Sheila Brown v. Rico Roland

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

May 11, 2010 Session

SHEILA BROWN v. RICO ROLAND

Appeal from the Circuit Court for Davidson County

No. 08C-2927 Thomas Brothers, Judge

No. M2009-01885-COA-R3-CV - Filed September 23, 2010

The matters at issue pertain to the rights and responsibilities of the parties under the

underinsured motorist provisions of Plaintiff’s automobile insurance. Plaintiff, who was

involved in a vehicular accident with another motorist, commenced this personal injury

action to recover an amount “under $25,000.” The only named defendant is the tortfeasor,

however, State Farm is an unnamed party. This is due to the fact that Plaintiff served timely

and proper notice on State Farm of the commencement of this action and that she was

asserting an underinsured coverage claim pursuant to Tenn. Code Ann. § 56-7-1206. Plaintiff

subsequently entered into a settlement agreement with the tortfeasor for the tortfeasor’s

policy limits of $25,000, at which time she properly served notice on State Farm of the

proposed settlement and her willingness to enter into binding arbitration with State Farm to

settle her claim for underinsured motorist benefits. Thereafter, State Farm filed a motion to

dismiss the underinsured claim against it claiming Plaintiff was made whole when she agreed

to a settlement with the tortfeasor in an amount in excess of her ad damnum and therefore

there was no claim to arbitrate. The court granted the motion to dismiss and Plaintiff

appealed. We have determined the trial court did not err in granting State Farm’s motion to

dismiss the claim against it because Plaintiff sought to recover a judgment in an amount

under $25,000 from the tortfeasor and/or State Farm, and Plaintiff settled her claim against

the tortfeasor for an amount in excess of the ad damnum. Accordingly, we affirm the

dismissal of State Farm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed

F RANK G. C LEMENT, J R., J., delivered the opinion of the Court, in which P ATRICIA J.

C OTTRELL, P.J., M.S., and A NDY D. B ENNETT, J., joined.

Eric Beasley, Goodlettsville, Tennessee, for the appellant, Sheila Brown.

David J. White, Jr., Nashville, Tennessee, for the appellee, State Farm Mutual Automobile

Insurance Company.

OPINION

Plaintiff, Sheila Brown, was involved in a vehicular accident with Rico Roland on

December 1, 2006, in which she sustained personal injuries and property damage. On

November 26, 2007, Plaintiff filed a civil warrant in the general sessions court against

Roland seeking damages in an amount “under $25,000.” Plaintiff also made her automobile

insurance carrier, State Farm Insurance Company, an unnamed party defendant to the action

by serving notice of the commencement of the action upon State Farm pursuant to Tenn.

Code Ann. § 56-7-1206(a). Roland defended the action in general sessions court; State Farm

did not make an appearance in the general sessions court proceedings.

Following a hearing on August 21, 2008, the general sessions court dismissed the

case. Plaintiff filed a timely appeal to the circuit court. Soon thereafter, an order was entered

setting the case for a bench trial in the circuit court on April 14, 2009.

On December 18, 2008, while the case was pending in the circuit court, Roland’s

insurer made a settlement offer to Plaintiff in the amount of $25,000, the limit of Roland’s

liability insurance policy. Plaintiff agreed to accept the offer and, in a letter of the same date,

notified State Farm that she intended to accept Roland’s $25,000 settlement offer. Further,

Plaintiff notified State Farm that she agreed to submit her uninsured motorist claim against

State Farm to binding arbitration pursuant to Tenn. Code Ann. § 56-7-1206(f). State Farm

did not reply to Plaintiff’s December 18, 2008 letter.

Three months later, on March 17, 2009, State Farm made its first court appearance by

filing a motion to dismiss Plaintiff’s claims against it. State Farm asserted, inter alia, that it

had no exposure to Plaintiff because Plaintiff had entered into a binding settlement

agreement to recover $25,000 from the tortfeasor, which was the amount of damages

Plaintiff sought to recover in the ad damnum.

Plaintiff filed a response opposing State Farm’s motion to dismiss and she also filed

motions of her own, one of which was to compel State Farm to arbitrate her claim pursuant

to Tenn. Code Ann. § 56-7-1206.1 State Farm filed a response to the motion to compel

arbitration, asserting in pertinent part that State Farm had no exposure because Plaintiff

agreed to settle her claim against Roland for the damages Plaintiff sought in the ad damnum.

