Esparza v. Baker
Filing
35
MEMORANDUM AND ORDER denying 24 Intervenor Regent's Motion for Summary Judgment; granting 27 Plaintiff Esparza's Motion for Summary Judgment. Signed by District Judge J. Thomas Marten on 6/6/2018. (sz)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
STEPHANIE L. ESPARZA,
Plaintiff,
v.
Case No. 17-1163-JTM
REGENT INSURANCE CO.,
Intervenor.
MEMORANDUM AND ORDER
Plaintiff Stephanie Esparza was injured in an auto accident while driving a rental
car when she was in Wichita, Kansas, for job training. The original defendant, Ruben D.
Baker, settled with Esparza under his insurance policy. Regent Insurance Company
(“Regent”) intervened and declined to substitute its funds because it concluded that
Esparza was not an insured entitled to underinsured motorist coverage under Regent’s
policy with Esparza’s employer. This matter is before the court on the parties’ cross
motions for summary judgment on the issue of coverage (Dkts. 24, 27). Both parties seek
a declaratory judgment in her/its favor. For the reasons provided below, the court
declares that Esparza is an insured under Regent’s insurance policy and is entitled to UIM
coverage.
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I.
Stipulated and Uncontroverted Facts1
Regent issued a commercial auto policy to K.C. Bell, Inc. (“K.C. Bell”), No.
CBA1228034, for the period of April 1, 2016, to April 1, 2017, which was a renewal of a
prior policy. The policy provides uninsured (“UM”) and underinsured motorist (“UIM”)
coverage with limits of $1,000,000 for specific vehicles identified and scheduled in the
policy.
On June 20, 2016, Esparza, a California resident, was in Wichita to complete 30
days of training as a manager for a new Freddy’s Frozen Custard franchise in San Diego,
California, which is owned by K.C. Bell, Esparza’s employer. Esparza did not have a
credit card and therefore, a K.C. Bell employee, Tyler Hoover, rented a car for her use
while she was training in Wichita. The rental was a 2016 Ford Mustang (the “rental car”)
obtained from Budget Car and Truck Rental of Wichita, Kansas (“Budget”). K.C. Bell
paid Budget for the rental car as a covered expense benefit to Esparza, however, she was
not listed as a driver on the rental car.
On the last day of her training, Esparza was driving the rental car when it was
struck by Baker’s car.
Baker carried an insurance policy with Farmers Insurance
Company (“Farmers”) containing a liability limit of $30,000. Farmers tendered its policy
limit of $30,000 to Esparza.
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The court incorporates the parties’ Agreed Statements of Facts (Dkt. 23).
2
Plaintiff proceeded pursuant to K.S.A 40-284(f) to give Regent the opportunity to
substitute payment. Regent elected not to substitute its payment thereby allowing
plaintiff to accept Farmers’ policy limit and preserve her UIM claim against Regent.
Although plaintiff’s accident occurred within the commercial policy’s applicable
period, Regent denied plaintiff’s UIM claim based on provisions contained within the
policy.
Plaintiff filed a workers’ compensation claim pursuant to California law and some
of her losses will be recovered in that proceeding. Plaintiff sustained personal injury
damages because of the collision, however, the exact amount of damages plaintiff is
entitled to recover is currently disputed and will be determined at a later date pending
the outcome of a determination by the Court on the coverage issue.
Regent claims that Esparza was not an insured under the policy; Esparza disagrees
and seeks a declaratory judgment, pursuant to 28 U.S.C. §§ 2201, 2202, that the UIM
provision extends to her as an insured. The parties agree that Regent’s policy was issued
in Kansas and the issue of coverage under the policy for UIM benefits is governed by
Kansas law.2
II.
