Litigating UM/UIM Cases
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V: PROSECUTING AND DEFENDING UM/UIM CASES
A. How to's for Responding to and Drafting Pleadings
From the plaintiff’s perspective, the complaint in a UM/UIM case is essentially no different than a standard complaint. Some plaintiffs prefer to include allegations regarding the existence of UM/UIM coverage in their complaints. If the UM/UIM carrier files a response to the complaint, then this may be an effective way to clarify the extent of UM/UIM coverage.
Where the UIM carrier has waived its subrogation rights prior to suit, the plaintiff-insured may sue the UIM carrier directly as the named defendant. Wilmoth v. State Farm Mut. Auto. Ins. Co., Inc., 127 N.C. App. 260, 265, 488 S.E.2d 628, 632 (1997). It is not clear whether this affects the general rule that the identity of the UIM carrier should not be disclosed to the jury.
As a general matter, the insured’s lawsuit should primarily pertain to the liability of the tortfeasor, and not to coverage issues. In many cases, however, the coverage issues have been raised and litigated in the tort action. The plaintiff-insured may therefore want to allege the essential elements of his UM/UIM coverage, such as his status as a Class I insured, or as a person occupying or using a covered vehicle. The UM/UIM carrier generally should not be named in the caption. McCrary ex rel. McCrary v. Byrd, 148 N.C.App. 630, 632, 559 S.E.2d 821, 823 (2002) (“After Nationwide filed a motion, the trial court deleted Nationwide's name from the caption of the proceeding and Nationwide was allowed to defend as an unnamed defendant.”).
If the plaintiff believes that the UM/UIM carrier should have resolved his claim through settlement prior to filing suit, he may in addition file a claim for bad faith or for Chapter 75 in the same lawsuit. In one case, the judge first tried the issue of liability and damages against the tortfeasor, and he then tried a second phase of the trial for damages under Chapter 75, and he then tried a third phase for punitive damages. Vazquez v. Allstate Ins. Co., 137 N.C. App. 741, 529 S.E.2d 480 (2000).
From the UIM carrier’s perspective, the defense will usually want to file an answer. The FRA does not require the UM/UIM carrier to file an answer. There are no cases addressing the effect of the failure of the UM/UIM carrier to file an answer. If the uninsured or underinsured motorist does not file an answer, and goes into default, then the UM/UIM carrier may be bound by this, and for that reason, it is generally advisable for the UM/UIM carrier to file an answer.
The UM/UIM carrier generally wants to be careful to include all defenses to the tort action and to the UM/UIM claim in its answer. The UM/UIM carrier should assert all defenses available to the defendant-tortfeasor, such as contributory negligence. In addition, it should assert any independent defenses which it has, such as a lack of service or notice upon the UM/UIM carrier, a lack of cooperation, a coverage defense, or an offset issue. There are no cases clearly indicating whether the UM/UIM carrier waives coverage or other issues and defenses by failing to include them in its answer, but the UM/UIM carrier should probably err on the side of caution and include any such defenses in its answer. If the plaintiff has asserted bad faith claims simultaneously (with the tort action), then the UM/UIM carrier may also want to raise any potential issues pertaining to punitive damages under Chapter 1D, such as preserving the right to a bifurcated trial, and the cap on punitive damages. In a significant case, the defense may want to raise an issue as to the constitutionality of the punitive damages statutes, in view of the decision of the United States Supreme Court in Philip Morris USA v. Williams, 127 S.Ct. 1057, 1060 (2007) (“We are asked whether the Constitution's Due Process Clause permits a jury to base that award in part upon its desire to punish the defendant for harming persons who are not before the court ( e.g., victims whom the parties do not represent). We hold that such an award would amount to a taking of “property” from the defendant without due process.”). (Note that when challenging the constitutionality of a statute, the parties should serve a copy of the challenge upon the Attorney General.)