1

The other motion was a motion to end discovery.

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Following a hearing, the circuit court denied all of Plaintiff’s motions and granted

State Farm’s motion to dismiss. The court dismissed the claim against State Farm upon the

finding “the full amount sued for has been tendered and accepted by the plaintiffs [sic], and

there’s no further exposure to State Farm Insurance” and there are no issues to be submitted

to arbitration. The circuit court also found that the ad damnum stated in the general sessions

warrant of “under $25,000” was binding on the circuit court “until and unless a motion to

amend is made to modify that” because Plaintiff had not increased the stated ad damnum. An

order was entered on April 29, 2009 memorializing this ruling and dismissing State Farm

with prejudice.

Plaintiff filed two additional motions on May 1, 2009; a motion to alter or amend the

court’s order, and a motion to increase the ad damnum to $125,000. Both motions were

denied by the circuit court.

On June 18, 2009, the tortfeasor, Mr. Roland, filed a motion to enforce the settlement

agreement with Plaintiff.1 The trial court granted Roland’s motion to enforce the settlement

agreement in an order entered August 7, 2009, which dismissed the action entirely with

prejudice. This appeal followed.

A NALYSIS

Plaintiff raises two issues. She contends the trial court erred by not compelling State

Farm to enter into binding arbitration pursuant to Tenn. Code Ann. § 56-7-1206, and she

contends the trial court erred in dismissing her claim against State Farm. We shall address

each issue in turn.

U NDERINSURED M OTORIST C OVERAGE

The Tennessee General Assembly has mandated that every automobile liability

insurance policy issued in this state covering liability arising out of the ownership,

maintenance, or use of any motor vehicle designed for use primarily on public roads and

registered in this state shall include uninsured and underinsured2 motorist coverage. See

Tenn. Code Ann. § 56-7-1201. Tennessee enacted the statutory scheme concerning uninsured

1

Although the settlement agreement had been entered weeks earlier, the settlement had not been

concluded; the proceeds had not been remitted to Plaintiff and Plaintiff had not signed a release of her claims

against Roland.

2

Throughout the statute, the term “uninsured” is used; however, the definition of “uninsured motor

vehicle” provided at Tenn. Code Ann. § 56-7-1202(a)(1) encompasses a motor vehicle in which the owner

is underinsured.

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and underinsured motorist in response to public concern over the problems arising from

property and personal injury damage caused by financially irresponsible motorists. Shoffner

v. State Farm Mut. Auto. Ins. Co., 494 S.W.2d 756, 758 (Tenn. 1972), overruled on other

grounds by State Auto. Mut. Ins. Co. v. Cummings, 519 S.W.2d 773 (Tenn. 1975). The

purpose of this statutory scheme is to provide within fixed limits some recompense to those

who receive bodily injury or property damage as a consequence of the actions of an

uninsured or underinsured motorist who cannot respond in damages. Id.

The provisions that pertain to service of process, actions by insurers, and the methods

for entering into arbitration are stated in Tenn. Code Ann. § 56-7-1206(a), which provides:

Any insured intending to rely on the coverage required by this part shall, if any

action is instituted against the owner and operator of an uninsured motor

vehicle, serve a copy of the process upon the insurance company issuing the

policy in the manner prescribed by law, as though the insurance company were

a party defendant. The company shall thereafter have the right to file pleadings

and take other action allowable by law in the name of the owner and operator

of the uninsured motor vehicle or in its own name; provided, that nothing in

this subsection (a) shall prevent the owner or operator from employing counsel

of the owner’s own choice; and provided, further, that the evidence of service

upon the insurance carrier shall not be made a part of the record.