Summary Judgment Standards
2
The court sits in diversity and “applies the substantive law, including choice of law rules, of the forum
state.” BancOklahoma Mortg. Corp. v. Capital Title Co., 194 F.3d 1089, 1103 (10th Cir. 1999). Under Kansas
law, the court looks to where the particular insurance contract was made and applies the substantive law
of that state—here, Kansas, as it is where K.C. Bell is located and the contract was made. See State Farm
Mut. Auto. Ins. Co. v. Oursler, No. 08-2280-JWL, 2008 WL 5109777, at *1 (D. Kan. Dec. 2, 2008) (citing Simms
v. Metropolitan Life Ins. Co., 9 Kan. App. 2d 640, 642–46, 685 P.2d 321, 324–26 (1984)).
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Summary judgment is appropriate if the moving party demonstrates that there is
no genuine dispute as to any material fact, and the movant is entitled to judgment as a
matter of law. Fed. R. Civ. P. 56(a). A fact is “material” when it is essential to the claim,
and the issues of fact are “genuine” if the proffered evidence permits a reasonable jury to
decide the issue in either party’s favor. Haynes v. Level 3 Communs., 456 F.3d 1215, 1219
(10th Cir. 2006). The movant bears the initial burden of proof and must show the lack of
evidence on an essential element of the claim. Thom v. Bristol–Myers Squibb Co., 353 F.3d
848, 851 (10th Cir. 2004) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986)). The
nonmovant must then bring forth specific facts showing a genuine issue for trial. Garrison
v. Gambro, Inc., 428 F.3d 933, 935 (10th Cir. 2005). The court views all evidence and
reasonable inferences in the light most favorable to the nonmoving party. LifeWise Master
Funding v. Telebank, 374 F.3d 917, 927 (10th Cir. 2004).
III.
Discussion
Regent denied payment under the policy because Esparza was in a rental car,
which, according to Regent, is not a covered auto licensed or principally garaged in
Kansas. Regent refers to Item Two, Schedule of Coverages and Covered Autos, and
asserts that UM and UIM coverage is limited to Category 6 Covered Autos, which does
not include hired or rented autos. Regent contends that K.S.A. 40-284 does not mandate
UIM coverage for rented autos, nor under the facts of this case.
a.
The Policy
On page one, Regent’s policy states,
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Each of these coverages will apply only to those autos shown as covered
autos. Autos are shown as covered autos for a particular coverage by the
entry of one or more of the symbols from the covered auto section of the
business auto coverage form next to the name of the coverage.
(Dkt. 23-1, at 2). Category 6 Covered Autos is listed for UM/UIM coverage, which is
described as,
[o]nly those ‘autos’ you own that because of the law in the state where they
are licensed or principally garaged are required to have and cannot reject
Uninsured Motorists Coverage. This includes those ‘autos’ you acquire
ownership of after the policy begins provided they are subject to the same
state uninsured motorists requirement.
(Dkt. 23-1, at 13).
The court finds that this provision is unambiguous. Regent limited its UIM
coverage to Category 6 Covered Autos, which does not refer to hired or rented autos.
However, because Category 6 includes autos subject to a compulsory uninsured
motorists law, the court must determine whether Kansas requires UM/UIM coverage
under these circumstances—coverage for an employee who has permission to drive a car
rented by her employer to further its business.
b.
Kansas’s UM/UIM Statute
“In Kansas, every policy of motor vehicle liability insurance is required to provide
a minimum coverage for the uninsured motorist of $25,000 per person and $50,000 per
accident, within certain exclusions and limitations of coverage.” Ball By & Through Ball v.
Midwestern Ins. Co., 250 Kan. 738, 740, 829 P.2d 897, 899 (1992). Under K.S.A. 40-284, all
liability insurance policies for liability insurance arising out of ownership, maintenance,
or use of any motor vehicle registered or principally garaged in Kansas are required to
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contain a UI/UIM coverage provision. See K.S.A. 40-284(a), (b). The purpose of this
legislation,
is to fill the gap inherent in motor vehicle financial responsibility and
compulsory insurance legislation and this coverage is intended to provide
recompense to innocent persons who are damaged through the wrongful
conduct of motorists who, because they are uninsured and not financially
responsible, cannot be made to respond in damages.
Ball By & Through Ball, 250 Kan. at 740, 829 P.2d at 899.