In a UM case, or a UIM case in which the UIM carrier has subrogation rights, the UIM carrier may want to assert its potential claim against the defendant-tortfeasor in its answer. The rules and cases do not provide clear guidance as to whether such a cross-claim is permissible. One case held that the UIM carrier lost its right of subrogation against the tortfeasor, when neither the carrier nor the insured filed suit against the tortfeasor within the three-year statute of limitations. Nationwide Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 109 N.C. App. 281, 284, 426 S.E.2d 298, 300 (1993). The UM/UIM carrier may therefore want to err on the side of caution and assert this claim early in the litigation.
B. Discovery Strategies that pave the Way to Success
The UM/UIM carrier can greatly improve its’ chances of prevailing at trial by conducting effective discovery. The UM/UIM carrier’s discovery strategy is primarily dependent upon whether the insured has demanded arbitration (and whether it has the right to demand arbitration), or whether instead the case is pending in court for a determination by a jury (or bench trial), in which event the Rules of Civil Procedure apply.
If the Rules of Civil Procedure apply, then the UIM carrier has the right to “participate” in the action as if it were a party. The UIM carrier may therefore engage in written discovery (interrogatories and request for documents) and depositions, and possibly a physical examination of the insured. In this situation, the strategies of the UIM carrier are not significantly different from the strategies of the liability insurer in defending such a claim. The insurer would generally want to ascertain the insured’s prior medical history and his current physical condition, and obtain all of his medical records. The insurer may want to depose the insured or his doctors or other witnesses.
If the defendant/tortfeasor is insured and is provided with an attorney for his defense, then in many instances the UIM carrier may be able to monitor the case and await developments with the defendant’s discovery to the plaintiff/insured. The insurer should not, however, be lulled into a false sense of security and conduct no investigation or assessment of its own. The liability carrier may tender its limits at any moment, and of course the UIM carrier is always subject to the excess verdict. (The UIM carrier of course has a right of subrogation against the tortfeasor, but this will often be worthless.)
The UIM carrier should generally vigorously defend the case and issue its own discovery, rather than rely entirely on the defendant to do so. If, for example, the plaintiff reaches a settlement with the defendant, the defendant may have no interest in pursuing a motion to compel (or other sanctions) against the plaintiff for a failure to completely respond to discovery, and the UIM carrier may lack standing to complain about the plaintiff’s deficient responses to the defendant’s discovery. (We are aware of no law in North Carolina addressing whether a person who did not propound discovery may complain of a deficiency in the discovery response.)
If the UM/UIM carrier anticipates that the plaintiff may demand arbitration, then it probably wants to assert its discovery requests as early as possible, prior to the demand for arbitration. This is especially the case in an underinsured motorist case, where the insured has an absolute duty to respond to discovery as long as the case is pending in the General Court of Justice (and prior to an appropriate demand for arbitration).
Where the UM/UIM carrier seeks to avoid arbitration, and the insured issues written discovery to the insurer, the insurer generally wants to timely and completely respond to these requests. One case held that where the plaintiff issued three sets of written discovery to the UM carrier, that it waived its right to arbitrate. Capps v. Virrey, 645 S.E.2d 825 (App. 2007).
Although the Defendant and the UIM carrier are separate entities, they are largely “joined at the hip.” There is some conduct of the Defendant that may affect the UM/UIM carrier's liability. A purely "procedural" matter by the Defendant (such as a Request for Admission, or an admission in the Answer) may not be binding as to the UIM carrier; but substantive evidence by the Defendant (such as his testimony) may effectively be binding. The UM/UIM carrier may be stuck with the trial strategy of the UM carrier, and by the same token the Defendant is stuck with the UM/UIM carrier's trial strategy.
In one case, the court held that a sanction (striking the answer) against the defendant for discovery violations could not prejudice the UIM carrier. Abrams v. Surrette, 119 N.C. App. 239, 240-241, 457 S.E.2d 770, 771-772 (1995) (“This order [striking answer] conclusively establishing Surrette's liability also established State Farm's liability, even though they had filed a timely answer contesting the issue of negligence and alleging the contributory negligence of Abrams. The order thus precluded State Farm from presenting its defenses, is inconsistent with Section 20-279.21(b)(3)(a) and must be reversed.”; noting that UM carrier is not subject to insured’s default).