The procedure an insured must follow to settle the claim against the underinsured

motorist and to invoke the arbitration provisions against the insurer is as follows:

(f) Notwithstanding subsection (c),3 if a party or parties alleged to be liable

for the bodily injury or death of the insured offers the limits of all liability

insurance policies available to the party or parties in settlement of the

insured’s claim, the insured or the insured’s personal representative may

accept the offer, execute a full release of the party or parties on whose behalf

the offer is made and preserve the right to seek additional compensation from

the insured’s uninsured motorist insurance carrier upon agreement of the

insured or the insured’s personal representative to submit the insured’s

uninsured motorist claim to binding arbitration of all issues of tort liability and

damages, provided:

3

Tenn. Code Ann. § 56-7-1206(c) provides that an uninsured motorist provision “shall not require

arbitration of any claim arising thereunder nor shall the insured be restricted or prevented in any manner from

employing legal counsel or instituting legal proceedings.”

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(1)(A) The offer must be for the sum of the limits of all liability

insurance policies providing coverage to the party or parties on

whose behalf the offer is made and in an aggregate amount that

is less than the uninsured motorist coverage applicable to the

bodily injury or death of the insured; or

(B) If, by payments to other injured parties, the limits of all

liability insurance policies providing coverage to the party or

parties on whose behalf the offer is made have been reduced to

an amount that is less than the limits of the insured’s uninsured

motorist coverage, the offer must be for the total amount of

coverage that remains available to the party or parties on whose

behalf the offer is made; and

(2) If the settlement does not release all parties alleged to be

liable to the insured, arbitration of the uninsured motorist claim

shall not be conducted until the claims against all such other

parties have been fully and finally disposed of by settlement,

final judgment or otherwise.

Tenn. Code Ann. § 56-7-1206(f)(1)-(2). To effect a settlement with the underinsured motorist

and preserve an underinsured motorist claim against one’s own insurer, the statute requires

that the following:

(1) Upon request, the insured or the insured’s personal representative or

attorney shall provide the liability insurance company or companies providing

coverage to the party or parties to be released, the name and address of the

insurance company or companies providing the insured with uninsured

motorist coverage, the policy number or numbers and the limits of uninsured

motorist coverage available to the insured;

(2) The liability insurance company or companies providing coverage to the

party or parties to be released shall give written notice of the offer to the

insured’s uninsured motorist insurance carrier or its attorney, provide

verification of the coverage upon request and confirm to the uninsured

motorist insurance carrier or its attorney that the party or parties to be released

will agree in writing to cooperate with the uninsured motorist insurance carrier

in connection with the arbitration of the uninsured motorist claim; provided,

that the uninsured motorist insurance carrier will agree to waive its subrogation

rights against the party or parties to be released;

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(3) The insured or the insured’s personal representative or attorney shall give

written notice to the uninsured motorist insurance carrier or its attorney of the

insured’s intent to accept the offer and agreement to submit the uninsured

motorist claim to binding arbitration;

(4) After receipt of both of the notices referred to in subdivisions (g)(2) and

(3), the uninsured motorist insurance carrier shall have thirty (30) days to give

notice to its insured or the insured’s personal representative or attorney and the

liability insurance carrier or carriers or their attorneys that it consents to the

settlement, that it will agree to binding arbitration of the insured's uninsured

motorist claim and that it will waive its subrogation rights against the party or

parties to be released in exchange for their written agreement to cooperate in

connection with the arbitration;

(5) Upon receipt of the notice required by subdivision (g)(4), the insured may

proceed to execute a release of the party or parties on whose behalf the offer

was made and upon execution of the release, receive payment of the settlement

proceeds; and

(6) The notices required by subdivisions (g)(2), (3) and (4) shall be given by

certified mail, return receipt requested, or by some other method pursuant to

which the sender receives written verification that the notice was received.

Tenn. Code Ann. § 56-7-1206(g)(1)-(6).

Plaintiff dutifully followed the procedures stated in Tenn. Code Ann. § 56-7-1206(g).

She filed suit against the underinsured motorist, Rico Roland, and complied with Tenn. Code

Ann. § 56-7-1206(a) by serving a copy of the general sessions warrant upon State Farm.

When the civil warrant was dismissed in general sessions court, Plaintiff perfected an appeal

to the circuit court. Although State Farm did not make an appearance until later, it was an

unnamed party to the action and it was aware of the foregoing events.