The court liberally construes K.S.A. 40-284 “to carry out its remedial objectives to
provide financial protection to the named insured for injuries caused by a negligent
[underinsured] motorist.” Tyler v. Employers Mut. Cas. Co., 274 Kan. 227, 238, 49 P.3d 511,
518 (2002).
Unlike liability insurance, UM/UIM coverage “is first-party insurance,
designed to protect the insured.” Ball By & Through Ball, 250 Kan. at 740, 829 P.2d at 900;
see also Farmers Ins. Co. v. Gilbert, 14 Kan. App. 2d 395, 401, 791 P.2d 742, 746, aff’d as
modified, 247 Kan. 589, 802 P.2d 556 (1990).
Regent argues that K.S.A. 40-284 does not require UM/UIM coverage for a hired
or rented auto. In these circumstances, the court disagrees. UM/UIM coverage ”is not
tied or limited to actual occupancy of a particular vehicle.” Midwest Mut. Ins. Co. v.
Farmers Ins. Co., 3 Kan. App. 2d 630, 632, 599 P.2d 1021, 1023 (1979). UIM insurance covers
a named insured “‘[w]hile [s]he is in [her] insured automobile, and wherever else [s]he
may happen to be when [s]he suffers bodily injury due to an uninsured motorist.’” Id.
(quoting Sturdy v. Allied Mutual Ins. Co., 203 Kan. 783, 791, 457 P.2d 34, 40 (1969)).
The court interprets K.S.A. 40-284 to provide UIM coverage for Esparza in a rented
auto if she is an “insured” under Regent’s policy. See Gilbert, 14 Kan. App. 2d at 401, 791
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P.2d
at
746
(“Subject
to
statutorily
authorized
limitations
and
exclusions,
uninsured/underinsured motorist coverage applies no matter where the named insured
is, or what vehicle the named insured is occupying, when the named insured is injured.”).
Any other conclusion is contrary to public policy in Kansas. See Stewart v. Capps, 247 Kan.
549, 555–56, 802 P.2d 1226 (1990) (“Insurance policy provisions which purport to
condition, limit, or dilute the broad, unqualified uninsured motorist coverage mandated
by K.S.A. 40–284 are void and unenforceable.”).
c. Is Esparza an Insured?
The court next considers whether Esparza is an “insured” under Regent’s policy.
In the Business Auto Coverage Form, under Section II – Liability Coverage, Regent
agreed to “pay all sums an ‘insured’ legally must pay as damages because of ‘bodily
injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and
resulting from the ownership, maintenance or use of a covered ‘auto[.]’” (Dkt. 23-1, at
14). An “insured” is K.C. Bell for any covered auto and, subject to exceptions that are
inapplicable here, “[a]nyone else while using with [K.C. Bell’s] permission a covered
‘auto’ you own, hire or borrow . . . .” (Id.).
On the other hand, under the Kansas Uninsured Motorists Coverage endorsement,
an insured is defined as:
B. Who Is An Insured
If the Named Insured is designated in the Declarations as:
1. An Individual, then the following are “insureds”;
a. The Named Insured and any “family members”.
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b. Anyone else “occupying” a covered “auto” or a
temporary substitute for a covered “auto”. The covered
“auto” must be out of service because of its breakdown,
repair, servicing, “loss” or destruction.
c. Anyone for damages he or she is entitled to recover
because of “bodily injury” sustained by another
“insured”.
2. A partnership, limited liability company, corporation or any
other form of organization, then the following are “insureds”:
a. Anyone “occupying” a covered “auto” or a temporary
substitute for a covered “auto”. The covered “auto”
must be out of service because of its breakdown, repair,
servicing, “loss” or destruction.
b. Anyone for damages he or she is entitled to recover
because of “bodily injury” sustained by another
“insured”.
As written under Regent’s policy, Esparza would qualify as an insured for liability
coverage, but not for UM/UIM coverage. The court, however, must determine if Kansas
allows such a distinction, and markedly, the parties disagree as to the correct answer.
