the governing statutes. Nickell wrote that the court would "decline to imply a duty on a party in equity where the applicable statutes, KRS 304.39-070(4) and KRS 304.39-140(3), impose the same duty and risk of loss upon another."

The bad faith claims failed because Jarnigan had conceded they depended on his statutory claim. "It is axiomatic that the burden of civil liability arising from the breach of a legal duty must be borne by the one breaching the obligation, and none other," the court wrote.

Goodwine opened the dissent by invoking Allstate's "good hands" motto, writing that it "did not ring true for Jarnigan." Goodwine wrote that the majority "draws a logically untenable and generalized conclusion that BRB obligors have no duty to comply with the rules of priority," and that its reading "effectively allows a BRB obligor to retain a premature payment to the detriment of the injured party with impunity." Goodwine would have affirmed the Court of Appeals.

Thompson agreed with the majority on the statutory and bad faith questions but would have allowed the unjust enrichment claim, objecting to an outcome that left Jarnigan with "$51,000 total, rather than the $60,000 he was legally entitled to receive pursuant to both insurance policies."

Allstate was represented by Brian D. Stempien of Travis Herbert & Stempien, PLLC. Jarnigan was represented by Russ Wilkey of Wilkey & Wilson, P.S.C.

The court remanded with directions to reinstate the circuit court's dismissal of the claims against Allstate. It said Jarnigan's remedy, "if one there may be," lies against State Farm, and it expressed no opinion on whether his release bars a claim against State Farm, because that question was not before the court.