In this case, the insurance carrier, Auto-Owners, refused to offer the full policy limit of $300,000 after a hard fought case. Mike Burman insisted that the full policy limits of $300,000 were due to his client. Auto-Owners said the insurance policy language limited the recovery in this case under the insurance policy section entitled UNINSURED AND UNDERINSURED MOTORIST COVERAGE, Section 4. LIMIT OF LIABILITY, Subsection a., paragraph (1) (a.). According to Auto Owners, this policy language limited the recovery to the difference between the $50,000 paid by the tortfeasor and the full policy limit of $300,000. This is a correct interpretation of the policy under Indiana law, but not Kentucky law.
The Section 4. policy language was designed with an “anti-stacking” provision and “set-off” provision. Both of these provisions are consistent with Indiana law. However, these Indiana provisions directly conflicted with Kentucky law. Kentucky, like a majority of states, allows for stacking and does not allow for set-off; therefore, there was a conflict between Kentucky and Indiana law under the facts of this case. To determine which state law controls, Kentucky’s Courts apply “the most significant relationships test” to resolve conflicts-of- law issues. Hayes v. Equitable Energy Res. Co., 266 F.3d 560, 566 (6th Cir. 2001). Using this test, the law of the state with the most significant relationship to the transaction and the parties applies. Lewis v. Am. Family Ins. Group, 555 S.W.2d 579, 581-582 (Ky. 1977). In this case, Kentucky had the most significant relationship. Furthermore, Kentucky courts do not “apply the law of another state if that state’s law violates a public policy as declared by the Kentucky legislature or courts.” State Farm Mut. Auto. Ins. Co. v. Marley, 151 S.W.3d 33, 35 (Ky. 2004). In Ward and Schardein, the “anti-stacking” provisions and “set-off” provisions are contrary to Kentucky public policy. See also Allstate Ins. Co. v. Dicke, 862 S.W.2d 327, 328 (Ky. 1993) and Philadelphia Indemnity Ins. Co. v. Morris, 990 S.W.2d 621, 626-27 (Ky. 1999).
For his client, Mike Burman demanded that Auto-Owners interpret this policy under Kentucky law, rather than Indiana law. Auto-Owners, after hiring a Kentucky lawyer to test Mike’s legal conclusions, determined Mike’s interpretation of the law would likely prevail in Court. In this case, the facts were unusual, and under the particular facts in this case, Kentucky law provided an exception that allowed Mike to collect the full policy limit of $300,000 rather than $250,000 Auto-Owners wanted to pay. In the end, Mike’s client received an additional $50,000 in compensation.