Following the appeal to the circuit court, Plaintiff and Roland entered into a settlement

agreement for $25,000, the limit of his liability insurance policy. In a letter of the same date,

Plaintiff sent a registered letter to State Farm, which it received on December 19, 2008,

informing State Farm of the settlement, stating that $25,000 was the limit of Roland’s policy,

and informing State Farm that she intended to accept the settlement offer and release her

claim against Roland. The letter further stated:

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Please also let this letter serve as Sheila Brown’s WRITTEN NOTICE to her

uninsured motorist insurance carrier of her intent to accept Permanent General

Insurance’s offer of $25,000 policy limit on behalf of its insured, Rico Roland;

and Sheila Brown’s agreement to submit her uninsured motorist claim to

BINDING ARBITRATION pursuant to T.C.A.’s § 56-7-1206.

The letter also summarized the statutory language in Tenn. Code Ann. § 56-7-1206(k), which

provides the means in which the insurer can decline to engage in binding arbitration. Thus,

Plaintiff complied with the statutory requirements to compel arbitration, assuming there was

something to arbitrate with State Farm concerning the injuries and damages she sustained in

the vehicular accident with Roland.

This is the point State Farm raised in the trial court, that Plaintiff was made whole

because the settlement with Roland was in the amount she sued for, $25,000, and it had no

duty to arbitrate a claim that had become moot. We agree.

Because Plaintiff complied with all of the statutory requirements to keep her

underinsured claim against State Farm alive, State Farm’s exposure to Plaintiff survives the

settlement with Roland provided she has made a claim for injuries and damages in an amount

in excess of $25,000. This is because Tenn. Code Ann. § 56-7-1206(f) allows an insured to

settle with a tortfeasor and “seek additional compensation from the insured’s [underinsured]

motorist insurance carrier” as long as the insured agrees to submit the underinsured motorist

claim to binding arbitration and the settlement offer must be “for the sum of the limits of all

liability insurance policies providing coverage to the party . . . on whose behalf the offer is

made and in an aggregate amount that is less than the uninsured motorist coverage

applicable to the bodily injury or death of the insured. . . . Tenn. Code Ann. § 56-7-

1206(f)(1)(A).

The foregoing notwithstanding, an uninsured motorist coverage provider is entitled

to a “credit for the total amount of damages collected by the insured from all parties alleged

to be liable. . . .” Green v. Johnson, 249 S.W.3d 313, 319-20 (Tenn. 2008) (quoting Tenn.

Code Ann. § 56-7-1206(i) (2000)) (footnote omitted). As our Supreme Court noted in Green,

the General Assembly has clearly mandated:

The uninsured motorist insurance carrier shall be entitled to credit for the total

amount of damages collected by the insured from all parties alleged to be

liable for the bodily injury or death of the insured whether obtained by

settlement or judgment and whether characterized as compensatory or punitive

damages.

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Id. at 320 (quoting Tenn. Code Ann. § 56-7-1206(i)). Accordingly, State Farm is entitled to

offset any amounts Plaintiff received in the settlement with Roland. See id. (stating the

insurer is clearly and unambiguously allowed to offset any amounts the insured received from

a settlement).

We acknowledge Plaintiff’s argument that Tenn. Code Ann. § 56-7-1206(h), which

addresses the process of arbitration, provides that the arbitrator is first to decide issues of

liability and apportionment of fault, and then, the amount of damages sustained by the

insured, see Tenn. Code Ann. § 56-7-1206(h)(5), and once the damages are determined

during arbitration, the insurer is then entitled to a credit for “the total amount of damages

collected by the insured from all parties alleged to be liable for the bodily injury or death of

the insured.” Tenn. Code Ann. § 56-7-1206(i). We, however, find Plaintiff’s reliance on this

statute misplaced because the statute presumes a claim remains to be arbitrated. There is no

remaining claim to be arbitrated here. Had Plaintiff sued for more that $25,000, the amount

she received and the limits of Roland’s insurance coverage, our conclusion would have been

different; but she did not.

Thus, we affirm the trial court’s dismissal of the claims against State Farm and the

denial of Plaintiff’s motion to compel arbitration.

I N C ONCLUSION

The judgment of the trial court is affirmed and this matter is remanded with costs of

appeal assessed against Plaintiff.

______________________________

FRANK G. CLEMENT, JR., JUDGE

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