1. Discovery in Arbitration
As noted in another portion of this Seminar, the UM/UIM carrier’s right to discovery in arbitration is generally limited. The insurer only has discovery rights to the extent allowed by the arbitrators, and to the extent provided for in the insurance policy.
C. Rights Of UM/UIM Carrier In Court Action
1. Right to participate
The UM and UIM carriers have a right to defend their interests in the litigation at trial, but the scope of their rights is slightly different. “The [UM] insurer, upon being served as herein provided, shall be a party to the action between the insured and the uninsured motorist though not named in the caption of the pleadings and may defend the suit in the name of the uninsured motorist or in its own name.” G.S. § 20-279.21(b)(3). “[T]he underinsured motorist insurer shall have the right to appear in defense of the claim without being named as a party therein, and without being named as a party may participate in the suit as fully as if it were a party.” G.S. § 20-279.21(b)(4).
Both the UM and UIM carrier can defend at trial. The UIM carrier may participate in the trial even if the tortfeasor has not been released and participates also. Seay v. Snyder, 638 S.E.2d 584, 591 (N.C.App. 2007). A recent case holds that the liability carrier’s attorney and the UIM carrier’s attorney may both participate at trial. Kosek v. Barnes, 2007 WL 3581 (N.C. App. 2007) (insured rejected offer of $50,000, and jury awarded $17,000; “Plaintiff contends that while the underinsured motorist statute states that an underinsured motorist carrier ‘may participate as fully as if it were a named party,’ the legislative intent was not to provide insurance carriers an unfair advantage at trial by allowing counsel for the defendant and counsel for the unnamed insurance carrier to participate at trial simultaneously.”; affirming proceedings).
Where there are coverage issues to be tried, they should be bifurcated from the liability issues. Church v. Allstate Ins. Co., 143 N.C. App. 527, 533, 547 S.E.2d 458, 462 (2001) (“In cases where the UIM carrier defends the liability issues as an unnamed defendant, we hold that trial of the coverage issues should be bifurcated.”; “The issue of whether this defendant provides coverage for these plaintiffs is separate from whether Argie Coffey is liable for the accident.?”).
2. “Unnamed” Status of UM/UIM Carrier
Several cases have addressed issues regarding the UM/UIM carrier’s role at trial. The UM carrier may defend the suit “in the name of the uninsured motorist”; the UIM carrier may defend “without being named as a party.”
There is not much authority addressing the significance of the UM carrier’s defending “in the name of” the defendant. The UM carrier’s answer generally pertains only to the UM carrier. Reese v. Barbee, 129 N.C.App. 823, 826, 501 S.E.2d 698, 700 (N.C.App. 1998) (UM carrier’s motion to dismiss was sufficient to raise issue that it was not properly served with process; “Nationwide's motion to dismiss filed ‘in the name of’ defendant Barbee was asserted solely on Nationwide's own behalf, and was not rendered moot by the subsequent service of process on defendant Barbee.”). Accord Grimsley v. Nelson, 342 N.C. 542, 544, 467 S.E.2d 92, 92 (1996) (answer signed by attorney “Appearing in the name of the Defendant” indicated that attorney did not represent defendant).
The manner in which the UM/UIM carrier’s attorney is described to the jury is not clear. “The General Assembly states that UIM carriers cannot be compelled to be named defendants in the liability phase of a trial.” Church v. Allstate Ins. Co., 143 N.C. App. 527, 531, 547 S.E.2d 458, 460 (2001). In one case, “The plaintiffs argue that to substitute the tortfeasor's name for the UIM carrier's name would produce absurd results, because the direct action would lie against the UIM carrier but allow the real defendant to be unnamed at trial. This is precisely what the General Assembly has mandated by enacting G.S. 20-279.21(b)(4).” Church v. Allstate Ins. Co., 143 N.C.App. 527, 531, 547 S.E.2d 458, 460 (2001). This is consistent with the general principle that insurance should be excluded from trial. Warren v. General Motors Corp., 142 N.C. App. 316, 319, 542 S.E.2d 317, 319 (2001) (trial court did not err in excluding UIM carrier’s answer, over plaintiff’s objection; “Moreover, in negligence cases, it is not generally permissible to introduce evidence of liability insurance or to make any reference of its existence in the presence of the jury.”).