In Girrens v. Farm Bureau Mut. Ins. Co., 238 Kan. 670, 674–75, 715 P.2d 389, 393
(1986), the Kansas Supreme Court held that K.S.A. 40-284 “requires every automobile
liability insurance policy to include uninsured motorist coverage and we hold that the
class of insureds under such coverage cannot be more restrictive than the class covered
by the liability coverage for personal injury and property damage under K.S.A. 1985
Supp. 40–3107.” Here, Esparza was an insured operating a covered vehicle for purposes
of liability coverage—she had permission from her employer to operate a rented auto to
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further the employer’s business. The definition of an insured under UIM coverage cannot
be more restrictive, and if it is, it violates Kansas law. See Harper v. State Farm Mut. Auto.
Ins. Co., 191 P.3d 1136 (Kan. Ct. App. 2008) (“[I]f Harper is an insured for purposes of
automobile liability coverage, then he also must be an insured for purposes of UIM
coverage.”).
Under Regent’s policy, an insured for UIM coverage is Esparza’s employer(s) and
his/her family members, anyone driving a covered auto identified in Category 6 of the
Scheduled Autos, or anyone driving a temporary substitute because a covered auto is out
of commission. The court finds that Regent’s Kansas Underinsured Motorists Coverage
endorsement provides a more restrictive class of insureds for UIM coverage, and
therefore, is void. Thus, the court applies the definition of who is an insured for liability
coverage under Regent’s policy, which includes Esparza, and she is entitled to UIM
coverage.
d. Workers’ Compensation Exclusion
Alternatively, Regent argues that Esparza is not entitled to damages under its
policy because she seeks payment through her workers’ compensation claim for the same
element of loss. The policy limits duplicate recovery.
D. Limit of Insurance
3. . . .
We will not pay for any element of “loss” if the person is entitled to
receive payment for the same element of “loss” under any workers’
compensation, disability benefits or similar law or personal injury
protection coverage.
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(Dkt. 23-1, at 40).
Esparza acknowledges that she claimed workers’ compensation benefits, but
asserts that only a portion of her damages are reimbursed in the workers’ compensation
case. The parties disagree as to whether K.S.A.284(e)(4) limits compensation benefits to
payments actually awarded versus payments Esparza may be entitled to receive.
Under K.S.A. 40–284(e)(4), “[a]ny insurer may provide for the exclusion or
limitation of coverage[] . . . to the extent that workers’ compensation benefits apply[.]”
The court interprets K.S.A. 40–284(e)(4) to exclude only workers’ compensation benefits
actually awarded to the injured party. This reading is consistent with Kansas law. See
Tyler, 274 Kan. at 238, 49 P.3d at 518. “The legislature intended K.S.A. 40–284(e)(4) to
permit an insured to recover UM/UIM benefits which are not duplicative of workers
compensation benefits. Any other result would negate the legislature’s intent to require
UM/UIM coverage protection.” Id. (citing Kilner v. State Farm Mut. Auto. Ins. Co., 252 Kan.
675, 686, 847 P.2d 1292 (1993)). Thus, Regent may exclude or limit its UIM coverage only
to the extent that duplicative workers’ compensation payments have been awarded to
Esparza. Additionally, as correctly noted by both parties, under Bussman v. Safeco Ins. Co.
of Am., 298 Kan. 700, 713, 317 P.3d 70, 80 (2014), Esparza’s entitlement to receive future
medical expenses as part of her workers’ compensation claim precludes recovery of those
damages under the UIM coverage in Regent’s policy.
IV.
Conclusion
The court declares that Esparza is an insured entitled to UIM coverage under her
employer’s insurance policy with Regent. Esparza is also entitled to UIM coverage to the
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extent that it is not duplicative of any workers’ compensation benefits she has received
or may be entitled to in the future.
IT IS THEREFORE ORDERED this 6th day of June, 2018, that intervenor Regent’s
motion for summary judgment (Dkt. 24) is denied.
Plaintiff Esparza’s motion for
summary judgment (Dkt. 27) is granted.
s/ J. Thomas Marten
J. THOMAS MARTEN, JUDGE
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