In Nationwide cites Sellers v. N.C. Farm Bureau Mut. Ins. Co., 108 N.C.App. 697, 424 S.E.2d 669 (1993), the plaintiff filed a negligence action against defendant tortfeasor, and subsequently amended her complaint to add a claim for UIM coverage. The lower court dismissed the action against the tortfeasor after the plaintiff settled with the tortfeasor, and the trial court substituted the unnamed UIM carrier as the named defendant. The Court of Appeals reversed, stating, “release or settlement of an action against the tortfeasor does not vitiate the express statutory terms of N.C.G.S. 20-279.21(b)(4) such that the action can continue with the [UIM] carrier remaining as an unnamed defendant.” Id. at 699-700, 424 S.E.2d at 670. The court wrote that this would “ensure [juries] would ... concentrate on the facts and the law as instructed, rather than the parties. . . .”
In a 2007 case, the plaintiff filed a motion in limine to be allowed to refer to the UIM carrier’s attorney as representing the “unnamed defendant.” The trial court introduced the attorney by stating, “Also at the defense table with [defendant’s attorney] on behalf of ... [D]efendant is attorney William Russell.” The Plaintiff argued that it was “inherently prejudicial that the jury was led to believe that Mr. Russell was present at trial in a representative capacity for ... Defendant, as he simply was not.” Seay v. Snyder, 638 S.E.2d 584, 591 (N.C. App. 2007). The Court of Appeals rejected this issue because the plaintiff did not cite any authority for her position, she did not establish prejudice, and the court “noted” the provisions of G. S. § 20-279.21(b)(4) which allow the UIM carrier to appear “without being named as a party.”
Even if subrogation rights against the defendant-motorist are waived, the UIM carrier is still entitled to remain anonymous. Braddy v. Nationwide Mut. Liability Ins. Co., 122 N.C. App. 402, 408, 470 S.E.2d 820, 823 (1996) (“Therefore, as an insurer's rights under section 20-279.21(b)(4) are not tied to subrogation rights, we find no meaningful distinction between the present case and Sellers.”).
There is some notion that the UIM carrier should not be named in the caption. See McCrary ex rel. McCrary v. Byrd, 148 N.C.App. 630, 632, 559 S.E.2d 821, 823 (2002) (“After Nationwide filed a motion, the trial court deleted Nationwide's name from the caption of the proceeding and Nationwide was allowed to defend as an unnamed defendant.”).
Although the North Carolina courts have thus far refused to disclose the identity of the UM/UIM carrier to the jury, the issues is still being litigated, and cases from other jurisdictions have generally ruled that the UM/UIM carrier must be disclosed to the jury to avoid a subterfuge. Stinson v. Mattingly, 2007 WL 1191906 (Ky. App. 2007) (trial court's error of failing to identify (UIM) carrier to jury as named defendant was error and required reversal, although jury found that insured was responsible for accident); King v. State Farm Mut. Auto. Ins. Co., 157 Md.App. 287, 303, 850 A.2d 428, 438 (2004) (“We hold that, under the facts of the instant case, the court's ruling, concealing State Farm's identity and role as the party defendant, infringed on the role of the jury and created a significant procedural error that requires reversal.”); Medina v. Peralta, 724 So.2d 1188, 1189 (Fla. 1999) (“defendants' motions in limine will be denied insofar as they seek to avoid disclosing Travelers' identity as plaintiffs' uninsured motorist carrier”; it is appropriate for a jury to be aware of the presence of a UM insurer which has been properly joined in the action against the tortfeasor.”). But see Swartz v. Peterson, 199 Neb. 171, 256 N.W.2d 681 (1977) (trial court did not err in overruling plaintiff's motion to disclose interest of her uninsured motorist carrier which was not party to action, denial of which motion did not result in any prejudice to plaintiff).
Interestingly, there may be situations in which the UM/UIM carrier wants to have its identity disclosed to the jury. For example, if the tortfeasor is especially unsavory, then the UM/UIM carrier may prefer to avoid that target-defendant. In a case in another jurisdiction, the UIM carrier wanted to be identified to the jury, and the appellate court held that the UIM carrier was entitled to defend in its own name. State ex rel. State Farm Mut. Auto. Ins. Co. v. Canady, 197 W.Va. 107, 475 S.E.2d 107 (1996) (Accordingly, we hold that pursuant to West Virginia Code § 33-6-31(d), an uninsured motorist carrier is entitled to appear and defend in its own name rather than that of the uninsured tortfeasor even when policy defenses raising issues of coverage are not asserted by the carrier.).
During trial (and before trial), it is important to understand that the attorney for the UIM carrier represents the UIM carrier, and not the defendant-tortfeasor. A few ethics opinions address this role. The attorney for the UIM carrier may not contact the defendant without the defendant’s attorney’s consent. RPC 110 (1991) (“Attorney Y owes his allegiance to the court and UIM Co. whose interest may or may not be aligned with the interest of Driver Two on particular issues or at various times.”). See also RPC 193 (1995) (plaintiff’s attorney may communicate with Uninsured Motorist, even though UIM carrier has attorney).
Also, the UIM carrier’s attorney may not represent the defendant, unless subrogation rights have been waived. RPC 154 (1993) (subrogation rights “would cause the interests of Driver B and Insurance Company X under its UIM policy to likely be materially different and adverse.”); RPC 177(1994) (”Defendant M has no personal liability because Insurance Company has waived its right of subrogation against Defendant M, and Plaintiff has executed a covenant not to enforce judgment against Defendant M. The interests of Defendant M and Insurance Company are not, therefore, adverse, . . . .”). The Court of Appeals addressed a similar issue, in a rather confusing passage, as follows:
Plaintiffs also argue that an impermissible conflict of interest would arise if the UIM carrier's attorney were to represent to the jury that he represented the interests of the tortfeasor. Here, where the tortfeasor has been released from liability, no conflict arises. The nature of UIM claims is such that in the liability phase of a trial, the UIM's defenses are the same as the tortfeasor's defenses would be if the tortfeasor was a party to the action. The parties would be codefendants.
Church v. Allstate Ins. Co., 143 N.C. App. 527, 531, 547 S.E.2d 458, 461 (2001). This case could be read to mean that the UIM carrier’s attorney can “represent to the jury that he represent the interests of the tortfeasor.” The UIM carrier can clearly defend the case, and it can defend without disclosing its identity, but it is not clear that the UIM carrier’s attorney can suggest to the jury that she represents the defendant.
3. Right to Assert Third-Party Claims
The UIM carrier seems to have all of the rights that the tortfeasor-defendant has. “This statute allows the underinsured insurance carrier to assert all claims that could have been asserted by its insured, the plaintiff.” Johnson v. Hudson, 122 N.C. App. 188, 190, 468 S.E.2d 64, 66 (1996). Thus, the UIM carrier may assert a third-party claim for contribution. Johnson v. Hudson, 122 N.C. App. 188, 190, 468 S.E.2d 64, 66 (1996) (“Because Utica may assert all claims that the insured can under N.C.G.S. § 20-279.21(b)(4), we reverse the trial court's entry of summary judgment on the ground that the third-party claim . . . .”). The UIM carrier who asserting claims would generally be subject to any limitations on the defendant’s claims, but in this case the court actually held that the UIM carrier had a greater right to assert a third-party action than did the defendant. In this case, the defendant’s contribution action would have been barred by a release, but the court held that the FRA’s specific provision allowed the UIM carrier’s claim to proceed. Johnson v. Hudson, 122 N.C. App. 188, 190, 468 S.E.2d 64, 66 (1996).
A subsequent case addressed whether UM carrier has a right to bring a third-party action. The Court of Appeals noted that the UM statute only allows the UM carrier to “defend,” and thus that the UM carrier cannot assert such a claim. Hunter v. Kennedy, 128 N.C. App. 84, 86, 493 S.E.2d 327, 328 (1997) (“Dictionaries define "defend" as the contesting of a claim or endeavoring to "defeat a claim or demand made against one in a court of justice.").